Is A Sales Tax Really Regressive

[iamjoy]

I read Mike Gravel's plan for a National Sales Tax instead of an income tax and this isn't the first time some one has called for something like that. Often progressives say sales taxes hurt the poor more than the wealthy and are a bad idea.

But, I'm starting to wonder. Currently, the very wealthy and the corporations have all these tax shelters and exemptions. They move their businesses off shore. All these things to avoid paying taxes. BUT, if you had a national sales tax, they couldn't do it.

You buy an economy car used, you pay $500 in taxes. You buy a new luxury car and you pay thousands of dollars.

The person making $20,000 a year probably isn't doing that much consuming. After rent and groceries, there isn't that much left over for discretionary spending. ON the other hand, the person making $200,000 is probably getting a new car every few years, taking at least one nice vacation a year, redecorating their house and shopping at high end stores.

As an added bonus, a national sales tax would encourage saving rather than consumption.

Of course, you'd have to have a way to help the poor with groceries and some clothing items, but structure it in a way that prevents wealthy cheats from manipulating it.

Of course, there are all sorts of practical and logistical issues in switching from our current system to a sales tax

BUT, is it really regressive? Or maybe the better question is - Is there a way we can do it so it isn't regressive?

[WinkyDink]

1. Your 4th paragraph answered your own question. More $$ will be used by the

working and unemployed poor JUST FOR STAPLES.
"The person making $20,000 a year probably isn't doing that much consuming." YA THINK?????

[iamjoy]

2. But That Could Be Exempt

they could get vouchers or cards that would enable them to be exempt from sales taxes on groceries, medicine and some clothing.

[gollygee]

6. Grocery items could be exempt for sure

in Michigan, grocery items are exempt from sales tax. That is easy. I don't know how medicine works but I don't recall paying tax on prescriptions anyway. Clothing is taxed here. I don't think taxing clothing would be a problem. People who have tons of money spend a lot more on clothing - buy much more expensive clothing - so they'd be taxed much more on that too. People who buy inexpensive clothing wouldn't be paying much in taxes on it either.

[WinkyDink]

17. Do you think people buy "inexpensive clothing" because they WANT TO?

Do you not realize how clothing can aid one in climbing up the employment ladder?

[gollygee]

20. No I don't think that

I just know that the reality of the situation is that the more money people have, the more expensive clothing they buy. It isn't nice or fair but it is reality.

And yes nice clothing can definitely help people find better jobs. But buying one or two nice outfits for interviewing is still spending a LOT less than wealthy people who spend thousands and thousands on clothing.

No matter what kind of tax structure we have, poor people will end up paying some taxes. What is important is that they pay a much smaller percentage of their income in taxes than wealthy people because they have much less money. I have always thought that this was a bad idea too, but maybe if there were enough exemptions on necessary items it wouldn't be as bad as I've thought. I'm keeping my mind open and looking at this alternative.

[dsc]

3. To use NC as an example

With the exception of rent virtually every expense of a poor person is subject to a sales tax. Assume a 20% rate and 35% spent on rent. That person would pay 20% of 65% in taxes which is 13%.

Now look at the rich. Assume that the rich person spends 20% on housing, saves or invests 25% of his income, and spends 10% on things like school tuition or professional expenses. That person would pay 20% of 45% which is 9%. That is regressive no matter how you slice it.

[msongs]

7. alcohol and tobaccao and junk food are taxed. nt

[dsc]

8. In NC all food is taxed, though at a lower rate.

[ayeshahaqqiqa]

4. They have national sales taxes in Europe

and people don't mind paying because it pays for national health and their welfare state.

Many states either have no sales tax or a reduced sales tax on groceries and prescription drugs. I would say that the federal tax could exempt these items as well. The other thing I would exempt would be sales at thrift stores--this is where I get the bulk of my clothing as well as bedding. This would further help the working poor.

If you are not taxing those three things, I believe you can still raise a lot of revenue without it being an onerous burden on the poor.

[1932]

15. And it hurst the middle class terribly, especially in the UK

[TheFarseer]

5. Don't assume corporations will play by the same rules

They don't for income tax. Rich can get around a sales tax. They can buy stuff overseas. Myself, I can't easily buy lots of stuff from overseas. Poor/working families will lose out on EIC and other kid credits. You won't get a break for college tuition or student loans. I like the idea that we can encourage behaviors with the income tax system, like buying hybrids or making energy efficiency improvements to our homes or furthering our education. A sales tax is just a regressive way to get money. Have you ever seen the figures on what percentage would be needed to generate revenue to replace the income tax? Realistic estimates are about 50%. This would encourage black markets, bartering, and buying overseas. Which would necessitate the tax rate going even higher. How do you think our retailers would be affected by adding 50% on to the cost of their goods? I'm sure sales would skyrocket! This is the most ill conceived idiotic plan I have ever encountered. Just look at who wants this and you should know all you need to know about it. I have alot of problems with the income tax as it currently is, but this is a MUCH worse alternative.

