Progessive Sales Tax?

[Luke T.]

I'm structuring this post so that the most relevant information is at the beginning and least relevant at the end, so you can read as much or as little as you like and still get the basic gist of what I am saying.

Idea: Eliminate all federal income taxes. And maybe other federal taxes like corporate taxes, depending on the efficacy of a progressive sales tax.

I could be misusing the term "progressive sales tax", so I will define what I mean.

For items that cost $100 or less, a sales tax of 2%, or somewhere in that ballpark. For items that cost $100 - $1000, a sales tax of 5%. And so on. You get the idea. The price range and tax percentage figures given in this example just being a WAG. I'm just laying down the principle.

This idea just came to me. I have no idea if anyone else has ever thought of it or promoted the idea. If so, it won't break my heart if you say so. I'd like to know the pros and cons regardless. And if there is a country which has such a system, I'd like to know.

I was going to put this in my extremist topic, but it begs criticism, which I am trying to avoid in that topic.

I had heard it argued that a flat sales tax is not fair to the poor since everybody has to buy necessities. Something like that. So would a progressive sales tax work?

This would also eliminate the need for an IRS. Or would it?

ETA: And tax increases would be felt immediately and directly by the voters. Might make politicians less carefree about raising them.

Fire away.

 

[Mycroft]

In general I'm against sales taxes. I think it places an undo burden on the merchant, which drains productivity. I'd rather see government funded through income taxes and property taxes.

However, if we accept as given that there will be a sales tax and the only question is how it will be structured, then your idea is as good as any. I'd suggest some tinkering for big ticket items such as homes and cars, but those details can be worked out.

 

[TragicMonkey]

Wouldn't the country run out of money?

 

[Kerberos]

I'm structuring this post so that the most relevant information is at the beginning and least relevant at the end, so you can read as much or as little as you like and still get the basic gist of what I am saying.

Idea: Eliminate all federal income taxes. And maybe other federal taxes like corporate taxes, depending on the efficacy of a progressive sales tax.

I could be misusing the term "progressive sales tax", so I will define what I mean.

For items that cost $100 or less, a sales tax of 2%, or somewhere in that ballpark. For items that cost $100 - $1000, a sales tax of 5%. And so on. You get the idea. The price range and tax percentage figures given in this example just being a WAG. I'm just laying down the principle.

This idea just came to me. I have no idea if anyone else has ever thought of it or promoted the idea. If so, it won't break my heart if you say so. I'd like to know the pros and cons regardless. And if there is a country which has such a system, I'd like to know.

I was going to put this in my extremist topic, but it begs criticism, which I am trying to avoid in that topic.

I had heard it argued that a flat sales tax is not fair to the poor since everybody has to buy necessities. Something like that. So would a progressive sales tax work?

This would also eliminate the need for an IRS. Or would it?

ETA: And tax increases would be felt immediately and directly by the voters. Might make politicians less carefree about raising them.

Fire away.

It would IMNPHO create huge inefficiencies and be wide open to abuse. If you pay higher taxes the more expensive something is then you're producing a huge incentive to produce crap (cheap hence low taxes), and everything would be sold in the smalest possible package. Hell they'd probably begin selling cars as loose parts. Now it might be possible to avoid this, but I don't see how.

 

[geni]

I had heard it argued that a flat sales tax is not fair to the poor since everybody has to buy necessities. Something like that. So would a progressive sales tax work?

Nope becuase we all need to buy a number of sub $100 items. Since most day to day purchases are sub $100 you are still hitting to poor hardest

This would also eliminate the need for an IRS. Or would it?

Any if you trust people to tax themselves (last time this was tried I belive it resulted in a certian british colony becomeing an ex colony

ETA: And tax increases would be felt immediately and directly by the voters. Might make politicians less carefree about raising them.

Not really. A 0.5% increase is not going to turn up on all items striaght away and some shops may use it as an excuse to increase prices further.

 

[Luke T.]

In general I'm against sales taxes. I think it places an undo burden on the merchant, which drains productivity. I'd rather see government funded through income taxes and property taxes.

Don't businesses already have to file quarterly income taxes, and therefore have to keep sales records? If you eliminate the business tax, and create a sales tax, then it seems the amount of paperwork for the merchant would be the same, while for the consumer it would drop to zero.

 

[Luke T.]

Re: Re: Progessive Sales Tax?

It would IMNPHO create huge inefficiencies and be wide open to abuse. If you pay higher taxes the more expensive something is then you're producing a huge incentive to produce crap (cheap hence low taxes), and everything would be sold in the smalest possible package. Hell they'd probably begin selling cars as loose parts. Now it might be possible to avoid this, but I don't see how.

This is sort of like the saying the more expensive something is the more expensive it is and so nobody will make expensive things.

At least that is the way it sounds to me.

ETA: Does a progressive income tax cause Bill Gates not to try and earn more money?

 

[Luke T.]

Re: Re: Progessive Sales Tax?

Nope becuase we all need to buy a number of sub $100 items. Since most day to day purchases are sub $100 you are still hitting to poor hardest

The idea is that as a percentage of income, a progressive sales tax would mean that the poor pay out a smaller percentage in taxes than the rich.

