The more equally and impartially taxes are laid, the fewer will be necessary, and more money raised.
—John Trenchard. Cato’s Letters No. 89, Every man’s true interest found in the general interest. How little this is considered, Saturday, August 11, 1722.
Sales taxes are the optimum form of taxation. When sales taxes are applied without exception, they do not cause distortions or leave scope for evasion. When applied to every transaction, their revenue yield is high while their rate is low, making avoidance more costly than compliance. Because they can be collected by financial institutions, which can leverage off their software to collect for millions of their customers, the compliance costs to society can be all but eliminated.
Applied fairly to every dollar spent, sales taxes share the burden of taxation equally amongst everyone. Moreover, the poor man and the rich man have the same vested interest in keeping the rate low. Thus profligate politicians outbidding one another to capture votes will fail to find a receptive audience.
For sales taxes to be non-distorting, they must apply to everything at the same rate. Whether the expenditure is for food, cancer treatment, a child’s school expenses, a charity, a religious donation, a business, or a family’s mortgage payments, there can be no exceptions; if there are, the benefits will be far outweighed by the compliance costs and the distortion of market forces.