Do you think the working class should be paying a lower tax than the upper class?

of course.

That’s the theory and the way it’s supposed to work.

Which taxes are we talking about?

Depends on the type of tax. Having a tiered tax based on wages earned is a no brainer.

I am mainly referring to income tax.

I believe that progressive taxation is best for both the economy and for society.

That said, if done wrong it could be catastrophic. Whether trying to squeeze blood from a rock at the low end with all of the suffering that entails or by overtaxing the high-earners, it must be done right in order to avoid severe problems.

Sadly, many in the US feel that taxing the top-earners any more heavily than Joe Six-pack is “punishing success” and advocate shifting the burden to “the lazy people” least able to afford to even eat more than five meals a week.

The income tax really is a tax on productivity. Personally I favor a tax on consumption rather than productivity. A national sales tax. I do believe everyone should have some skin in the game and by taxing consumption you get that. you also get a natural escalation of tax as you acquire more prominence. The current income tax is the most complex and inequitable tax we could have. Way too many variables. The tax rate does escalate with income but no two people earning the same salary will pay the same tax. So even though it is supposed to be fair, it can’t be.

I think It could be $1 one entry (for a lottery). After normal taxes. You can donate as much as you want. Also it would be nice if you can decide where your money gets spent. If you want more entries you need to work.

I do not. We all need to pay our fair share but higher taxes is one of many reasons we have lost the middle class. Define “wealthy” or “upper class” because I think we don’t really have a grasp of what that actually means these days. Taxing the “wealthy” is affecting just a small percentage of the population who consequently can afford to just leave or hide their shit through fancy loopholes. What happens is we end up taxing the “not as poor” into oblivion. It’s a nice feel good theory that we can tax the wealthy more to solve some social ills but I think it’s just a cop out. What we need to do is actually much harder. We have to somehow make it easier to become “middle class” and harder to be poor or super rich. How do we do that is where it gets hard but using taxes is a form of redistribution of wealth, sorry not going there. Baad idea.

They do in America.

Yes. However, as mentioned in the other thread about tax, Australia’s whole tax system needs an overhaul. That will take the election of a government with balls. We don’t have that now and I can’t see one with balls in the wings.

The upper class doesn’t work.

TIL.

@Jaxk That sounds rather regressive unless you both have exemptions at the low end and either broaden “consumption” to include things that serve no purpose other than making even more money or charge a hefty luxury tax on certain items. The rich don’t consume much more than the middle class, so “consumption tax” is just a slow way to give ALL the money to the already-rich until they are the only ones who can afford to consume anything. At best, it’s unsustainable. And unless you’re driving a Buggati Veyron to the airport and climbing aboard your own personal jet to vacation in one of your many tropical island resorts, you aren’t rich; you’re just a middle-class guy trying to make a living, so taxing the rich wouldn’t hurt you any.

But yes, our current system is way too complex.

@ARE_you_kidding_me Pretty much. The part I don’t get is how so many “not so poor” people support taxing the rich lighter than the middle class. It’s almost as though they think they are all already billionaires and that taxing the rich means taxing them. If it’s worth it to them to pay 30–33% of their income so that the Waltons and Kochs can pay <20%, they are more than free to make voluntary overpayments when they file their taxes. But I just don’t think they have the right to make that decision for every middle-class person any more than they feel it’s unfair to tax them at all in the first place.

Yes, the working class should pay less in tax than the “upper” class.

I’d say that the so-called upper class should pay so much more that they soon stop being the “upper” class.

I like the idea of a flatter tax with less loopholes. Make the tax code simpler than what we have now in America. There would still need to be low or no tax for the very poor. The wealthy would probably pay a little more.

@Jaxk If you only have a sales tax the upper class gets away tax free on a lot of their income. I’m not sure if you were suggesting do away with income tax altogether?

If there were only sales tax, the government would have to find another way to fund roads, bridges, schools, police, military, parks, social services and a whole boatload of other stuff that is funded now by taxes.

