What I am saying is that sales tax is a terrible idea. If you tax every sale along the production process then it is awful for business and for the economy. For this reason states with sales tax have exemptions for business and aim to tax only the final consumer but it is impossible to know who is a final consumer and it is very easy to cheat. Sales tax is just a terrible idea which should be repealed entirely and replaced by VAT which does not have these problems. In any case, sales tax or VAT, there is no way it is going to replace income tax. No way. The level of taxation would be impossibly high.
BTW, I was just recently in Canton, China, and wa asking my friends about the tax structure there and they could not tell me. I did not see any evidence of sales tax or VAT and they could not tell me about income tax or other taxes. I do not know how the government there collects money but it has plenty of it which it is spending in public works and infrastructure. I am very curious about their tax structure and how it will evolve in the near future.
What you said was “Uh, you realize corporations are now, in fact, exempt from sales taxes”.
I was merely pointing out to you that corporations are not exempt from sales tax. You were the one who wanted more information and seemed to think I was making stuff up.
The sales tax is mostly aimed to target the final consumer and often a corporation is the final consumer.
And the evidence presented so far supports that in the majority of cases that is true even if it is not an absolute exemption. Mostly plant, equipment, machinery, consumables, materials used in production are exempt and it is fairly easy to cheat by claiming something is used in production when it is not.
There is no way around it: making business pay sales tax is a terrible idea and exempting them makes it terribly easy to cheat.
>> The sales tax is mostly aimed to target the final consumer and often a corporation is the final consumer.
Not the way I am defining “final consumer”. A corporation consumes goods and services in the process of producing other goods and services it sells and the value of the consumption is incorporated in the goods and services sold. Only the final consumer consumes without adding value and producing further goods. This is a problem with sales tax because I can be the final consumer when I buy a printer for my home but not when I buy it for my business. If I have to pay sales tax when I buy it for my business then the tax is included in the production cost of whatever I sell. This problem does not arise with VAT.
I would be curious as to what countries have VAT and what countries have sales tax. I am guessing the USA is the only major economy which has sales taxes rather than VAT. I know all the EU have VAT. Can people tell us what they use in Canada, Australia, Japan, Latin America, etc?
A NRST would not apply to every sale. There are exemptions. Also, you can tax a corporation all you want, but it simply is transferred to the end user. Corporations, in practice, do not pay taxes.
Most NRST proposals do offer credits or rebates to those who are at the bottom of the income pool. They pay the 20% at the time of the purchase, but receive cash back at the end (or beginning) of the year.
Also, though the tax rate would be high, you must remember that everyone will be keeping 100% of their salaries. I don’t see how a NRST of 20% would be much more difficult to implement than the existing state sales taxes. Most project that a NRST will be far cheeper to implement than the current IRS.
>> A NRST would not apply to every sale. There are exemptions.
>> You are not addressing the core problem which is in the nature of the sales tax and which is why it has been replaced pretty much everywhere else by VAT. Do you understand the problem Sales tax poses in its structure? Because i get the impression you fail to grasp it and you do not understand why VAT was invented to replace sales taxes.
>> Also, you can tax a corporation all you want, but it simply is transferred to the end user. Corporations, in practice, do not pay taxes.
Um, that’s what I said. What’s your point?
>> Most NRST proposals do offer credits or rebates to those who are at the bottom of the income pool.
What’s that got to do with anything I said?
>> They pay the 20% at the time of the purchase, but receive cash back at the end (or beginning) of the year.
A) A nightmare to administer
B) A 20% sales tax would not even begin to generate a fraction of what income tax generates, much less with loopholes and refunds. Not to mention that the possibilities for avoidance are endless and would become very attractive at that rate.
in any case, my objection stands: A sales tax is flawed in its conception and is a terrible idea for businesses, for the economy and as a way of getting revenue. Countries are getting rid of it and implementing VAT.
Again, do you understand how VAT works and why it is not flawed the way sales tax is flawed?
[QUOTE=sailor
What’s that got to do with anything I said?
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It has absolutely nothing to do with what you said. I started my response with a quote from your post, which you seemingly take to mean that I have some kind of agenda against VATs. I suggest you take your foot off the defemsive pedal for a minute, and open yourself up to the idea that I was responding to any number of comments contained within this thread. Since some of my comments had absolutely nothing to do with your points, I guessed (incorectly) you would figure this out. I realize that I may have been a little obtuse in my reply, but that is mainly due to the fact that I don’t have time to harvest quotes from every relevant post. Please accept my most humble apology.
Just what we need… another way of the government to get its hands on our money.
It’s a bad idea, and I think others have explained why. Just wanted to add that the VAT has a stigma of being “European”, and therefore doesn’t go down well with a lot of folks on this side of the pond. regardless of whether it’s a good idea or not.
My misgivings about VAT have to do with situations where there is surplus inventory or price wars and such. VAT is paid by the manufacturer and passed on to the distributer, who is then far more limited in how far they can cut prices to compete or get rid of inventory or whatever, whereas sales tax is based on the value at the time of purchase.
It’s not whether there is a flat rate or graduated rate that makes taxes complicated. Once you know what your “net income” is you just look at the tax tables; that is the easy part.
The complication comes from determining what is income. For example, if you rent out a house income is the difference between the rent and expenses such as property tax, upkeep, depreciation, heat, etc. For individuals you have various other deductions such as for children, mortgage payments, medical care, and so on. To make things simple you’d need to get rid of all deductions.
GST stands for Goods and Services Tax. The New Zealanders called it that and everyone since has followed them since they stuffed it up rather less than everyone else. It is a VAT.
