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Sure, rich people will invest, and then get (hopefully more) money back and then spend it, subjecting it to same sales tax. And the tax on estates is higher tha

Sure, rich people will invest, and then get (hopefully more) money back and then spend it, subjecting it to same sales tax. And the tax on estates is higher than sales tax (over $5MM), so that’s hardly a dodge. I still really don’t understand the argument, and I still sort of suspect that it’s fallacious, though I’d enjoy being proven wrong. It seems to me that given a sales tax, a flat and identical percentage of every individual’s spending will go to the sales tax. If a person is “rich” but it doesn’t translate into spending or their estate, then what does that mean?

pedrocr 9y ago
You're just restating the same mathematical impossibility. Compounding means that since you only pay sales tax at consumption rich people will pay much less as they will invest before the tax and have gains on all that pre-tax money. Estate tax is also definitely not higher than sales tax pretty much anywhere in the world. In the US in particular estate tax is only paid on very large estates which excludes almost everyone that matters for this calculation. For the purpose of this calculation estate tax is 0.
- Simon_says 9y ago
  Yea, you caught me. I repeated the same argument because I think it works. And I don't see how your argument addresses it. In particular, this sentence: > Compounding means that since you only pay sales tax at consumption rich people will pay much less as they will invest before the tax and have gains on all that pre-tax money. doesn't really make much sense. Of course investments are pre-sales tax. The sales tax applies after the investments are liquidated to cash and the cash is used to purchase stuff. Let's say our hypothetical person is "rich", but it doesn't translate into extra consumption spending, then what's the point of being rich? It's not like he's getting anything out of it. You do have a point about estate taxes not affecting the majority of people, but estate taxes do affect estates with value greater than $5MM, and I'm working with the assumption that you and I are discussing "rich" people. The marginal estate tax in the U.S. ranges from 18% to 40%, which is higher than any sales tax.
  - pedrocr 9y ago
    >doesn't really make much sense. Of course investments are pre-sales tax. The sales tax applies after the investments are liquidated to cash and the cash is used to purchase stuff. Say you have 100$ and you're rich. You invest that in the markets, compound for 40 years and end up with 4500$. You then get to pay sales tax on that after you've gotten your capital out multiple times over. If you're poor though you spend all the 100$ and pay tax right at the beginning, so you don't get to benefit from the compounding of your earnings because you have to use the money right away and thus have to pay the sales tax right away. Compounding is extremely important over even a single lifetime and rich people get to use it over generations. >Let's say our hypothetical person is "rich", but it doesn't translate into extra consumption spending, then what's the point of being rich? It's not like he's getting anything out of it. People put a very high value on aquiring wealth to pass on to their heirs. And even without that if what you buy is property there is no sales tax and you get to use that property throughout your life. If what you buy is investments you get to defer consumption till later and thus get much higher incomes through capital gains and thus pay all your sales taxes from investment gains of the pre-tax money you don't need to spend on day to day spending. >You do have a point about estate taxes not affecting the majority of people, but estate taxes do affect estates with value greater than $5MM, and I'm working with the assumption that you and I are discussing "rich" people. The marginal estate tax in the U.S. ranges from 18% to 40%, which is higher than any sales tax. The estimate from Wikipedia is that estate taxes apply to 0.2% of estates. That's what I mean by estate taxes being completely irrelevant for this discussion. The 0.2% of cases where your argument apply get to use all sorts of other tricks to avoid taxation, this is just about the difference between the people living paycheck to paycheck, the ones that get to put a little away and the affluent middle class. For all those 99,8% of the population estate taxes are irrelevant and sales taxes are extremely regressive.
    - Simon_says 9y ago
      If a poor person earns $100 and spends it, they're paying ~$9 in sales tax in my hypothetical world of 10% sales tax. The rich guy who earns $100 and invests it, spends $4500 and ~$409 (about 9%) of it goes to sales taxes. Sure, he gets 45x the value of purchased goods, but he also pays 45x in taxes. Did you lose track of the topic of conversation? It looks like you're just detailing the ways that it's better to be rich than poor. I was responding to ChrisSD's specific point many comments ago that: "Taxing spending tends to be regressive." To the contrary, it looks like it's neither regressive nor progressive. (I don't know the word for that. "Neutral", maybe?)
Firadeoclus 9y ago
> It seems to me that given a sales tax, a flat and identical percentage of every individual’s spending will go to the sales tax. If a person is “rich” but it doesn’t translate into spending or their estate, then what does that mean? Investing isn't just neutral storing of value. Owning capital confers a benefit to its owner while they own it. The line between investment and spending is arguably quite blurry, so if you tax just "consumer spending" you hit those who live paycheck to paycheck much harder relative to the benefit they derive from their money.

