But that 35% sales tax is a huge increase for everyone at the bottom, that’s the point. The bottom 50% pay “no income tax”, spend roughly 100% of their income, and would have their taxes go up by XX * 35% in taxes under this scheme (where XX depends on what you put in the exemption bucket or not). There’s probably data from Washington state or similar on the distribution of purchases, but you can’t just stop at “35% would work” since you have to exempt more things if you goal is not to be regressive.
P.S. I don’t think when people call for “just sales tax” they also mean “oh and sure plus capital gains” (besides, this would just shift back towards dividends).
Raising state income tax to 10% is not enough to exceed what I pay in sales tax in my state, so such a move would be a net positive for me.
If I were a millionaire, it would be a very different story, and I would end up paying more in taxes. But if I were that rich, a relatively small change in my tax burden wouldn't have any real impact on my lifestyle, so who cares?
I think sales taxes are generally regressive. They disproportionately impact the poor and middle class, who spend a greater percentage of their income on taxable goods and services than the wealthy.
I think I don't like this idea for the wrong reason.
Making sales tax less regressive would be a good thing.
The implementation difficulties don't bother me per se; I think what's making me not like this idea is that it wouldn't do much for wealth disparity. If you're Wealthy with a capital W, you don't really spend that much, compared to your income.
But even if I'm also interested in tax policies to decrease the accumulation of massive amounts of wealth and the accompanying power in the hands of a single individual, I shouldn't dislike a tax policy that would do a different good thing -- if it could be implemented -- just because it doesn't do the other thing I want.
Sales tax only puts the burden disproportionally on the poor.
If you're making millions of dollars a year you're probably only spending a small fraction of it and if there's only sales tax you pay tax on a percentage of what you spent. So let's say you made 30 million dollars and spent 8 and say the sales tax rate is 15%. In this case you paid 1.2MM in tax for a marginal tax rate of 4%.
On the other hand if your income is 15k you're probably spending it all or very close. In which case your marginal tax rate is 15%.
Not all that fair I'd say.
Personally I like the progressive income tax method. I just think capital gains should be taxed as income rather than at a flat 13% and no special rules for corporations either. If they want to be people they can be taxed like people. If they want to be different then we can just get rid of corporate personhood. I doubt they'd like that much.
The problem with that is that it's regressive and hurts those who earn less.
Let's say sales tax is 10%. If I'm a high earner and buy a cheap Android for $50, the $5 I'm paying in sales tax has a much lower impact on my budget than it does to someone who earns less than I do and wants to buy the same phone.
Many people oppose ideas like this because it is less progressive (w.r.t. income) than an income tax, and they hold an apriori belief that taxation should be proportional to income. This is because consumption rises sublinearly with income, and people at the bottom actually tend to consume more than they earn. In mathematical terms, dConsumption/dIncome < 1.
In practical terms, this means that most of Steve Job's wealth is not stuff he can consume, but rather productive capacity that he directs.
In fact, many people at the bottom of the income scales actually consume considerably more than they earn, so a sales tax would be a big tax hike for them.
Raw data: ftp://ftp.bls.gov/pub/special.requests/ce/standard/2009/income.txt
Yep. The proponents will point out the prebate, which is nice. It means that someone making below the poverty level income will get either a small bonus or pay 0% (it's reasonably safe to assume most people at that income don't have, unless they're a dependent, much ability to save). It helps. However, once you start getting to middle incomes and upper incomes it quickly becomes regressive, like all sales tax-based proposals. People earning $1 million a year aren't spending $1 million a year, or would be able to spend or invest it on things that this tax doesn't cover. A family with $100k/year gross income would find themselves paying a higher percentage than that millionaire.
I think this is fundamentally a regressive idea. Currently the very poor pay zero (or effectively zero) income taxes. No matter how you structure the sales tax, you cannot go below zero. (I think negative sales tax is not actually realistic, nor particularly progressive.)
A system that only taxes spending fundamentally has problems in that the richer people can afford to save and invest.
>> Still, all Californians will be chipping in: Proposition 30 also raises the state sales tax from 7.25% to 7.5% for four years, starting Jan. 1, 2013.
> But not chipping in equally or proportionally. Only the very top tier have an increased income tax, so they will be paying more from the start. And the simple reasoning that "people with more money tend to spend more money" says that the top tier will also be chipping in more of that sales tax.
that totally depends on what you use to determine proportionality or equality.
A sales tax is equally proportional from the persective that everyone pays the same amount for the same amount of dollars spent, regardless of net worth. It's progressively proportional from the perspective that people who spend more have to pay more taxes, and up until a certain point, people spend all or nearly all their income. It's regressively proportional from the perspective that the rich do not in actuality spend all or even most of their income (ie your simple reasoning fails to be consistent with reality somewhere between $100k/year and $1M/year) and instead park it investments which are not taxed through sales tax (depending on who you talk to, it's because the rich have run out of things to buy, or because they are being responsible with their money).
