Prepare for the coming of the Consuption Tax

[mikelewis]

This morning on Springer on the Radio, he was talking about a consuption tax that would not tax income but would levy a tax on all expendatures over a certain amount delimited by the poverty line.

He suggested that the tax would be graduated at a progressing scale.

I listened and it sounded okay but it didn't seem like a reality. But then this afternoon on the Michael Medved show, he brought up the same exact plan. So either, someone mixed up thier talking points or this idea is being floated as an option and they are guaging the public interest and probably drumming up support for it.

Some opposition that has arisen in some of the callers was the fact that those who have saved for years under our current tax system would get taxed again as they spend the money that had already been taxed as income. While I don't have anything to worry about there, they can tax my $87 if they want to. This may be a real issue for people approaching retirement age who have managed to tuck away enough to live on. I see the point they were making.

Other than that, this seems to be the only opposition to the radical new tax proposal from both sides of the aisle. I don't know enough about taxation to even offer an opinion as to the feasability of this option but it appears as if this is going to be an option.

The President has called for a restructuring of the tax system in his last state of the union and with the economy going in the crapper and his march to save Social Security petering out, this may be a proposal we will see in the near future.

Now since, I don't trust any of them as far as I can throw them, I would like some debate on this idea from the DU. What are the benefits of a consuption tax system? Are there any countries that use a system like this? What pitfalls exist in this type of system? Do you support or oppose this type of system?

(Special note - I do listen to right-wing radio as sometimes it is the only thing on. I can't afford XM and I hate the commercial music. I listen to NPR most of the time but they don't focus on the issues that interest me and they talk so slow ans soft I almost fall asleep so most of the time I sit in my car pissed off, listening to these nut jobs and thinking of ways to destroy them. They cue me into what is coming down the pike and what to oppose. Usually I oppose anything and everything they say and I would have opposed this if I hadn't heard Jerry talking about it this morning.)

[lostnfound]

1. How about a sales tax on stock sales and corporate acuisitions?

hahaha.

Put another way, if I buy $50 in books I must pay a sales tax; if I buy $50,000 in Barnes & Noble stock, or a $50,000 book store, I don't pay any sales tax.

[Tux]

2. Sounds good

But sounds like something Libertarians would support so I'm against it.


http://www.econlib.org/library/Enc/ConsumptionTax.html

[mikelewis]

5. Hey now, the libertarians support legalizing weed so they can't be all...

that bad. Also remeber it was Bardinick along with Cobb who went to bat for us in this last election, they brought on lawsuits when the one's who should have decided not to. I appreciate what they have done though I do not agree with what they believe. And did I mention, they support legalizing weed?

[Tux]

6. Legalize all drugs

Philip-Morris would expand into crack, pot, meth, and whatever sells. Great idea guys. Let's allow corporations to sell drugs. Pot is fine but crack?


http://www.lp.org/issues/relegalize.html

[mikelewis]

7. Weed and Crack are as different as night and day...

Marijuana is about as dangerous as alcohol, maybe even less. I don't agree that they should legalize crack or any drug that causes such devastation but marijuana is not a dangerous drug no matter what people say. I don't partake myself but I did when I was in college.

And corporation already sell drugs, they make them, bottle them and distribute them legally throughout the U.S.

I believe we could take a large burden off our society by legalizing marijuana and using the tax money generated to combat the other more sinister drugs. Hell, legalized marijuana sales could probably generate enough income to fund another war or two.

Besides, marijuana is as easy to get and impossible to stop. Legalize it and drive the pushers of dangerous drugs away with the money generated from the tax.

But regardless, I was responding to the attack on the libertarians who have proven to be a freind to the democrats when we needed them. Yes, they are more closely aligned with the Republicans but at least they have a respect for the rule of law and a belief in democratic principles. Thier ideas are way out of the mainstream and this is why I am not one of them but I won't knock them. Because the listened to us when we needed them, I am willing to listen to thier ideas and will engage in a debate with them without disdain because they have earned my appreciation. I have more respect for them than any Republican because of the aid they brought our party.

