Besides the regressive nature of that, do the math to see how high that sales tax would have to be to replace the income tax.
To give you an idea, total sales in the USA was about $6 trillion, and income tax revenue was $2 trillion. So you'd need a 33% national sales tax.
How do you think someone who makes $50,000 a year and spends it all would feel about paying 33% in taxes, when today they probably pay closer to 10% today?
Or if you make housing and food tax free, you'd need an even higher tax rate to make up for it.
Most countries that do a national sales tax do it in addition to an income tax.
Disagree slightly. It seems to me that the issue isn't how the taxation happens but where. In your example, the $55k person is paying less taxes up front than $$$ Mega-corp, but increased taxation on Mega-corp (and not $55k person) means Mega-corp now charges $55k person more for goods and services.
So, your main point is worth considering, but it's missing a vital point: the current taxation system is opaque in where funds come from. An alternative simpler taxation system is more transparent on where funds come from - I don't consider that regressive.
Let me put it crassly: if everyone paid 33% in taxes, the average voter would be more aware of the cost of tax-funded projects. Imagine what sort of voting that would lead to. I say "crassly" because in reality such a shift would definitely place a heavy burden on the poor in the near term. I honestly don't want that... but I also don't want to pull the wool over eyes.
Most flat tax schemes I've heard of don't require businesses to pay the tax, for exactly that reason--it just ends up being passed on to the consumer, anyway.
or you know a massive reduction in Federal Spending, the fact that US Sales was 6 trillion, and the US Government spent 4 Trillion should be ringing some alarms bells in people....
If we need a 33% national sales tax, that tells me the federal government SPENDS FAR TOOO MUCH MONEY
Sales taxes are regressive, and the current US tax system is deliberately progressive, in order to reflect our understanding of the marginal value of income.
The FairTax proposal improved on this by providing a rebate to everyone to cover tax for essentials. It also removed taxation on businesses which would likely cause prices to come down. There were many benefits and their research showed that overall tax burden would actually be less for the lower & middle class and higher for upper class (which avoids income tax anyways). Unfortunately it was too radical I believe, there's no way the U.S. would make that big of a leap.
It might still be slightly regressive, but that's not such a bad thing when overall tax burden would be reduced.
Markets are rarely competitive in a true sense. There are moats/barriers to competition, there's friction for users to switch to a different product. Companies often collude to keep prices static, or use a ratcheting mechanism to increase prices permanently[1].
[1] My trash removal company instituted a fuel tax 6 months ago when diesel was at an all time high. Diesel is now $.09 cheaper per gallon. Has the trash company stopped the surcharge? I'll leave it to your imagination. Oh and there are 5 trash companies in my area. They all charge within $.50/month for their service. I'm sure that's just the result of a competitive market.
Diesel fuel has gone up a lot more than $0.09 per gallon in the last year or two. It's close to doubled in fact, maybe more in some areas.
Yes in competitive markets you'd expect the pricess of commodity services to be close to the same. There isn't much differentiation other than price for something like trash removal. People will naturally choose the cheapest option. So all the services will cut their prices to the point where they will making their minimal acceptable profit.
Of course it's possible that the trash services are colluding to maintain higher prices. That's illegal, but it probably happens especially in something like trash removal where there's a history of corruption and the people involved all know or are related to each other.
Actually diesel in the US has had pretty stagnant prices the last four years. The big drop in 2020 (due to COVID wiping out demand) skews the averages and the Russian invasion of Ukraine has driven this year's prices high. But it's still $.09 cheaper than when my trash hauler instituted a "fuel surcharge."
Can you cite any known examples of reductions in some kind of non-explicit tax leading to reductions in prices (other than in cases where the tax is an explicit component of total cost, such as airline ticketing (at least since 2001)) ?
I have no interest in reducing the overall tax burden, and it would be helpful if proponents of ideas like FairTax were more explicit if this is the goal.
I want the various governments of the US to have control over a larger slice of GDP, not less.
Please cite one of those studies that claimed that higher income quintile and higher wealth quintiles would pay more under a "FairTax"-like system, because I've never seen one that makes that claim. Here is that specifically rebuts your claim:
"The FairTax is promoted as being progressive, but there is considerable skepticism of this claim. We examine the distributional effects of the FairTax, as well as the current system it intends to replace, under both annual income and lifetime income approaches. Global measures of progressivity suggest that the current federal tax system is progressive while the FairTax is regressive. Our results are also robust to different assumptions used for estimation."
Even if the rate is variable, sales taxes are still regressive. Poor people spend a much larger % of their income on goods compared to rich people. For me, personally, my sales tax would need to be around 1,000% (for every dollar I spend, I pay $10 in tax) to match what I pay in income tax.
but almost all the so-called 'socialist' nations in europe have heavier sales taxes...but we cannot do it here because it's regressive and we are so much more leftist than europe...tee hee...
Depends on what they are spending it on. If poor people are buying food & housing it would be tax free. If they are buying large screen TVs maybe not so much. But even then the claim was that prices would come down eliminating most of the cost of the tax (due to no taxes on businesses including payroll taxes). It also might mean higher wages. Obviously there was no way to prove these things as it hasn't been tried, but there was a lot of research done trying to model it out.
> But even then the claim was that prices would come down eliminating most of the cost of the tax (due to no taxes on businesses including payroll taxes)
We actually frequently try lowering corporate taxes. What we find is that prices stay high, wages stay low, but profits increase. Crazy.
I'm not following, it doesn't really matter what they consider it - I don't remember it being done before (reducing payroll taxes). Currently both the employer and the employee pay a big chunk here. In addition sole proprietors and self employed individuals pay even more.
A sole proprietor isn’t a corporation. I get the 20% deduction as well but it only applies to self employed individuals. All I was saying is I don’t think they have tried cutting corporate taxes other than the main corporate tax rate on profits. I think there was a misunderstanding.