Whilst the invoice credit method of implenting multi-stage VAT style consumption taxes makes them superior to Retail Sales Taxes (and much better than Australia’s old Wholesale or Canada’s old Manufacturers’ Sales Tax) the advantages of the tax are greatly overstated by its proponents. Most of the simplicity benefits whilst they look good on paper disappear when you actually have to try and apply it to: [ul][li]financial services (can’t distinguish value added from risk and interest effectively)[]health care and education []secondhand goods[]rental housing v owner occupied dwelling[]semi-commercial activities of charities, religious organisations, government instrumentalities[/ul]etc, etc.[/li]
If you were to do it it would have to be a decent rate - more like 10% - to make it even vaguely worth the additional administrative and compliance costs (estimated here to be half a skilled worker’s day a week for every single business in the economy).
The consumption/ intermediate good problem doesn’t really go away.
You can’t effectively tackle the informal economy, particularly the fast-growing services sector, where labour is a big part of value added at the final stage.
You don’t tax those who are avoiding declaring their income except in the transition.
You don’t tax those avoiding tax on capital income (except in the transition).
There is no free lunch. Not even in tax reform. As our Perfect Master said when discussing the flat tax, it’s
I live in a European country that has VAT tax. It’s a nightmare. First, it does not substitute personal income tax. The idea of giving the government yet another means ot taxation is frightening, because, once instituted, it will never end and in fact will increase constantly. Second, at least where I live, VAT tax is paid on goods AND services. That means that, as an attorney, I have to charge my clients my fee, plus more than 20% VAT tax. I have yet to meet a client that doesn’t hate this. When taxes become oppressive, tax evasion becomes a way of life.
hawthorne, nobody is saying VAT is perfect. The only “perfect” tax is the one you don’t have to pay. All I am saying (and I think you agree) is that it is vastly superior to a sales tax in pretty much every respect. I do not think this is the place to discuss VAT in detail, just establish that it is far superior to Sales Tax. in any case, I disagree when you say that it presents any serious drawbacks when it comes to “financial services (can’t distinguish value added from risk and interest effectively), health care and education, secondhand goods, rental housing v owner occupied dwelling, semi-commercial activities of charities, religious organisations, government instrumentalities”. In fact I am willing to argue that in any of those aspects it is much better than sales tax.
>> The consumption/ intermediate good problem doesn’t really go away.
Yes it does. That is exactly what VAT does. Also, when it comes to “informal economy” (aka “cheating”) VAT is greatly superior to sales tax and that is one of the main arguments in its favor. It makes cheating much more difficult because there is a chain and the seller who does not collect the tax cannot get reimbursed for the tax he paid. Even if cheating takes place it means the government does not collect the tax corresponding to the value added by the cheater but has already collected the part in the previous links of the process. Much better than sales tax.
Anyway, as i say, I do not think this is the place for an in-depth discussion of VAT. Just to say that Salex Tax is an awful idea. Income tax is not going to be replaced by Sales Tax or by VAT. It’s not going to happen and it cannot happen.
Not to replace the income tax, but to lower it and make it more fair. In my opinion, we would be better served by taxing consumption, not wealth creation (as in taxing income). Instead of a 28% income tax, we should have a sales tax on all transfers…this would do two postive things:
-it would discourage foolish and wasteful consumption(likethose idotic SUVs that get 12 MPG)
-it would reward savings. In case you don’t know, Americans are NOT very saving (we have to depend on foreign capital, as we arenow a net debtor nation). WE DON’T save because under our income tax system,it makes NO sense to do so (you are subject to double and triple taxation on savings income).
If we had a broad consumption -based tax system, we would shortly become a nation of savers, and our enormous national debt would shrink. It would free us from dependence upon foreign capital, and even stave off the coming collapse of the “Social Security” system.
In any event, people wouldmuch rather pay a huge number of small taxes (in the region of 1-2%), thanone huge tax on their income.
Well, that’s an incoherent rant. I hope you feel better. Let’s see. . .
>> I live in a European country that has VAT tax.
Yep, all EU countries have VAT (not “VAT tax”) and it has been a huge success. No one is talking about getting rid of it.
>> It’s a nightmare.
In what way?
>> First, it does not substitute personal income tax.
That can be said of every other tax in existence including sales tax. It can even be said about sex: it would be better if it was a substitute for income tax.
>> The idea of giving the government yet another means ot taxation is frightening, because, once instituted, it will never end and in fact will increase constantly.
That’s just silly paranoia. VAT has replaced sales and other taxes in many countries and is working quite well. You seem to see VAT as the first step towards communism or something like that.
>> Second, at least where I live, VAT tax is paid on goods AND services.
Yes, so? is it better to have one single tax for everything or have dozens of different taxes for different goods and services?
>> That means that, as an attorney, I have to charge my clients my fee, plus more than 20% VAT tax.
Yes, so?
>> I have yet to meet a client that doesn’t hate this.
Well, what do you know? People dislike paying taxes! Who would have known!
>> When taxes become oppressive, tax evasion becomes a way of life
We are comparing and discussing different methods of tax collection and their relative advantages and weaknesses. We are not ranting about whether tax rates in your part of the world are too high. You can vote for a government which will lower your tax rates. Or you can always move to another country with no VAT or lower taxes or even NO taxes. Your arguments are hardly the concept of VAT. The fact that some country has an income tax rate of 87% is hardly an argument against income tax and the fact that some country has a VAT rate of 20% is hardly an argument against VAT. But if you have some arguments supporting the notion that Sales Tax is somehow superior to VAT I am sure we would all like to hear them. So far you have made none.
ralph124c: Not to replace the income tax, but to lower it and make it more fair.
Call me when everybody agrees on the meaning of “fair”. A tax on consumption would be seen as unfair by many people because poor people spend more of their income than rich people. Most people feel it is more fair to tax income. If two people spend the same amount but one makes twice as much as the other most people would feel it is fair that the one who makes more pays more tax.
