Progessive Sales Tax?

[Jas]

Re: Re: Re: Progessive Sales Tax?

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

Maybe not Bill Gates, but a lot of people.

Essentially it's punishment for success.

As an example - a family member of mine owned several profitable businesses in Saskatchewan. Sask. is pretty socialist, and the taxes sucked. Alberta, on the other hand, had way lower taxes, so the businesses (and about 250 jobs), were moved to Alberta. Some employees followed, but that's 250 jobs taken out of Saskatchewan.

It also tends to 'cap' things for people in the middle class. I looked into getting a weekend job in the summer, simply because I like money. It would have put me into a higher income tax bracket though, so I wouldn't be making any more. So what would be the point?

If you have a flat tax, the people who make more are still paying more (10% of a 100, is way less than 10% of a 100), and you're not penalizing people for getting a pay raise.

Same with if you have a flat sales tax - the people who buy more are going to pay more. Having a 'progressive' sales tax doesn't make sense, as it doesn't take into account the quality of the goods. Some things are simply more expensive - a $1000 basic computer would be taxed at a higher rate than an $950 dollar pair of shoes.

If you divided things up into luxury vs. non-luxury, then who gets to decide which is which? It's not always clearcut.

 

[Luke T.]

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!

The income tax code is impossible to understand. With such a system, cheating is encouraged, or else businesses are encouraged to move their company out of the country. Loopholes allow for some people to escape from paying their share, which means other people are going to have to pick up the tax bill the other guy didn't pay.

I also think the effect of taxes on our income should be felt as immediately as possible to make our representatives feel the heat.

How many people know how much they actually paid in income taxes this year? How about last year? Was this year more or less than last year? I bet 99 percent of income taxpaying Americans have no clue.

And if your income taxes go up, is it because the child credit changed, the tax brackets changed, the rates changed, or because one of a thousand other things changed? And was it done evenly and fairly? Who knows?

Wouldn't you like to know that you and your neighbor are paying the same amount?

 

[Ziggurat]

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!

Two main reasons I'm aware of (not saying I agree, but just that they exist). One is that the current income tax system is monstrously complex, and that over-complexity is certainly undesirable. While in principle you could make a radically simplified income tax, I suspect some people are pushing these alternative schemes because they figure they'll only successfully simplify it if they start over from scratch, and the only hope to start over from scratch is to do something that REQUIRES a complete start-over. In other words, that attempts to merely simplify the current system are doomed to failure. Personally, though, I think moderate reforms of income tax are still more likely than adoption of a radically different system, simply on the grounds of inertia.

A second one is that some people think that a consumption tax (where you're taxed on what you spend rather than what you make) is inherently preferable, because it automatically encourages savings and investment, whereas you need to add complexity and special tax breaks to an income tax system in order to do that. Under a consumption tax, a rich business owner who continually plows his earnings back into his business will have low taxes, while a trust-fund baby who earns millions off the previous generation's investments and lives an extravagent lifestyle will experience the full tax burden on all that spending. Under an income tax system, it's hard to distinguish the dilligent businessman's earnings from his company from the trust-fund baby's earnings. This aspect certainly has appeal, but on the flip side, I'm also in favor of progressivity at the bottom end of the spectrum. That's fairly easy to do with an income tax, but harder to do with a consumption tax. One alternative is to provide NO progressivity in the taxes themselves, but compensate with more progressive social services, but that would be a major structural change, and major changes are always tough to pull off well.

 

[Luke T.]

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.

Do you have an income tax in addition to VAT? Or did you ever have an income tax? Did VAT replace the income tax?

 

[specious_reasons]

It also tends to 'cap' things for people in the middle class. I looked into getting a weekend job in the summer, simply because I like money. It would have put me into a higher income tax bracket though, so I wouldn't be making any more. So what would be the point?

In the US, the higher tax rate is applied only to the income made beyond that level. The first $15,000 I make is taxed at the same rate as someone who only makes $15,000.

(Hypothetically. In practice, someone who makes that little has more access to deductions than me.)

I don't know where you live, but under the US's progressive tax system, you'd be making more money with a second job, even if you crossed a tax boundary. Allthough, you get less of every additional dollar you make once you cross that boundary, and it may not be worth it.

I like the idea of a progressive tax, strictly in the sense that I think the poorest of us should have proportionately less of a tax burden. I also like the alternate idea of a sales tax, as long as it is progressive and practical.

I don't like the idea of a sales and income tax, especially on a national level.

 

[patnray]

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

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.

This has actually happened. Many years ago congress adopted a luxury tax on items costing over (I believe) $100,000. Two things happened. People defered some luxury items, resulting in lower sales and income tax revenues from the businesses selling those items. And instead of buying a $200,000 yacht, people bought the yacht shell for $99,000 and paid a different company (surprisingly, with the same address) $99,000 to fit it out...

 

[toddjh]

The income tax code is impossible to understand.

That's the number one reason I would like to see a Constitutional amendment saying that no law may be enforced which is beyond the comprehension of a typical member of the group to which it applies.

It's completely unjust that citizens are subject to rules they have no hope of understanding without years of intensive education.

Jeremy

 

[ManfredVonRichthoffen]

We're smart folk. You'd think we could design a better system from the ground up.