Right, but my kids don't fund the federal government solely through a federal sales tax which is what this proposes. It just doesn't sound fair that they should be taxed to this degree without representation - it violates the social contract.
I think you said that taxation on your children without their (democratic) representation (via voting) was not a good thing and broke the social contract.
SoftTalker then noted that we tax resident aliens but do not allow them to vote, presumably seeing some similarity in terms its impact on the (implicit) social contract.
Thank you. A lot of times people end up talking Past each other in these sorts of threads. Appreciate it!
Yes. That is a contradiction. Categorically, it's not fair to expect someone to pay for things without letting them have some degree of decision making in how the money is spent. Otherwise it's simply robbery.
Yet that is precisely how our system works vis-a-vis resident aliens ("green card holders"). They have all the responsibilities of citizens but no right to vote.
Sounds messed up. I'd really hate to get into a dialog where this sort of stuff is justified because it's just running rampant and it's just easier to give up and convince oneself that it's actually ok because the alternative is simply too difficult to imagine.
The regressiveness of sales taxes is fairly irrelevant since the government can simply perform direct redistribution to achieve any desired level of progressivity.
> abolishing the income tax and going to a direct, national sales tax
Sales taxes are regressive. It's the rich and upper classes that stand to gain the most by the abolition of income taxes. They don't consume enough to drive up huge sales tax bills. In terms of positive generation, mostly they accumulate income and asset gains. Overwhelmingly they don't spend their wealth on buying Ferraris and mansions. In the US the top 10% pay 71% of all income taxes (while taking home 30% of the income). Their consumption is not high enough to offset if you switch to a sales tax system. It would do something beyond brutalizing the bottom 3/4 of people; it would destitute the majority of workers in the country if you attempted it and were serious about trying to bring in enough revenue to offset the loss of the income tax.
The US has a very progressive income taxation system, far more so than most of Europe (including all of Scandinavia). The US middle class and below pay exceptionally low income taxes, the burden is overwhelmingly carried by the higher income brackets already.
> The US has a very progressive income taxation system, far more so than most of Europe (including all of Scandinavia). The US middle class and below pay exceptionally low income taxes, the burden is overwhelmingly carried by the higher income brackets already.
We have progressive wage income taxes (much less so if you include highly-regressive FICA contributions at ~7.5% for W2 and ~15% for 1099 employees—but still) but overall the US income tax scheme is quite regressive, thanks to how capital gains taxes work, which leads to things like Warren Buffet observing that he enjoys a lower tax rate than his secretary does.
> The US has a very progressive income taxation system
It has strongly progressive main rates for income tax, but it has extremely regressive exclusions from income taxation and from the main rates, and it has a whole separate regressive system of taxation on labor income not characterized as an income tax in its payroll taxes.
It also, viewing state and federal systems combined, has a very large portion of total taxes in other, non-income, taxes which tend to be regressive.
Land and resource usage taxes (aluminum, oil, whatever) might be more efficient and produce better outcomes.
It seems easier to come up with that value every year and let the taxed pass the costs on to final consumers rather then chasing around a million waitresses for unreported tips.
This doesn't go far enough! If you really believe in equality, we need to have a flat tax on everyone. Each person should just pay $1000 per year, and that's it. That is truly fair. /s
Is debt counted in? Is it a difference in wealth from one year to the next? What if someone has a reduction in wealth? What IS wealth? Is thr same asset taxed multiple times? What if someone has to liquidate something because of such taxes?
Most countries that had a wealth tax repealed it or partially repealed it because it was too complicated.
Namely, how do you value private assets? How much is a paining worth? Or your private company?
Houses are easy to do because there is a ton of data and comparables (and even then wealthy people contest those assessments). Now imagine the government getting into the business of valuing private companies.
> The value of private companies is determined each year by the cantonal tax authorities based
on an inter-cantonal administrative guideline agreed upon by the cantonal tax departments.
Taxpayers may challenge the application of this guideline in court but appeals are rarely
successful (cf. an example in section 0, below). In case the fair-market value of operational
companies cannot easily be assessed (e.g. because of lack of recent sales between independent
third parties), their value is determined according to the formulaic method, called the
practitioner's method. A company's value is determined by calculating the weighted average of
its ‘earnings value’ and its net asset value (i.e. fair market value of assets minus liabilities),
thereby counting the earnings value twice. The earnings value is determined by capitalising the
adjusted average net profit of the last two or three years with a capitalisation rate (of currently
7%), which applies uniformly to all industries. Holding companies or real-estate companies are
valued based on the net asset value of the underlying assets.
It won't be perfect, but it's predictably imperfect.
The way they do it just kicks the the can down the road. The company is "net asset value", but how do you value of the software they have, or the data they hold, or the paintings the company holds, or all their other assets?
When a company is sold the value of the assets is negotiated for sometimes years. And is different for every acquirer. How is the government going to do that for everyone every year?
> The way they do it just kicks the the can down the road.
No, it accepts that some wealth may require estimates, eventual corrections, and occasionally court resolution. (The doc cites an example of a $2M painting hung in a kitchen being deemed non-household goods.)
The "there's an edge case, therefore it can't work" argument is hard to sustain when there are countries making it work. The Swiss handle paintings, private companies, and presumably IP (I can't find specific details in here) in their system.
I'm not saying it can't work because of an edge case. I'm saying the system has fundamental flaws and here are some examples.
And I can turn the same logic around on you: Why do you think this will work when just one country is claiming to do it successfully? Especially after other countries tried it and then repealed or at least partially repealed their wealth taxes to exclude hard to value items?
(Or a 1% wealth tax on everyone... but our Billionaire Class won't stand for that.)