Okay, I was over at DailyKos and I ran across a comment in which an interesting proposal was made:
I noodled as many numbers in my head as is practical for a Sunday morning when I have a nasty toothache and it seems to make sense–why wouldn’t this work? Or if it would work, what other reasons might there be not to implement this sort of tax scheme to replace our current one?
One thing that strikes me is that this is a tax scheme that would encourage saving and investment, doesn’t seem to be regressive and doesn’t appear to penalize working harder–your tax burden is based on your consumption, which is pretty fair. If you’re a high dollar earner who prefers to live a modest lifestyle you’re going to have a ton of discretionary income and you can pick and choose what you subsidize with your purchase taxes. If you’re a low earner you can derive the most benefit from the money you do make without the discouragement inherent in moving up a bit in income then having it snatched away by a higher tax bracket. Also, it seems to me that the very voluntariness of your tax burden would be psychologically beneficial–no sense in bitching about the taxes you pay, because you’re the one who chose to go with a higher priced item–the percentage of cost is the same for every product and is therefore by definition fair.
All that accounting we now do to establish where the money came from–who cares? There would be no illegitimate income and no incentive to stockpile money in a mattress, since that money is only worth what it will buy and once you buy something you’ve fed the economy its due. I love the idea of getting the IRS off our backs and out of our private lives–how much I make is nobody’s damned business!
I’ve long been in favor of something like this. A change I would make is rather than deciding what items to tax or not would be to issue an annual fixed sales tax refund, sized so that it is actually more than the poorest paid in sales tax. The point of this would be to retain a progressive tax structure, and also to require no accounting or privacy issues for anyone.
I’m not an economist but I can foresee massive problems with operating costs for businesses. I like the idea, but I doubt it would work. Most of the people I know don’t have much left after paying out the non taxable items, and I imagine that the actual revenue would be considerably lower. Not a horrible thing overall, considering the amount of waste government engages in, but I’d like the funds to be there when needed. This also places a considerable amount of burden on those with discretionary income, allowing them more political power than I’m comfortable with.
I’ve heard this idea plenty of times and it appeals to me on some levels; but I’ve never seen a strong enough and persuasive enough set of data showing me that we’d actually collect enough money to keep the government running at current operating levels.
Also, what about things like automobiles? in areas like central florida where our public transportation system is pretty lousy, a car is a must have. A 25% tax on that is a LOT of extra money to consider.
It doesn’t seem regressive, but it is regressive. People with less money spend a greater percentage of it, even if you subtract necessities. In fact, many people with low incomes/worth spend more money than they have.
To my mind there are three kinds of taxes: sales, income, and property. If you think about home much money you have over your lifetime you generally have less when you start out, more when you are in your peak earning, and less again when you retire. Sales tax hurts people starting out when you have to buy furniture and other things, property taxes hurt the elderly because property values continue to rise even after you retire. Only income tax tracks one’s ability to pay.
Also, taxes would have to rise, because the wealthy would simply move out of the country ( to avoid any import duties ) and buy everything there. They’d pay no taxes under this scheme, and everyone else’s taxes would have to be raised to make up for it.
Most tax “reform” schemes in my experience actually are plans to let the rich skate out of even more of their obligations. And shift the burden to us commoners.
Straw man. Correct me if I’m wrong, but income tax in the United States is progressive, right? It’s impossible to have a net loss by moving up a tax bracket.
I started a thread on a similar scheme and the best argument against it that I remember is about the black market. All these taxed goods just couldn’t compete with the smuggled untaxed stuff. In a perfect world it’s a great idea, but there are plenty of ideas that are great in a perfect world.
This is similar to the idea I’ve seen floated that stock purchases need to be taxed to discourage huge speculation trades on borrowed money and to generate tax revenue from transaction fees.