A flat income tax is equally proportional from the perspective that everyone pays the same percentage of income. A flat income tax is progressively proportional from the perspective that the rich must pay more dollars than the poor since they have benefited more. A flat income tax is regressively proportional from the perspective that the rich have much more discretionary funds than the poor people after taxes, since many expenses, like food, housing, rent, gas, and car maintenance are relatively inelastic until at least the upper-middle end of the quality spectrum.
A graduated income tax is equally proportional from the perspective that equal amounts of income is taxed at the same rate regardless of the total amount of income (eg: two brackets, x <=100 := 3% and x > 100 := 3.25. An income of 105 has a tax of 100 * .03 + 5 * .05 = 8.05 and not 105 * .05 = 5.25). A graduated income tax is progressively proportional since the people in a higher bracket pay a larger percentage of income than those in a lower bracket. A graduated income tax might be regressively proportional from the perspective that the total amount of tax paid is supposed to be roughly equal to the benefits received from being a part of that society and if the beneefits from being a part of the society are much more progressively proportional than the tax rates and brackets.
> Prop 30 was a piece of shit. I personally voted for the competing Prop that would have given a equally proportionate income tax bump across the board.
I agree with you that the tax increases should have been across the board, and I think the increase should be progressively proportionate. But prop 38 did a bunch of things wrong outside of getting the tax increase part right:
"For example, none of it could be used to increase salaries. But the restraints appear to deter some kinds of reform, such as lengthening school days or years, creating regional pools of resources or offering more instruction online. And the measure bars the Legislature from changing any provisions that prove problematic; instead, any amendments would have to be made by the voters.
The biggest shortcoming of Proposition 38, though, is what its supporters consider its main selling point: the fact that it walls off from the general fund most of the money it raises. That's a real problem for the current fiscal year, which will be over before much of the funding would kick in.
. . .
In addition, the singular focus of Proposition 38 on education is misplaced, particularly in light of the deep and damaging cuts the state has been making in programs that aren't already guaranteed half the state's general fund. As much as the schools need help, they aren't the only ones in need of rescue. And walling off another chunk of the state's revenues would only make it harder for lawmakers to address the breadth of the state's needs." [1]
A sales tax is always regressive, no matter how you tier it. Poor people spend 100% of their income/net worth monthly. The ultra wealth spend something like 0.00000000000001%.
(Admittedly without putting any real thought into this,) it seems like it could be made less regressive by excluding necessities that make up the vast majority of a low income family’s budget, having a “medium” rate on some other categories like consumer electronics, and a “high” rate on luxury goods. Quotes because I have no idea what “medium” and “high” would need to look like for the numbers to work.
Some states with sales tax (Texas and Florida come to mind) already do something like this by excluding groceries from their sales tax program.
Income taxes are generally either flat or progressive. Most consumption taxes are regressive. So you'd expect that a revenue-neutral change from income tax to sales tax would end up benefitting high income earners.
A national sales tax is the most regressive tax possible.
While an income tax captures all income, at least in theory, a sales tax doesn’t apply to money that isn’t immediately spent. It doesn’t apply to money that is parked in the stock market, spend outside the country, spend on personal employees like your butler, and, depending on specifics, real estate.
So in terms of real-world effects, this is rather transparently a wet dream for the super-rich and, maybe, some of their lesser friends. It will allow, by definition, people earning twice as much as they can currently spend to cut their contribution to society in half, with those spending most of what they make on consumables auch as food or clothes on the hook to make up the difference.
Sales tax is even more regressive because the poorer you are the more likely you are to spend essentially all of your income. Sales taxes would have to go way up for that to work. We don't need to run an "experiment" to know the likely effects of this policy.
The argument against is essentially that sales taxes are regressive because wealthier people spend less of their wealth and thus pure sales tax is not a fair way to divide costs.
I understand sales tax is in theory regressive, but this seems wrong/naive upon scrutiny because you would assume higher earners consume more than low earners, thus contribute more sales tax in absolute terms, if not quite in relative terms.
Could you explain a bit more how negative sales tax is unrealistic? We already subsidize things we want to encourage.
> A system that only taxes spending fundamentally has problems in that the richer people can afford to save and invest.
That is an existing problem inherent to any tax system. It's just saying "Rich people can afford to not spend all of their money". I don't see how that's fundamental to taxing only spending.
Isn't that how income taxes work? Two people pay a proportionally different amount based on their income?
I think the earlier poster is stating that an equal % tax is regressive against low income folks (sales tax being the classic regressive tax). Lower income earners pay a higher percentage of their income towards sales taxes than rich folks.
P.S. I don’t think when people call for “just sales tax” they also mean “oh and sure plus capital gains” (besides, this would just shift back towards dividends).
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