[iamjoy]

10. They Couldn't Go Overseas

There are current limits on what a citizen can bring into this country after traveling abroad. Those same limits would apply.

If corporations didn't have to pay income taxes, they might lower prices. Sure, their greed would make them want to pocket the savings, but they'd have to lower their prices so sales wouldn't suffer.

You bring up a good point about EIC and college tuition.

[Wiley50]

29. Make them pay sales tax on their raw materials too

Then we could start getting back what they've stolen from us

[bbgrunt]

22. good point. There is no way to keep the rich from finding

loopholes in any kind of a tax. Even the poor can avoid some of these taxes by shifting into a barter economy rather than a money economy.

An additional problem is how to tax services. The poor spend most of their income purchasing goods which are subject to sales taxes, but the rich spend a considerable percentage of their income on services--$400 haircuts, lawyers, stock transactions, house renovations, cosmetic surgery, private tutors, etc. Typically these services are not subject to the sales tax even though they are market transactions. If we begin to tax ALL transactions, things could get rather sticky. Do you really want to be taxed on your doctor visits? Do you want to have your babysitter pay a sales tax on his/her services? The sales tax has as many loopholes and problems as levying a tax on "income"--and it is regressive.

If you exempt some essential services from the sales tax, you simply provide a source of tax avoidance--or a loophole....and the higher rate that would have to be applied to collect the necessary revenue to replace the income tax, would provide extra incentive to find ways of avoiding the tax.

[Wiley50]

28. But, hand in hand, he wants to drasticly cut defense spending

and, since the MIC gets such a large share of income taxes now
there would be a much smaller tax need and a sales tax could be
much smaller.

I'm for anything to kill the MIC monster

Go Mike!

[trof]

9. Yep, groceries, prescripton drugs, basic clothing and shelter,

medical care, should be exempt.
Then it might be workable.

[Lars39]

11. I presently live in a county where sales tax is 9.75.

It is a regressive, hurting those who can't afford to travel out of the county to buy cheaper food.

[youngdem]

12. A national sales tax is the MOST regressive tax structure next to a flat income tax

And remember, that for a sales tax only to work as the only source of government revenue (in place of property, income and excise) that the sales tax rate would have to be above 25% !!!!!! Then, as that depressed spending and the economy stumbles, the tax rate would have to be raised to make up for the lost revenue from reduced spending and the increased social costs associated with a fucked up, stagnated economy. Then you are stuck in the negative feedback loop, and it is a race to a depression.

So, of course it is regressive as shit and a HORRIBLE, TERRIBLE, STUPID idea when you propose raising prices on consumer goods for all by 25% minimum, and of course it would cripple then destroy the lower and middle classes, all of who's spending is consumer based.

Meanwhile, the rich would pile up cash generation after generation because of course now the estate tax is gone, offshore their cash and buy their goods from outside the US, their zillion dollar homesteads exempt, their investments now capital gains free, and their income untouched by tax.

If you think the disparity in wealth in the US is bad now, just try this shit. Flat tax and sales tax proposals are proposals by the uninformed(any Democrat who would propose this in a misguided quest for 'fairness' in a capitalist system) and the disingenuous (Forbes and other super rich trying to become lords and kings while proclaiming it's all in the name of fairness).

Here's the flat fact. You have to tax the money supply, not the individual. If the top ten percent 65% of liquid assets, then the top ten percent MUST pay at least 65% of the total taxes (probably more), otherwise, the hardship is shifted to those who cannot afford it while those benefiting most from the economy and its infrastructure continue with a minimal tax burden.

A flat tax is a stupid tax on those who don't understand economics 101. Sounds good at the bar, but when you sit down with a book and figure out just exactly what it means in the macroeconomic sense, it is SUICIDE for the economy and social stability for a country with such a horrible disparity in wealth as ours.

[1932]

13. corporations don't pay sales tax on things they buy for resale

which is most of what they buy.

also, 50% of Americans spend more than they make so any sales tax increase would only send them further into debt and pad the profits of all their lenders (their mortgage companies, credit card issuers, studen loan lenders, etc.) who make money off interest and, therefore, make more money if you're in more debt.

Do you think 50% of corporations are spending more than they make? Probably not. And, in fact, the bigger the gap between what a corporation OR individual makes and what they spend, then the smaller the tax burden is of a flat sales tax.

A flat sales (or income) tax is a huge gift to the wealthier you are. And a flat sales tax is even a bigger gift to people as the gap between what they make and spend increases.

[Matsubara]

14. It's extremely regressive.

Take it back to the Kennedy era when the top bracket paid over 70% in income tax. With that tax code we had prosperity and a huge middle class, not just rich, poor, and poor people in debt pretending to be middle class...

