4 ms·

> Replacing income tax with a national sales tax Not in jest: This would be terrible for the poor and middle class and wonderful for the rich, which is the onl

by derleth 15y ago

> Replacing income tax with a national sales tax Not in jest: This would be terrible for the poor and middle class and wonderful for the rich, which is the only reason you've ever heard of this cockamamie scheme. The reason is that the poor and middle class need to spend a greater proportion of their income just to survive, whereas the richest can more-or-less sit on most of their money (in banks and other investments, to be sure) and still live like rich people. Taxing spending is therefore what's known as a 'regressive tax', in that it affects the poor more than the rich, as opposed to a 'progressive tax', which affects the rich more than the poor.

recursive 15y ago
Your quote left out the part about the "prebate" check. That seems to be the part by which you can adjust the regressiveness. The simplicity is certainly appealing.
cstejerean 15y ago
The incredibly rich already have many options available to avoid paying taxes. The concerns you raise are valid, but there might be ways to address them, perhaps by taxing different categories of items at different rates (or perhaps changing the sales tax by price). Maybe 3% sales tax on groceries, but 30% sales tax on automobiles over 50k for example.
deleted 15y ago
[deleted]
simplefish 15y ago
It's worth noting that the UK, France, Germany, Sweden, Australia, and almost every other western democracy finance very large chunks of their governmental expenditures via high consumption taxes. Most people agree that not only are they not hellholes with the poor and middle class starving on the streets, but they're actually nicer places to be poor than the US. So while you're right that this would be a shift to a less progressive tax system, it's also clear that this isn't the whole story. In fact, the progessivity of the tax system has very little impact on inequality. You can have a highly progressive system (like the US, which by some measures has the most progressive tax system of any first world country), or a relatively regressive system like most of Europe, and it just doesn't matter. In which case, anything to simplify the tax system in the US is probably a good idea. Further, the "rich" in your example are able to easily evade most taxes. Consumption taxes - specifically if implemented as a VAT, as in Europe - are effectively impossible to dodge, even if you're very rich. You may not pay a lot as a percentage of your total income, but you will pay. The (nominally) highly progressive system in the US is unable to guarantee that. (And in any case, as recursive pointed out, the prebate check would make the system arbitrarily progressive, undermining your entire complaint. Although personally, I'd favour just implementing a straight up European-style regressive VAT, and if you want to redistribute income, do it via welfare payments; that's what they're there for. And unlike tinkering with the tax code, they actually are capable of effecting significant redistribution. Your entire argument seems predicated on the idea that the US tax code has something to offer that the typical European tax code does not. Will all due respect, I question this. The US tax code is a disaster, and US prosperity has been achieved in spite of it, not because of it.)
- phillmv 15y ago
  You're right and you're wrong. I think the delta in progressivism in each society is merely correlated with regressive VATs. Being largely unable to implement the same degree of redistribution (remember also that income taxes are higher in Europe), I don't buy the argument that having more regressive taxation schemes ala a higher Sales/VAT in the United States would have a negligible effect on inequality. I don't know about you, but 50%+ of my income went into consumption. Plus, any way you cit
  - simplefish 15y ago
    I think your reply is cut off. :) Anyhow, to the best of my knowledge, the best study on the subject is summarized in this graph: http://goo.gl/tmywx http://goo.gl/tmywx What that shows is that no tax system has a significant impact on Gini. Switching from the most progressive tax system in the study (the US one) to the least (the UK one) would result in a change of Gini of around 0.02. If you rank OECD members by Gini coefficients, such a large change in taxation wouldn't even change the ranking; the US would remain at 4th most unequal. As such, I think it's fair to say that we can tinker with the tax system without fear of victimizing the poorest off. (And, also, that if we want to help the poorest off, we need to pull some lever other than tax policy.)
    - phillmv 15y ago
      >(And, also, that if we want to help the poorest off, we need to pull some lever other than tax policy.) Yes, 100% true. I agree: the resolution obviously lies in pursuing redistribution more aggressively. I'm just uncomfortable with regressive solutions as a whole. If your answer is "it raises overall revenue which allows more redistribution" I may be persuaded, but again your correlation between Gini coefficients and the regressiveness of a given tax system feels specious at best. I reserve the right to admit that I am wrong at a later date, however.
- commandar 15y ago
  >It's worth noting that the UK, France, Germany, Sweden, Australia, and almost every other western democracy finance very large chunks of their governmental expenditures via high consumption taxes. They do, but they also have higher overall tax rates, which includes an income tax. It's hard to point to European-style VATs as an argument for replacing income tax in the US when that's not how most European governments use VATs.