I’m not talking a net loss, just that it can be a real bear to work like a slave but figure out that your actual take home percentage is much less than if you work fewer hours–it’s more of a psychological effect than an economic one but I’ve seen it at work. The “why bother?” factor, if you will. It’s like when work bonuses and overtime are subject to withholding at a higher rate and you have to wait up to a year to see that money come back, if it comes back at all. Squashes the old initiative…
Yeah, the whole black market thing had me hung up as well, but wouldn’t it be easier to track shipments of goods coming into the country (which I assume we already do!) and we could impose the taxes right then, which are then recouped by sales to vendors, who then recoup by selling to the end users? There are already tariff collections and sales taxes being collected all over the country every day, wouldn’t this just be an amplification of a system that already is in place and functioning?
Barter wouldn’t fall under this, but it already doesn’t. Barter is unwieldy but in a very local sense is useful and has natural limitations on its efficiency–don’t see it becoming an overwhelming issue.
As for rich people buying their stuff outside the country–well, fine, but don’t they have to bring it here eventually? When they do, don’t they have to clear it through customs? And wouldn’t that be a natural time to collect the import tariff (as opposed to the purely local-to-the-US sales tax?) As for moving outside of the country, people already do this. Yes, we do lose out on some of their income, but whaddaya gonna do? There are plenty of Brit tax exiles living in the US, but it doesn’t seem to be bringing the UK to its knees. I think we’d have to see if this actually became a huge issue and address it then.
I don’t see ending CORPORATE taxes, corporations are not people regardless of certain unfortunate SC rulings and they shouldn’t have the same rights to privacy as individual persons.
Whcih would never happen, since the whole point of such proposals is to get the rich off the hook for taxes. Why would the “issue” be looked at, when creating the “issue” is the point ?
And in this case, you wouldn’t be losing some of their income, but all. With an incentive like that, I’d expect the overwhelming majority of the wealthy to leave the country under this system.
How do you figure? If they work here, they’re gonna jump in the jet every night and commute back to Spain? Without paying sales tax on the jet fuel? Which rich people are we talking about here, who aren’t going to be paying the taxes they also don’t pay right now? The ones who don’t own houses in the US? Who don’t spend or consume in the US? The ones like, oh say the Saudis, who also don’t pay income tax to us? Whose companies aren’t going to be paying taxes on the raw materials they use to produce their products? Please, define your terms.
Theoretically it would work. But regressivity (is that a word?) would be an issue. Imagine a hypothetical person with a $10,000 annual income with basic expenses like food and shelter taking up all his income. Realistically, he’s not paying any income tax because he falls below the minimum rate. But under a sales tax, he’s going to see an additional $2500 expense every year. (I’ve also heard that to collect the same revenue that income tax does, a national sales tax rate would actually have to be up around 35%)
I’ve seen websites that are set up to charge sales tax based on shipping address–the only change would be that ANY US address has tax on the item and we won’t need variable sales tax tables any more.
We could do rebates to seniors and other fixed income types to offset the sales taxes they pay–remember that the basics aren’t taxed, no groceries and suchlike. We could grant utility exemptions to the elderly as well.
The “under the table” aspect is there but I think it would mellow out over time–at first everybody’s gonna be freaking out at the huge sales tax, but when they realize that it’s offset by an increase in their income and that it all pretty much works out the same I think things will calm down considerably. Additionally, I think that the essentially voluntary nature of the tax would go a long way toward causing individuals to chill out and then inertia would set in. After all, there are illegal, under the table ways of doing a lot of stuff but the average Joe doesn’t bother because they tend to be more work than just doing it the regular way.
That’s right, retirees would be royally screwed. I just did a rough check on my taxes under the 25% sales tax proposed system. They would go up about 30%. And if I had to buy a car? Thru the roof.
The proposal in the OP is essentially the FairTax. A google search will have you reading for hours.
Also, Der Trihs, can you explain why you think a sales tax in place of an income tax will cause wealthy people to leave the country? They can leave the country now (and renounce US citizenship) to avoid tax under the current system.