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A "pure" sales tax isn't all that different from a "pure" flat income tax. If you spend all your income, you pay tax on all of it, just as you would if it was taxed as income. If you save part of your income, you pay less with a sales tax. In the long run, however, either you or your survivors will spend those savings and pay the tax. In the long run, a 6% sales tax would cost you the same as a 6% income tax.

A pure sales tax is one where every retail transaction is taxed. A 1997 Cato Institution analysis of a proposed national sales tax defines the tax base as follows:

. . . (V)irtually any consumer good (ranging from food to video games to cars) would be taxed. Apartment and house rents and home purchases also would be subject to tax. Goods purchased abroad by consumers would be taxed upon entry into the United States. Services to individuals and households (including, for example, services provided by barbers, plumbers, therapists, accountants, lawyers, doctors, and the like) would also be taxed.

A "pure" sales tax would be a lot different from Michigan's sales tax, which exempts most of the tax base: services, food, and medicine. With a pure sales tax, no retail purchase would be exempt:

Exempting certain goods and services--such as food and medicine--is problematic for two reasons: First, the more exemptions that are carved out, the higher the rate will be on everything else. Second, exemptions inject distortions into the tax system and eliminate the neutral tax treatment of goods and industries.

According to a Treasury report, Michigan's sales and use tax revenue for 2006 totaled $8.052 billion. Had services, food, prescription drugs and a few other exempt items been taxed, revenues would have increased by $11.8 billion. The exemption of services alone cost $8.237 billion.

With a pure sales tax, only retail transactions would be taxed. This is from the Cato analysis:

. . . (E)xemptions should be provided for purchases for resale, purchases to produce taxable property or services, and exports. A good or service should be defined as "purchased for resale" if it is purchased by a person in an active trade or business for the purpose of reselling it in the ordinary course of trade or business. The term "purchased to produce taxable property or services" is a general exemption meant to exempt business inputs generally. The exemption is available if the property or service is purchased for use in the production or sale of other taxable property or services. Education and training services are treated as investment expenditures rather than consumption and thus would not be taxed. Wages paid by an employer engaged in an active trade or business are not treated as taxable services. By contrast, wages paid by a household to an accountant, a maid, or a gardener would be taxable since they are providing a final-use service.

Here the Michigan tax fails again, according to the Treasury report (page 14):

 . . . (T)he Michigan sales tax also taxes some items that would be excluded from a pure consumption tax base, such as business inputs that are not used directly in industrial processing.

Even with a "pure", properly-administered sales tax, there is one big problem. It hits poor people - families whose incomes are below the poverty level. Taxing people into poverty is counterproductive. Exempting food and medicine helps, but like the rest us, poor people need a lot of stuff other than food and medicine. The "Fair Tax" promoted by state representative Fulton Sheen attempts to protect families with incomes below the poverty level with a "prebate" - a monthly check for every family in Michigan. The payment represents the sales tax that would have been paid by a family with income at the poverty level. To qualify for the prebate, each family would have to submit a registration form with the following information:

• the name of each family member who shares the residence
• the Social Security number of each family member
• the family member to whom the monthly prebate check should be paid
• a sworn statement that all listed family members are lawful residents, that all family members sharing the common residence are listed, and that no listed family members are incarcerated
• the address of the shared residence
• the signature of all family members 21 years of age and older

And of course, that information would have to be kept up to date. What an administrative nightmare.

My solution: Get rid of the sales tax entirely and replace the revenue by increasing the income tax rate. Along with the sales tax, we'd get rid of the use tax, which the Treasury report explains as follows (page 2):

The use tax applies to items that are rented, leased, or purchased from outside Michigan for use in Michigan.

Getting rid of the sales and use tax puts an end to growing concerns about remote sales (page 1):

The sales and use tax revenue base is being eroded by rapidly growing remote sales (mail order and Internet). Michigan’s tax revenue losses from consumer remote sales are estimated at $283 million in FY 2006. The estimated revenue losses are projected to grow to $381 million in FY 2009.

On the negative side, we'll no longer be able to "export" a bit of our tax burden (page 13):

Tax exporting occurs when the burden of a tax is shifted to another party outside the jurisdiction receiving the tax revenue. Michigan is able to export the sales tax when out-of-state visitors purchase taxable items in Michigan. States with a large degree of tourism, such as Florida, Hawaii, and Nevada, are estimated to export as much as 25 percent of the sales tax burden to out-of-state residents. Estimates indicate that approximately 3 percent to 7 percent of the sales tax burden for Michigan is exported.