[Tux]

9. Allies?

A political party that says it wants to legalize drugs? They didn't make a list of what would be illegal so I take it, all drugs would be legal. Besides, how can they pay fed employees without taxes? Libertarianism, no offense, sounds childish, naive, and just dumb. No taxes, crack for all, and we're all happy.

[mikelewis]

10. Actually, they support taxing import/export goods only and

they want a weak federal government with increased states rights. They value individual freedoms over goverment control and think the rule of law should only apply in cases of property rights.

"No taxes, crack for all, and we're all happy." This is a childish and naive assessment of thier party and shows what little respect you have for the opinions of others. Simply because I disagree with someone does not mean I would deride them for failing to see things my way. This is how Republicans treat their opponents not Progressives.

I read a little about them, I found some of thier ideas interesting but not realistic as I believe that society should be managed with a balance between the rights of the individual and the needs of those who cannot stand on thier own. I do believe "it takes a village", not just to raise a child but to provide for the well-being of society as a whole. They believe differently but it does not mean that they are childish and stupid, it means they see things different than I do.

[punpirate]

3. This has been discussed a great deal...

... here in the past. Try searching the archives for "consumption tax" or "national sales tax."

You'll get a very broad array of views on the subject.

To my mind, it's just another way to push the taxation load onto the middle class and off the wealthy.

All sales taxes are, by definition, regressive taxation.

[China_cat]

4. They aren't looking at the numbers.

Some that have been floated have been a 23% or 26% national sales tax.

Which nobody seems to mention will NOT eliminate any state sales tax you already pay and will impose it on people who live in states that, at present, do not charge sales tax on food and medicine (which SC does, so it wouldn't change anything there for me).

It would add that extra tax on to every gallon of gasoline you buy, your electricity, gas, and water utilities. And in the end, would not bring in enough to replace what the income tax revenue is now even with the rich not paying anything. For that to happen, the national sales tax would have to be approx. 62%.

[PeaceProgProsp]

8. Edwards on the consumption tax:

Lincoln believed that it was imperative that the Union pay for
the Civil War and not pass that burden on to future
generations. At first, there was the idea to increase tariffs and
other consumption taxes to pay for. But when it became clear
that would place most of the burden on the poor, and on the
working men and women, Lincoln found another way.

...

{The Republicans} have e liminated taxes on
even the largest inheritances, even those that were never taxed
in their owner's lifetimes. As I speak, they are trying to make
the elimination of the estate tax permanent. They have cut
taxes on capital gains and stock dividends. All told, they have
cut taxes on investment income by 22 percent, more than
twice the tax cut for earnings.

This is what they have done already. Their ultimate goal is to
eliminate all taxes on the unearned wealth of millionaires and
put the entire tax burden on work. Grover Norquist, has said
that’s the goal; if he gets his way, George Bush will do
it.

Shifting the tax burden from wealth onto work betrays our
country’s deepest commitments. Listen to Lincoln
again: “Capital is only the fruit of labor?; Labor
is the superior of capital, and deserves much the higher
consideration."

On this issue, I will take the 19th century Republicans over the
21st century Republicans every time

...

Some conservatives say their goal is to create a new
consumption tax. That's the ve ry same kind of tax that
Lincoln deemed unfair to poor people and workers.

But look at their agenda again. They're not actually
seeking a consumption tax. What they are seeking i s a wage
tax. They won't tax the consumption of a millionaire
who buys his Mercedes out of capital gains. They will only tax
the wages and the purchases of people who live off the sweat
of their brow.

http://www.oneamericacommittee.com/new-school.asp

[mikelewis]

11. This is why I love the DU - thanks for the post

Great post.

I still don't understand how this would unfairly burden the poor and middle class.

