tax spending, not earning ?

Can anyone give me a good argument why government can not get the money they need through taxing spending instead of earning ?

I see this as a fair system if it is based on some kind of percentage so that the more expensive the product ( think small apartment versus large mansion ) the more you pay.

IANAE (I Am Not An Economist) but wouldn’t taxing spending instead of earning act as a disincentive to spend, thereby hurting the economy? Additionally, the items that bring in the most tax revenue will be those bought least frequently in your model – the large mansion, for example – so I’m not convinced sufficient tax revenues would be raised for services provided.

I THINK that the arguement has to do with the fact that most of the money is not in spending form.

IOW…

Each person can only spend a certain amount of money, but can earn much more. Then the money they don’t spend goes into long term investments.
Disclaimer: These are not my opinions, and I never really thought it was a good arguement. Plus, I could be 89% wrong.

I saw a speech ten years ago on C-Span where (Robert?) Hielbroner, the author of the famous college intro-to-economics text, The Worldly Philosophers claimed that Europe, with their famous VAT (value-added tax) which taxes a product many times before it is sold, is vastly “more efficient” of a system of taxation, and at the time he claimed it raised in some cases over 150 more billion dollars at the “same rate” with less effort. States are unofficially given this method to freely explore, some use it some don’t.

VAT is just a sales tax, and is used alongside standard income taxes. Don’t all US states have a similar tax? (I remember being charged sales tax in LA)

But taxing earning takes away money from the individual as well so is still a discincentive to spend ? i.e. you are poorer due to tax before you have even decided what to spend money on !

You could tax all regular things at a low rate as well i.e. petrol, take away food, magazines, newspapers, chocolate, clothing etc…

Here in the uk there is a large petrol,tobacco and alchol tax but people realise its that or higher income tax, i mean, you can decide to have a car that is less fuel efficient or drink / smoke more so its kind of ‘optional’ tax.

No your right, its a bad argument. I mean the richer you are the more you spend i.e. going out, bigger house tax, bigger car tax, more expensive holidays etc. plus you can always tax investments over a certain level as well hence giving people the incentive to ‘go out and spend it’.

Government need the money, i just think taxing spending would be fairer.

-John Ralston Saul, The Doubter’s Companion

But the poorer you are, the greater proportion of your income you spend. If your income is $15,000 a year, you need to spend most of it right away just to survive. If it’s $150,000 a year, much of it probably goes into savings or investments. Under your plan, this money wouldn’t be taxed at all, although the person making $150,000 can obviously afford to be taxed at a higher rate.

I think that’s what Freedom was getting at.

Not all US states have sales tax, and cities may or may not have them too in conjunction with state taxes, and the rates vary widely in the single digits. Some states have high property tax rates, which anger people the most, apparently. I think a tax on spending is not a bad idea, from the view that taxing anything in small amounts is more equitable, and by not letting people cheat entirely on their income taxes, such as black marketers. There is a built-in limit or Laffer curve to sales tax, where it affects sales, but this is not necessarily bad when considering that America runs amok on deficits and refuses to save. It would also help discourage imports (food is normally exempt from all taxes) which now are free to be dumped on our market with relative impunity, despite tarriffs in most countries, so I hear.

As for that above quote by Mr. Saul, regarding sales taxes to be “thus” inflationary because of some “silly” or otherswise perceived “inefficiency” I think that his argument is a classic “slippery slope” via “composition” fallacy, not too complex. Also, the reasoning that calculating taxes is time consuming to businesses, who have accountants, does not make it better for individuals to do so (in other words, it is not a reason). And, the US is currently a 2/3rds demand economy, meaning, I believe, that 2/3rds of it is a consumer economy, refuting Mr. Saul’s premise if true.

IANAEE (I Am Not An Economist Either) but maybe there is a point here, i would create additional incentive to save up for large purchases as opposed to buying on credit (and paying interest on those sales taxes)

As I recall our economy would be much stronger if that was the case, due to getting more value per dollar from not paying interest. (please correct me if I’m wrong)

I would imagine you would see some pretty ugly sales taxes under this kind of system but at least they dont compound interest like credit cards.