If nearly every penny a minimum wage earner makes is spent on necessities, most of which will be less than $100, then the total percentage of their income spent on tax will be in the 2% range.

For a middle income earner, some of their money is spent on a plasma TV, a Pentium 4 computer system, a trip to Disneyland, airline tickets, and so on, and so a greater percentage of their income will be spent on taxes than the minimum wager earner.

And so on.

 

[Dorian Gray]

Sales tax (and no income tax) seems like a great idea at first, but when you think about it, does it seem fair that a person making $15,000 per year pays the same exact tax dollar figure as the person making $1.5 million per year, assuming that those two people have the same basic needs? I think a flat tax on income would be better - say 15% or so. Then everyone's percentage is the same, but the more you make the more you pay. It's still better for the rich, because it would be lower than their current tax bracket.

Something else that not very many people are considering is that with a national sales tax, all internet sales would be taxed too, even in states that didn't have it before or didn't enforce it that much. By the way, don't be fooled by the term 'progressive'.

 

[Luke T.]

Sales tax (and no income tax) seems like a great idea at first, but when you think about it, does it seem fair that a person making $15,000 per year pays the same exact tax dollar figure as the person making $1.5 million per year, assuming that those two people have the same basic needs? I think a flat tax on income would be better - say 15% or so. Then everyone's percentage is the same, but the more you make the more you pay. It's still better for the rich, because it would be lower than their current tax bracket.

I think I was writing my last post the same time you were writing this one, and answers this. So could you go back and read that and see if it makes sense, please?

Something else that not very many people are considering is that with a national sales tax, all internet sales would be taxed too, even in states that didn't have it before or didn't enforce it that much. By the way, don't be fooled by the term 'progressive'.

Well, that is why I tried to define what I meant by "progressive sales tax" in case I was misusing terms.

 

[Kerberos]

Re: Re: Re: Progessive Sales Tax?

This is sort of like the saying the more expensive something is the more expensive it is and so nobody will make expensive things.

At least that is the way it sounds to me.

The reason anybody ever buys anything that's not of the highest quality imaginable is the price, since your proposal inflates the price further it will obviously create an artificially high demand for low quality stuff and insures that nothing will ever be sold in large packages your proposal as written means that there's a higher tax on one kilo of X than on 10 hundred gram packages of X (presuming that one kilo of X costs more than 100 dollars of course). I can just imagine the whole US business life scrambling to recreate their products in packages costing less than 100 dollars: “sorry sir, we don’t sell tables, but can I interest you in four table legs and a matching plate?” It would be a god damned carnival.

ETA: Does a progressive income tax cause Bill Gates not to try and earn more money?

I doubt it, but Bill Gates is not exactly the typical wage slave.

 

[Ziggurat]

For items that cost $100 or less, a sales tax of 2%, or somewhere in that ballpark. For items that cost $100 - $1000, a sales tax of 5%. And so on. You get the idea. The price range and tax percentage figures given in this example just being a WAG. I'm just laying down the principle.

Bad idea, because it's fairly useless. Basically, you just break up the sale of certain items into parts to drop the tax rate. Want to buy a $20,000 car? No problem. Just pay for a $5,000 chasis, $5,000 engine, $5,000 for interior, and a $5,000 bill for assembly, and you've dropped your tax rate.

To the extent that it could work without being avoided (see above), it also gives a tax advantage to buying cheaper models of the same type of consumer goods, which means it encourages the production and consumption of lower-quality, less durable goods. Just like giving tax breaks for small businesses to purchase SUV's creates an artificial incentive for consumption that is otherwise stupid, tax incentives to buy cheaper goods is an artificial market distortion, and we can expect that the results of it won't be beneficial.

More generally speaking, though, you cannot hope to replace the income tax with a sales tax. States which have instituted sales tax rates above 12% consistently find massive avoidance of that tax, and the problem only gets worse as higher rates. The necessary rates for a sales tax to replace the income tax would be much higher (20% and above) - avoidance would be crippling. And even at low tax rates, there's always problems, because you end up having to make decisions about when the tax should be applied based on definitions of end users of the item, and that's NEVER a simple problem, even with existing sales tax. It doesn't matter too much at low tax rates, but that too will only get worse at higher tax rates.

The only manageable way to do a consumption tax at high rates is a VAT.

 

[Ziggurat]

Re: Re: Re: Progessive Sales Tax?

ETA: Does a progressive income tax cause Bill Gates not to try and earn more money?

In a sense, YES.

What it does is encourage Bill to refrain from turning the money that Microsoft earns into dividends for shareholders, because the tax rate for dividends is often higher than for capital gains (which are untaxed as long as he holds onto the shares). That can be bad for Microsoft shareholders, who might be better positioned to use/invest that cash than Microsoft itself is. So instead, Microsoft just sits on this huge pile of cash, doing nothing productive with it.

I'm in favor of a progressive income tax, but it's foolish to think that it can't be too progressive, or that there's no downside (even to the poor) to just taxing the wealthy more.

 

[Luke T.]

Re: Re: Re: Re: Progessive Sales Tax?

