"It's not a matter of if consumption-based sales tax will gain dominance the world over, but when, and which country will lead the charge and which countries will play catch up."
Well said, Zon. That is one of the most lucid posts on this thread.
Globalization is sweeping the planet. It is THE economic megatrend (to borrow a phrase from best selling author Alvin Toffler) of our times - a trend which will shape all other trends. What is going on in India and China is already having a major influence on our economy and, as we say in the south "you ain't seen nothing yet". China's economy will catch up to ours in size sometime by the middle of this century. Cisco believes that China will be at the center of information technology sometime between 2020 and 2040 and they are developing strategic plans to be a Chinese company by then. NYT syndicated columnist David Brooks wrote in Nov of 04 that in 1990 there were about 473 MM people living in extreme poverty ($1 per day or less)in Asia and the Pacific rim. By 2001 that number had dropped to about 272 MM and by 2015 it will be reduced to about 39 MM (I am going from memery here, but the overall thrust is correct). That is about a 96% reduction in extreme poverty in that part of the world during a 25 year period that we are right in the middle of. Amazing stuff. Brooks attributes it to trade liberalization and strengthening of property laws.
The point is that globalization is sweeping the planet like a tidal wave. I personally don't think that the FairTax will bring our manufacturing sector back to where it was 15 years ago. I do think it is crazy to continue into this environment with a tax system which impairs our ability to compete in the global marketplace. The challenge that we face is enormous. We have a massive trade deficit that something has to be done about. If foreign banks lose their confidence in the USD as the safest and most stable currency in the world, the implications of that are horrendous for our economy.
I agree that we have to go with a consumption tax sooner or later. I just hope that it is before we have an economic armageddon, rather than afterwards.
I agree that we have to go with a consumption tax sooner or later. I just hope that it is before we have an economic armageddon, rather than afterwards.
Who would most benefit from economic armageddon?
Free market dynamics aside, US government has the most influence on the international politics of tax competition.
The OCED under the guise of thwarting money laundering is an end-run means to pressure/squeeze tax havens to undermine their financial privacy laws. Almost all tax haven financial-services providers (banks, trade brokerage houses, etc.) have strict identification requirements a person or business must meet in order to open an account.
All financial service providers, mostly banks, that I have researched will break their privacy protections when a solid case for terrorist or drug money laundering is presented. Most clearly state that tax avoidance or evasion issues brought to them by a foreign government will not penetrate the privacy protection measures. United States government is viewed by offshore financial service companies as the most demanding and threatening to their privacy protections and some will not accept new accounts from US citizens. Many offshore centers are blacklisted by OCED member countries.
Get this. United States and Lebabon are the only two countries that tax their respective citizens wherever the citizens resides in the world and wherever in the world the citizen or business's income is derived. The United States going one step further, any person that relinquishes their US citizenship has to pay federal income tax for the following ten years. It is the law. Doubtful that any person that has given up their citizenship has ever complied. But just the arogance to create the law in the first place speaks voulmes.
But that's not the main point being made. The French government, this goes back a few years, wanted to tax their citizens and businesses whose income was derived from inside the United States. The French government thought the US government, with it's iron fist income tax would help France "spy" on it's citizens and businesses toward that end. Wrong. The US government refused.
Most OCED member countries will comply with IRS demands to investigate US based companies operating in the OCED member country's borders. Yet the US government refused to help France.
Akin to many, if not most, politicians and bureaucrats that want to maintain the income tax control over US citizens and businesses, foreign countries that aren't considered tax havens, especially the OCED member countries, have no desire to give up their ability to control their respective citizens and businesses to an unobtrusive consumption-based tax system.
What's The Point?
It's this... foreign governments, like K street lobbyists have considerable reasons to pressure/influence US tax policy. As shown above with France and OCED pressure on non-member tax havens, the US government has the strongest hand in the arena of international tax competition. But there's reason to think that will go into decline if a major industrialized country is first to replace their tax system with a consumption-based tax system.
US government may be able to successfully pressure a foreign government to not replace their tax system with a NRST, but it's not likely to happen in reverse. Just as the FairTax grass roots must be more persuasive than K street, it must be more persuasive than foreign governments.
With much US influence on global market competition and international tax competition, the underlying policies that negate economic freedom will flip to foster economic freedom here and abroad. Sending the US economy into orbit (to barrow a phrase from CG) will impact the global market as the invisible hand of free market competition, thus aligned with intelligence and brute forces fighting terrorism overcomes and obsoletes the penultimate enemy, kill-em-all terrorists.
Juxtaposition of pros and cons of a consumption-based tax replacing the income tax is a mountain of positives to a molehill of negatives.