Of course, but the lower class doesn’t write and pass the laws. The upper class does.
It’s the same reason why wealthy people only pay social security taxes on the first $118,500 that they make.

The sales tax would replace income tax, capital gains tax, and payroll tax. If you want to analyze the fair tax (sales tax) you need to forget all you preconceived ideas about taxes. We ar constantly fighting on this site about corporations that don’t pay tax or don’t pay their fair share. Businesses don’t pay tax, they collect the taxes from you. All taxes. If you figure out a new scheme to get Apple or Walmart to pay higher taxes, they simply raise the price a bit and you end up paying that tax. The difference is it’s hidden. Most people don’t realize their paying it and rejoice in the idea that they’ve finally gotten that big business to pay up. With the fair tax it’s out in the open and everyone knows exactly what government is costing. Currently it’s about 23% to recover the same revenue we now collect. 23% seems like a huge number until you realize, Your already paying that, it’s just hidden in the corporate tax, payroll tax, and income tax. The consumer is already paying all the taxes with lower income (Income tax) and higher prices. Every state already has a sales tax except 5. So the collection mechanism is already in place and the IRS goes away, that’s about $12 billion.

There a lot more to say about all this but I don’t want to write a book here. Most of the debate about who pays what goes away with the fair tax.

@SquirrelEStuff I can see the argument both ways for capping the SS withdrawal. Your paying in for your own SS. It’s more like an insurance plan than a general tax for the country. It should be anyway. The problem is the governments steals (moves money) from the SS account, and uses the money other places. Your SS payment when you collect is based on the salary limit, not your actual income.

@Jaxk Go for it. Those years I saved $70kish because our income was high I would not have had to pay any tax on that money. I would have saved more like $90—$100, because the money would not have been taxed, it just went into my bank. I’m not even in that 1% everyone talks about. We don’t make over that $250k mark that is thrown around. Do you think people who make $500k plus are spending all that money? I hope not. What about that guy making $50k? He probably spends close to all of it. Meaning all of his earning will be taxed, and the $500k guy will only be taxed on the part he spends with.

I could really use that extra $20k-$30k under your plan right now. My husband and I are both out of work.

@SquirrelEStuff I do not know what your definition of lower class is but Gov. Martin O’Malley’s net worth is $0.00 because of the loans he has had to take to put his kids through college and Republican Senator Marco Rubio’s net worth is hovering around $100,000.00 and both vote on our nation’s laws and both IMO are not swimming in wealth. Wealth of our politicians is not what is important…what is important is the volume of our voices…if we scream loud enough even the rich politicians will listen and push forward legislation we desire. Write and write often your concerns to your Senators and Congressmen

@JLeslie – You’re looking at with the wrong paradigm. You’re already paying those taxes as are those making that $50K, in everything you buy. It’s just hidden from you. Most of these proposals include some compensation for lower incomes. I prefer simply making food non-taxable. Others want a tax rebate if you below the poverty level. I’m not crazy about that since it still requires a tax form. Tax free food products is easy to implement but if you go much further than that it starts to get very complex. One of the best aspects of this is that everyone gets tax. If you pay workers under the table, doesn’t matter. If your selling drugs, you still pay tax. When you buy that new Porche, you’ll make up for that cut in income tax.

@Jaxk How? If I don’t spend my money I won’t get taxed, right?

You’re right about under the table people, sales tax gets some of their money if the money is spent here.

@JLeslie – That’s right. If you don’t spend it, it’s not taxed. I’m not sure how you got to the savings you say but let’s look at some samples. I took the top 5% of income earners for 2009 ( the only table I could find quickly) and the average tax for that level is about 20%. So I’ll assume you paid that. I’m guessing but I’ll put your income at about $200K. That means you paid $40K in income tax, and saved $70K (quite remarkable by the way) leaving $90k that you spent. With the sales tax you would had 130K to spend but with an additional 23% sales tax. That means you had about $100K in spending power leaving $10K additional in the savings. A bit more once you adjust for the lower prices of goods. So yes you would be better off. Of course now your spending that money since you’re not working. This is based on a scenario where you have been saving almost half your income. Not a typical scenario nor do I see it as bad.