What are the goals of the tax code?

Pay for all the govt spending.
Keep the burden off the poor.
make sure the wealth is spread out a bit on death.


What else?

I don't like taxation for social engineering purposes.
Some people might object to the spread the wealth a bit on death thing.

I'm willing to listen to different opinions though.

I'd like to see the tax code draw attention to govt spending, as I said above. I'd like to see this months taxes pay for last months government. That'd get people calling their congressmen.

 

[Jas]

I think it would be nice to have a sheet of checkboxes to attach to your income tax where you can check where you would like your money to go (sort of like when they come to the door to ask if you support public or separate).

 

[Solitaire]

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

Sounds like the Fair Tax proposal. Check it out.

 

[Luke T.]

Re: Re: Progessive Sales Tax?

Sounds like the Fair Tax proposal. Check it out.

Let me see if I understand this Fair Tax correctly.

Basically, you pay a 23 percent sales tax on new goods or services. You get money back. The amount of money you get back is determined by your family size matched to the poverty level, and not on your income or how much you spent (consumed).

Interesting.

My next question also applies to my own progressive tax scheme. How would this prevent someone from buying an expensive item outside the U.S. to avoid the high tax on it?

 

[Solitaire]

Re: Re: Re: Progessive Sales Tax?

Let me see if I understand this Fair Tax correctly.

Basically, you pay a 23 percent sales tax on new goods or services. You get money back. The amount of money you get back is determined by your family size matched to the poverty level, and not on your income or how much you spent (consumed).

Interesting.

Yep. And the costs for goods don't go up much because businesses don't pay income taxes and compliance costs. Downside, no deductions for intrest payments on a house, sales taxes, and the like.

 

[corplinx]

Sales taxes are already progressive.

Three Men Buy Cheese:
Poor guy buys generic american cheese.
Middle income guy buys sharp cheddar
Rich guy buys some hungarian goat milk imported cheese.

Guess who pays the most taxes?

Three Men Buy a Car:
Poor guy buys a Corolla
Middle income guy buys a Camry
Rich guys buys a Jaguar

Guess who pays the most taxes?

The "regressive" myth of sales taxes assumes that all income brackets are buying the same goods in the same amounts. The truth is that people with more income buy more expensive goods and buy more goods overall.

 

[clarsct]

Beat me to the Fair Tax stuff. I was going to start a thread on it. I saw the book for it in my local supermarket and was wondering about it.

But would it really eliminate the IRS?

And, of course, every system has weak points....what are the weak points here? Where does this fail as opposed to our current system?

 

[Ziggurat]

The "regressive" myth of sales taxes assumes that all income brackets are buying the same goods in the same amounts. The truth is that people with more income buy more expensive goods and buy more goods overall.

It's not that simple. Yes, rich people buy more consumer goods. But do they spend a larger fraction of their income on consumer goods? Because that's what you'd need to make it progressive. If they do not, then it becomes regressive. Since a lot of wealthy people spend a larger fraction of their money on things like investments or real estate (big homes), there's certainly reason to suspect that it would be regressive. I don't have hard numbers, but that's my suspicion, and if you want to show that it's not regressive, you'd have to show that's the case. It's simply not enough to state that they spend more on consumer goods, because it's the fractional spending that matters for evaluating progressivity, not simply the absolute amount.

 

[epepke]

Two main reasons I'm aware of (not saying I agree, but just that they exist).

A third is that dealers of illegal drugs don't pay income tax, but they do buy things.

 

[PogoPedant]

We have a VAT of 23%, which has been adjusted a little up and down as the politicians decided they need more money(...)

Actually, we have an emergency post-war VAT of 2% that'll go away as soon as we've rebuilt the country from the Nazi occupation. It's been adjusted a bit up and down since its inception, though...

 

[patnray]

I think it would be nice to have a sheet of checkboxes to attach to your income tax where you can check where you would like your money to go (sort of like when they come to the door to ask if you support public or separate).

Great idea. But then, I've been saying the same thing for years...

 

[corplinx]

It's not that simple.

Exactly. It can be regressive or progressive. It largely depends on the individual actions of the taxpayer. I merely wished to debunk the notion that a sales tax need-be anything other than a static amount to be progressive.

 

[Jaggy Bunnet]

It's not that simple. Yes, rich people buy more consumer goods. But do they spend a larger fraction of their income on consumer goods? Because that's what you'd need to make it progressive. If they do not, then it becomes regressive. Since a lot of wealthy people spend a larger fraction of their money on things like investments or real estate (big homes), there's certainly reason to suspect that it would be regressive. I don't have hard numbers, but that's my suspicion, and if you want to show that it's not regressive, you'd have to show that's the case. It's simply not enough to state that they spend more on consumer goods, because it's the fractional spending that matters for evaluating progressivity, not simply the absolute amount.

The EU VAT system (it is effectively a European Union tax, although imposed and revenue collected retained by the member states) seeks to address this by excluding certain things (or making them taxable at a rates of 0%) from VAT, such as food, books, newspapers and childrens clothes.

Whether the additional costs of administering a much more complex system outweigh the benefits of not paying VAT on "essentials" is another matter.