5 ms·
The issue with a sales tax is that it taxes on consumption instead of income. Consumption needs (as opposed to wants) stop increasing somewhere at around ~100k/
by diab0lic 5y ago
The issue with a sales tax is that it taxes on consumption instead of income. Consumption needs (as opposed to wants) stop increasing somewhere at around ~100k/yr (adjust for location). A high earner is incentivized to save most of their money and become wealthy to avoid tax.
Assuming 15% sales tax, no income tax collection.
Someone who makes 100k per year and spends nearly all pays ~15k via this sales tax or 15%.
Someone who makes 500k per year and spends 100k pays ~15k via this sales tax or 3%.
Someone who makes 10mm per year and spends 1mm pays $150k via this sales tax or 1.5%.
The lower income person pays a much higher rate, because they have to.
- gruez 5y agoBut don't they have to spend it eventually?
- UncleMeat 5y agoYou'd need to also tax gifts and inheritance at the same rate for that to work. Also, because of the time value of money, delaying tax on wealth allows you to grow it more effectively. Even if the money is eventually taxed at X%, you had years or decades for it to compound first while people who need to spend it now don't have that opportunity.
- igorkraw 5y agoNot without an inheritance and gift tax of 100%, and not if they invest it.
- Spellman 5y agoWell, first, no, they don't. Gifts, inheritance, spending it via "charitable" organizations, or better yet spend in lower tax regions. We have multi-generational trust fund families. Secondly, they can accumulate more wealth much faster than they can spend. Plus they can play with things on a longer time horizon and move internationally. Like, say once the sales tax drops.