How would the consumption tax adversely affect the poor and reward the rich since the poor don't consume as much as the rich do? Also, with an exemption for people below the poverty line, these people woun't be taxed at all. Would the tax be included in each purchase or would it get collected at the end of the year? If it was included with each purchase, I can see how it would be a burden to the lower and middle class. However, if they collect it at the end of the year, it would be difficult to collect and the penalties would also adversly affect the same people. But still, the rich should pay more according to the graduated scale of taxation.

[PeaceProgProsp]

12. Here's how.

For the sake of argument, say you make 50,000 and pay 10,000 in federal tax, that's an effective rate of 20%. Say you make 150,000 and pay 37,500 for an effective rate of 25%. Say you make 1.5 million and a lot of that is dividends and cap gains taxed at 15%.

OK, now say you switch over to a consumption tax. Of 17.5%

In this speech, Edwards points out that one quarter of black and Latino families have no savings -- the spend more than every penny they have. They go into debt.

If you got an Earned Income Credit before on 15,000 of income and 15,000 of spending, suddenly you're in the 17.5% tax bracket. If you borrow money and spend it on taxable items, you're paying tax on wealth you don't even have. You have to borrow to pay your tax bill, and paying that tax forces you to borrow more to consume, which is taxed again. The effect is that a consumption tax on people who have to borrow money starts to spiral you into more debt and more borrowing to pay for taxes.

Say you're the 50,000 earner with 40,000 in spending on 50,000 income and say 25,000 that is subject to consumption tax. Now you're paying a little over 4% on Federal taxes. That's a big decrease, right?

Now we have the 150,000 a year earner. Say that person has 50,000 in taxable spending. That person is paying an effective rate of less than 3% on federal taxes, down from 25%.

The 1.5 million earner -- lets's say that person spends 150,000 a year on taxable items and invests the rest. That person will pay an effective tax rate of 1.75%.

So, you see, the wealthier you are, and the more you save, the lower your tax burden. And you have to consider as well whether we can actuaally reduce taxes on average and high income earners 75-90% and increase it on low income earners and still bring in enough revenue to do anything. We obviously cannot and that's why Republicans are consciously overburdening earned income with, specifically, the AMT and with payroll taxes.e

[mikelewis]

13. But those scenario aren't realistic...

The model Springer put forth was structured with a three line tax form.

Line 1: What you made
Line 2: Your Savings
Line 3: Your total expendatures derived by subtracting your savings from what you made.

You then deduct say $20,000 from your total expendatures and apply a graduated scale on this amount.

From $20,001 to $40,000 your tax is 10%
From $40,001 to $60,000 your tax is 15%
And so on,

Now, I don't know a lot about taxes but I do know how people spend money. Yes, a person making $50,000 might save $10,000 and then pay taxes on $20,000 at 10% which would be $2,000

But saying a person making $150,000 would only have $50,000 in taxable expenditures is unrealistic. With the above equation, the person making $150,000 would spend $70,000 and save $80,000. But a person making $150,000 would spend more that $70,000. A person making $150,000 lives in a nicer more expensive house, drives a more expensive car, has higher utility bills because his house is bigger. He buys more luxury items. It is possible for this scenario to take place but it's highly unlikely. It doesn't take into consideration that fact that the more a person makes, the more he spends.

The same applies for the person making $1.5 million. Yes, they may be able to save a lot but they would also spend a lot more. They almost have to. They invest, they pay for luxury and extravagance that demonstrates thier success. It's possible that they can save a lot of money and thereby avoids high taxes but it's not a realistic scenario.

In this equation, the poor pay little to no taxes, the middle class pay moderate taxes and the wealthy shoulder the largest burden. Right now, with our current system, the loopholes and the special interests have moved most of the burden on taxes from the wealthy to the middle and lower class. I agree that a national sales tax is a terrible idea and the logistics in setting up the Springer system and how to collect the taxes would take some serious scrutiny but before we trash the idea, I want to look at realistic figures.