pedrocr 9y ago

You're just restating the same mathematical impossibility. Compounding means that since you only pay sales tax at consumption rich people will pay much less as they will invest before the tax and have gains on all that pre-tax money. Estate tax is also definitely not higher than sales tax pretty much anywhere in the world. In the US in particular estate tax is only paid on very large estates which excludes almost everyone that matters for this calculation. For the purpose of this calculation estate tax is 0.

Simon_says 9y ago
Yea, you caught me. I repeated the same argument because I think it works. And I don't see how your argument addresses it. In particular, this sentence: > Compounding means that since you only pay sales tax at consumption rich people will pay much less as they will invest before the tax and have gains on all that pre-tax money. doesn't really make much sense. Of course investments are pre-sales tax. The sales tax applies after the investments are liquidated to cash and the cash is used to purchase stuff. Let's say our hypothetical person is "rich", but it doesn't translate into extra consumption spending, then what's the point of being rich? It's not like he's getting anything out of it. You do have a point about estate taxes not affecting the majority of people, but estate taxes do affect estates with value greater than $5MM, and I'm working with the assumption that you and I are discussing "rich" people. The marginal estate tax in the U.S. ranges from 18% to 40%, which is higher than any sales tax.
- pedrocr 9y ago
  >doesn't really make much sense. Of course investments are pre-sales tax. The sales tax applies after the investments are liquidated to cash and the cash is used to purchase stuff. Say you have 100$ and you're rich. You invest that in the markets, compound for 40 years and end up with 4500$. You then get to pay sales tax on that after you've gotten your capital out multiple times over. If you're poor though you spend all the 100$ and pay tax right at the beginning, so you don't get to benefit from the compounding of your earnings because you have to use the money right away and thus have to pay the sales tax right away. Compounding is extremely important over even a single lifetime and rich people get to use it over generations. >Let's say our hypothetical person is "rich", but it doesn't translate into extra consumption spending, then what's the point of being rich? It's not like he's getting anything out of it. People put a very high value on aquiring wealth to pass on to their heirs. And even without that if what you buy is property there is no sales tax and you get to use that property throughout your life. If what you buy is investments you get to defer consumption till later and thus get much higher incomes through capital gains and thus pay all your sales taxes from investment gains of the pre-tax money you don't need to spend on day to day spending. >You do have a point about estate taxes not affecting the majority of people, but estate taxes do affect estates with value greater than $5MM, and I'm working with the assumption that you and I are discussing "rich" people. The marginal estate tax in the U.S. ranges from 18% to 40%, which is higher than any sales tax. The estimate from Wikipedia is that estate taxes apply to 0.2% of estates. That's what I mean by estate taxes being completely irrelevant for this discussion. The 0.2% of cases where your argument apply get to use all sorts of other tricks to avoid taxation, this is just about the difference between the people living paycheck to paycheck, the ones that get to put a little away and the affluent middle class. For all those 99,8% of the population estate taxes are irrelevant and sales taxes are extremely regressive.
  - Simon_says 9y ago
    If a poor person earns $100 and spends it, they're paying ~$9 in sales tax in my hypothetical world of 10% sales tax. The rich guy who earns $100 and invests it, spends $4500 and ~$409 (about 9%) of it goes to sales taxes. Sure, he gets 45x the value of purchased goods, but he also pays 45x in taxes. Did you lose track of the topic of conversation? It looks like you're just detailing the ways that it's better to be rich than poor. I was responding to ChrisSD's specific point many comments ago that: "Taxing spending tends to be regressive." To the contrary, it looks like it's neither regressive nor progressive. (I don't know the word for that. "Neutral", maybe?)

Firadeoclus 9y ago

> It seems to me that given a sales tax, a flat and identical percentage of every individual’s spending will go to the sales tax. If a person is “rich” but it doesn’t translate into spending or their estate, then what does that mean? Investing isn't just neutral storing of value. Owning capital confers a benefit to its owner while they own it. The line between investment and spending is arguably quite blurry, so if you tax just "consumer spending" you hit those who live paycheck to paycheck much harder relative to the benefit they derive from their money.