A national sales tax is essentially a tax on consumption. Since low income families spend almost every penny they earn on subsistence items, they would pay A HIGHER PERCENT OF THEIR EARNINGS IN TAXES. Higher income families could afford to put a portion of their earnings into savings investments.
A sales tax is imminently attractive yes. Even drug dealers and prostitutes have to buy their burgers somewhere and would be paying taxes along with the rest of us. The problem is that the poor need almost as much of the necessities of life as the rich and a sales tax would cut deeply into their meager incomes, perhaps enough to discourage work at all. (As Dys pointed out.) If you exempt enough necessities to not soak the poor, it defeats the revenue end of the tax. If you exempt the poor we are back to the shell game of concealing income.
Also a sales tax is far too easy to increase as is testified by the local sales taxes that almost never go down but steadily incrementally increase over the years.
You obviously keep the sales tax off of food, medecine, and the first $6000 of shelter.
But what constitutes food? Do you include cigarettes and booze and paper plates and toilet paper that you normally buy at the grocery store? Do you include cookies, candy, pop as food? Are vitamins and other supplements medicine? How about over the counter pain medicines and antihistimines?
I remember back to the impossible Texas blue laws some decades ago. If you went to the 7-11 to buy a pair of panty hose, you had to know whether they were allowed to sell panty hose on Saturday or Sunday. They could sell on one of those days but not both. You could buy flour, sugar, chocolate chips, shortning, etc., everything you needed to bake a batch of cookies from scratch and that could be sold on Sunday as an essential, but you could not buy a package of Oreos as those were not. Almost every item in the market would have to be analyzed to see if it should be exempt from the tax or not.
And what constitutes shelter? A house? Or a rented room? Or a motorhome? The nightmare of tracking people who move around a lot would be daunting.
i agree with both dys
and fox..( hey! lookit me! i'm a uniter!
)
not sure. but perhaps the simplification of the tax code is to rethink the kinds of things that are frivolous write offs and deductions. the progressive tax system seems to boil down to uncle sam taking a bigger commission on the amount of work he lines up for you. that bothers a lot of people, even though most of the money goes to things that benefit the many.
and even if you are one of the wealthy folks, you still belong to the population; i.e., the many.
I agree with you, dtom, and so transitively agree with fox and dys. I want to say, though, that the idea is not to soak the rich, but to ensure that we are not only taxing earned income, ie. wages. It's fairness and simplicity that I'm after.
dyslexia wrote:A national sales tax is essentially a tax on consumption. Since low income families spend almost every penny they earn on subsistence items, they would pay A HIGHER PERCENT OF THEIR EARNINGS IN TAXES. Higher income families could afford to put a portion of their earnings into savings investments.
That's only partly true. Money put into savings is worthless to the extent that it's not eventually used for consumption (during retirement or by your heirs). Saving under a consumption tax DEFERS taxes, nothing more. You can't think of that money as tax-free; it's only tax-free to the extent that the value of that money (consumption) is never realized.
well ok but my money put into savings (investments) generates unearned income and that's what I live on today.
Dyslexia --
I don't in what sense interest and profit are "unearned income". Could you please expand on why you think so?
I think he is talking about for tax purposes, no? I could have this wrong too but I thought the IRS differentiated between wages (earned) and interest (unearned). But then I'm not known for having the tax code figured out.
well Thomas, after reading the various schemes put forward in recent years such as the Forbes tax plan, each and every one of them approaches a tax plan based on "earned" income vs "unearned' income. earned income being defined as wage/salary income vs unearned being interest/investment income. I'm not, by any means an economist and shall not so pretend to be so, I only know what I read in the papers.
Oh, I thought dyslexia agreed with the IRS's classification, and tried to argue with him because I don't. Anyway, the problems of a national sales tax for poor people can easily be fixed with a lump-sum subidy, which increases poor people's income by a much higher margin than rich people's income. Milton Friedman made suggestion among these lines in his Capitalism and Freedom (1962), and my understanding is that Flat-Taxers like Steve Forbes are including this feature in their proposals.
well Thomas I would have to agree but then we are back to a regressive taxing by doing that and what I seemed to be hearing is that any regressive tax is somehow unfair. Perhaps I just don't understand what the question is and my responeses so indicate.
You are right that lump sum taxes are considered unfair. But this would be a lump sum subsidy. Because a regressive subsidy works out like a progressive tax, the fairness issues of regressive taxes don't apply.
That's an interesting idea. I'll have to think about that. Did you say Forbes included it in his flat tax plan? I'll have to look that up.
FreeDuck wrote:That's an interesting idea. I'll have to think about that. Did you say Forbes included it in his flat tax plan? I'll have to look that up.
I thought Forbes's proposal included it, but I'm not sure enough to bet. I
am sure that Friedman mentions it as an option. A variant of this feature has since evolved into the Earned Income Tax Credit.
I love learning new things...
Steppenwolf wrote:dyslexia wrote:A national sales tax is essentially a tax on consumption. Since low income families spend almost every penny they earn on subsistence items, they would pay A HIGHER PERCENT OF THEIR EARNINGS IN TAXES. Higher income families could afford to put a portion of their earnings into savings investments.
That's only partly true. Money put into savings is worthless to the extent that it's not eventually used for consumption (during retirement or by your heirs). Saving under a consumption tax DEFERS taxes, nothing more. You can't think of that money as tax-free; it's only tax-free to the extent that the value of that money (consumption) is never realized.
Would this consumption tax taxate consumption of services? Because if it wouldn't, that would result in a distortion of the market.
FreeDuck wrote:I agree with you, dtom, and so transitively agree with fox and dys. I want to say, though, that the idea is not to soak the rich, but to ensure that we are not only taxing earned income, ie. wages. It's fairness and simplicity that I'm after.
Interest is exponential, which means that wether you tax earnings before investment or consumption afterwords is irrelevant.