The reason anybody ever buys anything that's not of the highest quality imaginable is the price, since your proposal inflates the price further it will obviously create an artificially high demand for low quality stuff and insures that nothing will ever be sold in large packages your proposal as written means that there's a higher tax on one kilo of X than on 10 hundred gram packages of X (presuming that one kilo of X costs more than 100 dollars of course). I can just imagine the whole US business life scrambling to recreate their products in packages costing less than 100 dollars: “sorry sir, we don’t sell tables, but can I interest you in four table legs and a matching plate?” It would be a god damned carnival.

Ah, I understand what you are saying now. Very good. And a very good point.

 

[ManfredVonRichthoffen]

I'd prefer all income tax. Corporate, investment, and death income counting as income as well.

I'd prefer something like first 30,000 isn't taxed. After that, 20 percent(or whatever it takes for the government to break even) on every dollar.

It's simple math, gives the poor a break, and the richer you get the closer to the max tax, 20 percent in my example, you get. It forces the people to pay more attention to where the government spends it's money, and not focus on making it look like the other guy is getting taxed and you are getting the break.

And the IRS could be reduced to a guy with a calculator, a lawyer, and a cop.

 

[Luke T.]

Re: Re: Re: Re: Progessive Sales Tax?

In a sense, YES.

What it does is encourage Bill to refrain from turning the money that Microsoft earns into dividends for shareholders, because the tax rate for dividends is often higher than for capital gains (which are untaxed as long as he holds onto the shares). That can be bad for Microsoft shareholders, who might be better positioned to use/invest that cash than Microsoft itself is. So instead, Microsoft just sits on this huge pile of cash, doing nothing productive with it.

I'm in favor of a progressive income tax, but it's foolish to think that it can't be too progressive, or that there's no downside (even to the poor) to just taxing the wealthy more.

I also think there is a break point at which someone will decide it isn't worth it to pursue further economic gain. For example, my wife wanted to work part time outside the home to supplement our income. We had to take into account if that would push us into a higher tax bracket, and if she would bring in more than we would spend on daycare. The end result was that we found it wouldn't be worth it.

Instead, I re-arranged my work schedule so that I can be home 3.5 days out of 7 and watch the kids while she works full time hours.

I hate taxes. And I hate loopholes. Loopholes mean someone else is going to have to pick up the slack.

So could someone explain what the heck a VAT is and how it works? Thanks.

 

[Ziggurat]

Re: Re: Re: Re: Re: Progessive Sales Tax?

So could someone explain what the heck a VAT is and how it works? Thanks.

A VAT is a Value Added Tax. It's a consumption tax on sold goods, but unlike a sales tax, it's applied at every step of the sales chain (so no need to worry about defining the end user), but it's done as a percentage of the value INCREASE for the goods sold (which decreases the incentive to try to cheat at any one stage, and makes avoidance much less problematic than sales taxes at high tax rates). So, for example, if a retail store buys something in bulk for $1 a piece, and sells it for $1.10 a piece, they pay the VAT tax on that $0.10 increase (the value that they add for customers by providing the distribution chain). VATs are used extensively in Europe, and they work reasonably well.

 

[Ziggurat]

I'd prefer all income tax. Corporate, investment, and death income counting as income as well.

I'd prefer something like first 30,000 isn't taxed. After that, 20 percent(or whatever it takes for the government to break even) on every dollar.

It's simple math, gives the poor a break, and the richer you get the closer to the max tax, 20 percent in my example, you get. It forces the people to pay more attention to where the government spends it's money, and not focus on making it look like the other guy is getting taxed and you are getting the break.

And the IRS could be reduced to a guy with a calculator, a lawyer, and a cop.

Sounds good to me. I'd gladly give up tax breaks for a three-line tax form. All you'd need is:
income: _____
income - deduction: ______
adjusted income x tax rate: _______

But of course, that's not going to happen. Congress likes being able to influence people's behavior, and the tax code is one of the easiest ways to do that.

 

[bjornart]

Norway has something similar, which doesn't have the problems Kerberos very aptly explained, but still accomplishes some of the things I think Luke T. wanted to "solve" with his suggestion.

We have a VAT of 23%, which has been adjusted a little up and down as the politicians decided they need more money, and then a couple of years back the VAT on foodstuffs was decreased to 11%. Much easier to deal with than prize brackets, and much less open to abuse.

Of course they had to add in some beauracratic nonsense... Since what you pay for in a restaurant isn't just the food, but also the service and the use of the tables and chairs, you have to pay full VAT. What about take-out? Well, then we're back to half VAT, so at McD's they have to ask you if you're going to eat there, not only so they know whether to bag your food, but also so they know how much to charge you. They've yet to kick me out when I sit down to enjoy my half VAT burger though. (Maybe it's because I only eat at such joints twice a year...)

Personally I think they should cut all VAT on food. And remove it from services again. VAT on services was a stupid idea... especially since they decided "culture" should be exempt.

 

[Tmy]

Whats wrong with income tax??? I dont understand these people who want to shift taxes all over the place. Whats the point?? You're just taking from the left hand instead of the right.

Unless of course, you selfishly want a tax system that benefits your situation the greatest. You commie!