[HamdenRice]

16. The rich have income that they don't spend so it's very regressive

Sales taxes are consumption taxes, which are indeed regressive. Because almost everyone from the poor up to the middle class spend almost everything they earn, they pay sales taxes on all their income.

Savers and investors pay no sales taxes because the amount of their income that is not consumed or spent, is not taxed.

[WinkyDink]

18. Let me put it the simplest way possible: ANY tax that takes ONE MORE DIME from the poor IS

REGRESSIVE.

THAT IS THAT.
There is NO argument that can justify more taxing of the poor, unemployed or working category. NONE.

[applegrove]

19. We have one in Canada and people who don't make alot of money get cash

back every few months. It works hand in hand with income tax. So people who are consuming alot..like kids at the mall, wealthy people who redecorate, clothes horses, people who go to hairdressers, etc..they pay more in sales taxes and help support universal health care.

[1932]

21. Why not just have a progressive income tax?

[bbgrunt]

23. I think what appeals to a lot of people is the notion that

a sales tax would be "simpler" and one would not have to file elaborate tax forms every year. This however, is a very misleading notion. If a sales tax is to be made equitable in any sense of the word, people in low income levels would have to be given some way of alleviating their tax burden. That means there would still have to be some way of measuring income to determine who is qualified for such special treatment. So in effect, the only people who would be burdened with determining income and "proving" their worthiness would bear the burden of paperwork.

[1932]

26. And not only that, the government already has the information it needs to

withhold exactly the right amount on a monthly basis from over 50% of taxpayers based on information they collect from banks and employers. Those people shouldn't even be required to fill out a return.

[applegrove]

24. Why not both taxes to pay for a better health care system? Lower progressive income tax

and make it up with a progressive sales tax. You shop, you pay more taxes than other people.

[1932]

25. Because if you make little and spend 90% of your income on the bare

minimums to enjoy life, and even if your consumption is still 1/100th of a millionaire, your tax burden could be greater than the millionaire's.

Also, local governments that rely on sales tax end up pursuing policies that encourage retail sales even though retail selling might not be the best thing for a community and the local economy. Eg, they give big tax breaks to big box stores even if those stores tear at the fabric of communities and shift wealth off to Arkansas.

There's a good book on this: The Great Jobs Scam.

[applegrove]

31. In Canada we have a progressive tax system. And Sales tax with refunds

to the poor and working poor to return what money they spend on sales tax to them.

I don't think sales tax alone is a good idea. You would find conservatives putting this forward as a replacement for progressive income tax most often.

[mmonk]

27. Those corporations are in a better position position to pay

so I guess the answer is yes. All sales taxes aren't a bad idea though. Depends on what it is coupled with.

[jmowreader]

30. Well, it won't work, for one thing

Mike Gravel is pushing Neil Boortz' "FairTax." Go to http://www.fairtax.org and click on the FAQ. This is the first question answered:

What is taxed?

The FairTax is a single-rate, federal retail sales tax collected only once, at the final point of purchase of new goods and services for personal consumption. Used items are not taxed. Business-to-business purchases for the production of goods and services are not taxed. A rebate makes the effective rate progressive.

Read that again: Used items are not taxed.

Well...there goes the auto industry. If a used car can give you the same service as a new one, but it's 40 percent less expensive than a new one because there's no tax on it, there will be no new cars bought. Same thing with the yacht business, the home business, the airplane business...any expensive, durable product will be purchased used. Does anyone really think otherwise?

The line about "BTB purchases for the production of goods and services" isn't operative, because there won't BE any "production of goods and services." The ONLY things anyone will purchase new are consumables. You have to buy food new. You have to buy tires new. (Well, except for big rigs that run recaps.) You don't have to buy houses new.

Does anyone remember Bush 41's Yacht Tax? (This one was blamed on Clinton by people like Pigboy, but it was actually both enacted and repealed by GHWB.) According to the tax, anyone who bought a new luxury item with a price over $100,000 would pay 10 percent tax on the value over $100,000. The law was SUPPOSED to soak the rich a little; what it actually did was put a lot of yachtbuilders out of business. The logic went, I can buy a new 50-foot yacht for $2 million and pay $190,000 in taxes on it, or I can buy a used 70-foot yacht for $1.5 million, spend half a million on new machinery, new electronics and a renovated interior, and come out $190,000 ahead because there's no tax on a used yacht--AND I get 20 more feet of boat in the bargain. Which would you do? You KNOW which one the rich did. All this is, is Yacht Tax II--except that in the case of Yacht Tax II you're not talking about adding on a new "soak the rich" tax that didn't actually soak the rich, you're talking about making a fundamental(ly unsound) change to the way our government raises the money it needs to operate.

I know some of y'all are in love with Mike Gravel. When I found out he's in favor of Boortz' tax scheme, I decided he has no business being president. Fuck, I'd vote for Chimpy over Mike Gravel, and Bush is probably history's leading justification for the death sentence.