Calling a regressive tax system ‘the common good’ is not particularly accurate.
I favor this. It seems to me a system elements at least of left and right could actually agree on.
To further explain (what I think is the most practical way to do it), you keep the income tax. But any savings is tax deductible without limit. Income-savings=consumption. Whatever you didn’t save/reinvest, you must have consumed. That number could be taxed at higher rates the bigger it is. Those rates would have to be higher rates than now to be revenue neutral assuming you don’t do away with other deductions. However IMO we should, thus the progressive consumption tax rates wouldn’t necessarily be higher. But the idea is not that they have to be exactly the same as now.
Thus you get higher taxes on the rich for ‘fairness’ that the left insists on, and you don’t discourage accumulation of capital which is the right’s stated problem with high marginal tax rates.
That system like any other is not quite as simple as it sounds. One political issue is defining ‘investment’ (one big example, an owned house you live in, that’s a hybrid of consumption and investment). Another is that people who accumulated assets over a lifetime under a regular income tax now face tax on principal of their investments they draw down to live in retirement. Relatively well off retired people have high voter turnout.
Anyway while that’s a better system (again there’s some left-right economist agreement too that it is) it’s hard to see how it’s not ‘theft’ if the regular income tax is categorically ‘theft’.
Which it is not IMO. However, the idea that the majority can vote to take any amount no matter how large from a targeted group of people no matter how small, while specifying they themselves will pay no more, can rise to a moral issue IMO. It’s a matter of degree and opinion. But if somebody said that could never be unreasonable, I would say they aren’t being reasonable.
Except for deciding what is frivolous and to what degree.
There are people who object to so-called Obamaphones(actually Bush-and Reaganphones) who don’t understand why the poor should have a cell phone. They demand that while they go out job hunting, they should stay home waiting for prospective employers to call.
Ditto for internet access.
Where they might not actually have either (phone or internet), hence the Reaganphone to be able to find a job.
Well the previous poster said ‘the bigger and more frivolous’, I didn’t. Maybe I should have made the clearer. I would make no distinction based on ‘frivolity’. It would be simply the higher your income-investment is, the higher a rate you pay. That’s not fundamentally different in that respect than the current system, and the current system need only be relatively modestly changed to become a progressive consumption tax: again you just allow an unlimited deduction for savings and reinvestment, and adjust the rates to make the numbers work.
And I think the examples you gave show why the govt/public shouldn’t be involved to more than the absolute minimum determining which or whose consumption is ‘frivolous’. Your examples are the slightly different case of the govt/public providing or subsidizing people’s specific purchases not taxes per se, but it shows how it gets bogs down in judgments the political system isn’t good at making. I think Milton Friedman’s idea of a negative income tax as the only welfare state program had some merit, at least as a general goal, requiring a very high hurdle to convince why a particular one off giveaway like a phone should be done that way rather than just lobbying to raise the negative income tax (ie pay out more to those receiving it).
Sovereign governments like the US do not need to levy taxes except under certain conditions. The law can be changed so that the Treasury can issue bonds and sell them to the Federal Reserve, and start writing checks on its account at the Fed. If the bonds are interest bearing, the Treasury pays interest to the Fed which then remits it back to the Treasury after expenses. The treasury can spend as much as is necessary for government operations limited only by the available material and human resources. Attempting to purchase more than the available resources would of course be inflationary, but the US economy is chronically functioning far below capacity. The government can,of course, levy taxes on this or that sector of the economy either to cool the economy or for social engineering.
Furthermore, the law could be changed so that banks actually lend out deposits instead of creating deposits by making loans. Banks create money out of thin air. The system could be changed so that banks operate like most people think they do, like savings banks and credit unions, lending out depositors money. Further funds would be available for lending from loans from the Fed. Such reforms would control asset bubbles in housing and the stock market. When the bulk of mortgages were granted by savings banks, housing bubbles didn’t exist, since house prices could only rise based on available funds, not on unlimited credit created by commercial banks out of thin air.
Ok, that makes no damned sense at all. You should run that by a real economist. I’m sure they’d enjoy the joke.
A sales tax is not regressive. You buy a new Mercedes, and pay some $5,000 in sales tax. I biu a used Corolla and pay $150. What’s so regressive about that?
Sales taxes could, in theory, be made to be progressive or flat in their impact. But as they actually exist in the real world, they are in fact regressive:
Canada has a national sales tax, which is made somewhat progressive, because every tax filer gets a rebate of a fixed dollar amount at the end of the year, even if their consumption is taxed at a lower aggregate amount. For the poor or nonconsumer, it is a negative tax. The US state and local taxers are still thought of as being relatively trivial, so noone has felt a need to hammer the edges into a more progressive form. But that is easily accomplished.
I still have a small residual non-taxable ncome derived from Canadian sources, and if I wanted to, I could file Canada income tax every year, and get several hundred dolllars tax rebate, without ever paying any GST at all. That’s progressive.
Sales taxes tend to be regressive because, essentially, it’s a tax on the portion of your income that you spend on consumption; the portion you save or invest is exempt. And,. the higher your income, the greater the proportion that you can (and tend to) save/invest. So sales taxes bear more heavily (as a % of income, which is what “progressives” refers to) on those with low incomes.