by derleth 15y ago

recursive 15y ago

Your quote left out the part about the "prebate" check. That seems to be the part by which you can adjust the regressiveness. The simplicity is certainly appealing.

cstejerean 15y ago

The incredibly rich already have many options available to avoid paying taxes. The concerns you raise are valid, but there might be ways to address them, perhaps by taxing different categories of items at different rates (or perhaps changing the sales tax by price). Maybe 3% sales tax on groceries, but 30% sales tax on automobiles over 50k for example.

deleted 15y ago

[deleted]

simplefish 15y ago

It's worth noting that the UK, France, Germany, Sweden, Australia, and almost every other western democracy finance very large chunks of their governmental expenditures via high consumption taxes. Most people agree that not only are they not hellholes with the poor and middle class starving on the streets, but they're actually nicer places to be poor than the US. So while you're right that this would be a shift to a less progressive tax system, it's also clear that this isn't the whole story. In fact, the progessivity of the tax system has very little impact on inequality. You can have a highly progressive system (like the US, which by some measures has the most progressive tax system of any first world country), or a relatively regressive system like most of Europe, and it just doesn't matter. In which case, anything to simplify the tax system in the US is probably a good idea. Further, the "rich" in your example are able to easily evade most taxes. Consumption taxes - specifically if implemented as a VAT, as in Europe - are effectively impossible to dodge, even if you're very rich. You may not pay a lot as a percentage of your total income, but you will pay. The (nominally) highly progressive system in the US is unable to guarantee that. (And in any case, as recursive pointed out, the prebate check would make the system arbitrarily progressive, undermining your entire complaint. Although personally, I'd favour just implementing a straight up European-style regressive VAT, and if you want to redistribute income, do it via welfare payments; that's what they're there for. And unlike tinkering with the tax code, they actually are capable of effecting significant redistribution. Your entire argument seems predicated on the idea that the US tax code has something to offer that the typical European tax code does not. Will all due respect, I question this. The US tax code is a disaster, and US prosperity has been achieved in spite of it, not because of it.)

phillmv 15y ago
You're right and you're wrong. I think the delta in progressivism in each society is merely correlated with regressive VATs. Being largely unable to implement the same degree of redistribution (remember also that income taxes are higher in Europe), I don't buy the argument that having more regressive taxation schemes ala a higher Sales/VAT in the United States would have a negligible effect on inequality. I don't know about you, but 50%+ of my income went into consumption. Plus, any way you cit
- simplefish 15y ago
  I think your reply is cut off. :) Anyhow, to the best of my knowledge, the best study on the subject is summarized in this graph: http://goo.gl/tmywx http://goo.gl/tmywx What that shows is that no tax system has a significant impact on Gini. Switching from the most progressive tax system in the study (the US one) to the least (the UK one) would result in a change of Gini of around 0.02. If you rank OECD members by Gini coefficients, such a large change in taxation wouldn't even change the ranking; the US would remain at 4th most unequal. As such, I think it's fair to say that we can tinker with the tax system without fear of victimizing the poorest off. (And, also, that if we want to help the poorest off, we need to pull some lever other than tax policy.)
  - phillmv 15y ago
    >(And, also, that if we want to help the poorest off, we need to pull some lever other than tax policy.) Yes, 100% true. I agree: the resolution obviously lies in pursuing redistribution more aggressively. I'm just uncomfortable with regressive solutions as a whole. If your answer is "it raises overall revenue which allows more redistribution" I may be persuaded, but again your correlation between Gini coefficients and the regressiveness of a given tax system feels specious at best. I reserve the right to admit that I am wrong at a later date, however.
commandar 15y ago
>It's worth noting that the UK, France, Germany, Sweden, Australia, and almost every other western democracy finance very large chunks of their governmental expenditures via high consumption taxes. They do, but they also have higher overall tax rates, which includes an income tax. It's hard to point to European-style VATs as an argument for replacing income tax in the US when that's not how most European governments use VATs.