Those who choose to live more conservative lifestyles would be able to avoid paying many taxes. Heck maybe instead of programs like AFDC, or welfare people are issued “temporary sales tax exeption cards” to help them out.

Overall though this idea has “flat tax” written all over it.

The VAT is different - it taxes a certain percentage of the Value Added to a product at each stage in travel through the production process from raw material to finished product. Don’t ask me the effect this has in economic terms, I’m clueless.

Sua

In practice, though, the UK’s VAT is a flat 17.5% on most goods (certain items are exempt, although constantly targetted for inclusion).

  1. AFAIK- no industrialized nation has dumped the Income tax in favor of a VAT or sales tax (they are not quite the same, but they have the same results). They have simply ADDED the VAT to collect more taxes. We do have sales tax here in the USA- only it is collected by the States, etc.

  2. If we actually DID replace the FIT with a NST (national sales tax)- the sales tax would have to be at least 20%, depending on what you exempted. Exempt food- and it would have to be higher. Combined with a State Sales Tax of some 8%- this would be a 28% tax- far too high. The compliance problems would be staggering. Thus- the tax would have to be higher- leading to more complaince problems & a breakdown like they had with prohibition many years ago. It would likely become “in” to evade the NST.

  3. Such a tax would burden the poor & working class far more than they are burdened now. All aid programs would have to be upped some 20%, also.

  4. There is a search program at the top of your screen- we have covered this some dozen times before. It STILL is a bad idea.

Want to ruin an economy? Slap on a huge sales tax like they do in Europe. The rich would buy products from somewhere else, because they can, and the poor will buy much less.

This topic has been discussed before. I suggest you read this thread, which has a wealth of interesting points in it: http://boards.straightdope.com/sdmb/showthread.php?threadid=51331

As I recall (without wading through that thread again!), a couple of the important points are:

(1) A simple consumption tax would be regressive, as others here have explained. However, a more creative one could be progressive (e.g., if you put in a high enough exemption).

(2) While there are certain advantages to such a method of taxation, some of these advantages may be hard to realize in practice, and there are some disadvantages too.

So, in short, I think that it is something worth talking about, but it is by no means a no-brainer that this is a good idea.

In addition to the link jshore mentioned on the question of consumption taxes generally, try How is VAT (value added tax) different from a sales tax?.

It is complicated. Here in the UK we pay income tax and sales tax. At the moment lots of people call these sales tax areas ( such as petrol, booze etc. ) stealth taxes as the government say they have reduced taxation ( meaning income tax ) when its actually risen.

mmm

In one of the threads referenced above, there’s a lingering question (and the tone persists in this thread) about why the rich should pay more in taxes than the poor.

The answer is, the rich benefit more. By virtue of being rich, they’ve demonstrated that they benefit more from the security, ease of commerce, public education, etc

Any honest accounting system must consider that wealthy individuals benefit not only directly from police security, roads, etc, etc, but indirectly as well. Any underling who creates income for a company in excess of his or her wages has been enabled to do so by tax-supported society, and therefore their benefit to society is also the employer’s. If that underling couldn’t get to work because there were no roads, or couldn’t leave home because their family would be unsafe, or couldn’t perform the job because they hadn’t the schooling to read and write, well, then that surplus wouldn’t exist for the employer.

Multiply that by the countless benefits a governed society provides, and it’s easy to see how the richer an individual is, the more of a bargain his/her tax bill actually is.

dbs

I think the rich pay more mainly because its socially acceptable, everyone has to pay tax but the rich still have only one vote.

If the rich paid less the poor would be poorer and cause more hassle for the rich ‘you have nothing to lose but your chains’ and all that.

Of course the rich will still support tax cuts ( republicans ? ) as in a short sighted way it sounds good.

I did meet a swede once who says taxes there are really high BUT no one really minds as the welfare benefits etc. are good.

I suppose you either complain about taxes or schools, roads, social services, crime etc. etc.