You can try to counter this tendency by exempting goods/services that the low paid spend a larger proportion of their income on (e.g. groceries) or by taxing luxury items at a higher rate. But the default for uniform sales/consumption/valued-added taxes is that they will tend to be refressive.
Most spending is not on major purchases or luxury goods, particularly at the low end of the scale. We both spend the same amount on a gallon of milk, a loaf of bread, or a roll of toilet paper, and at that level a sales tax is regressive.
In most states, only the toilet paper is taxable. If I buy Charmin and you steal yours from public toilets, then the regressive nature of the tax doesn’t apply.
No, the alternative would be voluntary donations from people who value the services government provides. Something like the Combined Federal Campaign, but with a list of government services you want your money to go to instead of charities. Then, people who value the Interstate Highway System could donate to that, and none at all to defense or abortion services or whatever else they personally disagree with.
Vote with your dollars, just like any other services. If people don’t donate enough to fund a war, maybe the war isn’t worth fighting?
Another voluntary way to make money is through bonds, as suggested above. And it’s not tied to specific services like my CFC approach is, though I tend to think you’d make less money that way, but maybe not. I could see rich people investing a lot in the government while poor and middle class people just donate. It would be regressive, but at least it would be voluntary.
But of course (all) taxes are theft. You’re using the threat of force to take money from people against their will. That’s theft by definition. Argue that the theft is justified, fine. But don’t pretend that isn’t what it is. If people don’t find your services valuable enough to pay for voluntarily, but you force them at gunpoint to do so anyway, that’s theft, no matter what you provide “in return”. McDonald’s doesn’t get to say “we aren’t making enough money, we have to force people to buy our burgers”, and neither should the government. If you want to make more money, you have to provide better services that people actually want to pay for voluntarily.
‘Regressive’ is a somewhat subjective and political term, but I think this is closest to the practical definition. If you tax consumption strictly flatly and don’t tax savings, you are taxing consumption+savings regressively. Yet, taxing consumption is more economically efficient.
The potential answer as mentioned above is to tax consumption through a conventional income tax return, not a sales tax, taking income-savings=consumption, taxing income but with an unlimited deduction for savings. Then you can apply a higher % rate to larger consumption (none at all or negative even to low consumption).
The philosophical gut check that must first be made (from a left leaning POV) is why exactly one believes the ‘rich’ should pay a higher %. If it’s because they consume more stuff ‘they don’t really need’, the progressive consumption tax works. If the problem is some people having more even including their investments, even though liquidating those investments for consumption would always eventually be taxed at higher rates if the consumption was at a higher rate, then the progressive consumption tax doesn’t satisfy that POV.
How exactly do you MAKE money by selling bonds?
You RAISE money, but people who buy the bonds expect to be paid back.
What, just issue more bonds, and use the money raised thereby to pay back the first round of bondholders? Thanks for the suggestion Mr. Madoff.
In fact, when governments and businesses issue bonds, they’re borrowing money for a fixed term from the bond buyers and paying them extra money for the privilege of borrowing that money.
Or how about “The rich have more money, so when we tax them we get more money.”?
Also, “the rich” benefit a lot more from the social order than the poor do, because society enforces the property rights that define who’s rich and who’s poor. Without that and the guy who’s best at swinging a sword gets to decide who owns what.
But typically in politics fans of high tax rates for the rich make a pseudo-moral issue, why it’s only fair the rich pay higher rates. That’s where seems to me comes the not often examined question whether the ‘unfairness’ is the rich consuming more (as in a NY Times op-ed about infrastructure I recall accompanied by cartoon of rich people crossing a crumbling bridge drinking champagne in a Rolls Royce, ie consuming wealth) or the unfairness is rich people having more, including that which is invested, again even if ever liquidating those investments will subject them or their heirs to high consumption taxes.
‘Tax them more because they have more to give us’ doesn’t distinguish between ‘tax their consumption’ and ‘tax their investment’, so I don’t think represents a third independent answer, though the apparent attitude is refreshingly honest compared to a lot of ‘fairness’ rhetoric IMO.
Or alternatively that construction would imply that it doesn’t matter if you tax consumption or investment, an idea a fairly broad spectrum of economists wouldn’t agree with.
That’s pretty much what we do today, and it’s a good argument for carrying the debt that we do. This only works if we continue to grow, though.
It’s because of the marginal utility of any given dollar in relation to the total money supply. If I have $500 a month to get by on, then every cent counts. Taking $10 from me hurts a lot, because I’m just scraping by each month. If I have $5,000 a month to get by on, then losing that $10 is basically meaningless. If I have $50,000 a month to get by on and I can’t stomach that $10 hit, then I am probably in deep with the russian mafia or something*. But even speaking in percentages, we’re still stuck with that marginal nature. $10 matters a lot to someone just scraping by, while someone who makes ten times what they make almost certainly cares a whole lot less about $100.
*This is why everywhere should implement fines and fees that scale based on income, by the way.