I notice a lot of Americans talk about introducing a sales tax or consumption tax as a somehow fairer alternative to income tax, or as a means of cutting income tax.

Be careful what you wish for. Firstly, it’s regressive—the lower one’s income, the greater the relative tax burden.

Most importantly, it seems to pass by the public consciousness. Because its applied more or less evenly to all goods, and everyone pays the same rate—it feels “fair”, and the government more easily gets away with raising it without any repercussions. It becomes a very convenient and simple political tool for a party to boast about cutting income taxes whilst simple shifting the tax burden.

As someone in the UK who has to pay 20% on practically all his purchases (there are a few exemptions and lower rates)—I look on with some envy at US prices.

Well done!

@Jaxk But, I’m not only worried about my pocket, I’m worried about the fairness in the system. Why should I get to pocket a bunch of money tax free? The rich will get richer. They will have discretionary income not taxed. That money if only invested in things like CD’s and savings accounts and similar, will get tax free interest under your plan. Meanwhile, the average guy is being taxed on everything, because he needs to spend everything he makes, and doesn’t have extra money to gain tax free interest. Let alone it’s harder for him to invest in real estate, the market, etc, because he has less discretionary income. So, he is paying taxes at a higher percent than the rich on average if only consumption is taxed.

I happen to be using some of my savings right now, but hopefully we aren’t going to burn through all of it before getting jobs.

Nobody gets rich investing in CDs.

@Jaxk Of course not. It’s just an example of interest earned. If we talk about investments like real estate, stock market, I think I mentioned those, then how are those earnings being taxed? Not at all?

No they’re being taxed. The only option I would exclude is your residence.

So, @Jaxk , what income level is tax-exempt? Or are you planning in increasing the size and expense of government despite the fact that you call yourself a conservative? I can only see two types of people who could even think of supporting such a thing; those at the top who would actually benefit from it, and those who think they are closer to the top than they really are and allow their strings to be pulled.

I don’t like our current system either, but I can’t see how replacing it with something far worse could be a good thing.

I don’t get your point. No income level is exempt, it is a tax on consumption.

@Jaxk Exactly, and therein lies the flaw.

Then again, I suppose that if someone lived a charmed life and always had enough money to live indoors, eat on a regular basis, and get medical care as needed, they wouldn’t have any idea what the problems are and others see as the weak getting their just deserves for not being an ubermensch.

From what I’ve seen from most who hold your views, it really does seem that you (collectively) cannot even comprehend what it’s like to be anything much lower than what you are. You (personally) are a modestly successful person who, unlike many actually got rewarded for hard work, but seem to have difficulty stepping outside of that mindset.

And that right there is why you and I rarely see eye to eye on economic matters; I’ve seen that reality is more diverse than any one person’s personal experience. I know how reality can diverge from theory. I know how wishing does not make things so.

To my eyes, Consumption Tax is like dumping unpopped popcorn into pancake batter to make self-flipping pancakes; an idea that looks good on paper but wouldn’t work so well in practice. The only numbers I’ve seen saying otherwise are from sources that believe other stuff that is empirically proven to be wrong like women spontaneously self-aborting fetuses in cases of “legitimate” rape. That sort of allergy to reality doesn’t sit well with me, so I cannot help but think that anyone who does the exact opposite would be closer to correct.

Oh, and before you respond, remember that you’re talking to someone who already pays 9.5% sales tax, so I see it as you advocating raising my taxes in order to lower yours while I advocate an idea that would lower the tax burden of both you and I. Under either system, you would benefit, but so long as you push for the alternative that hurts me over a win-win, I’m going to take it rather personally.

I think that the government should make a profit and pay everyone rich and poor a dividend.

@jerv – There no chance of intelligent discussion with you. You have way too much hate in your heart and rational argument with things like popcorn and pancakes or aborted fetuses don’t lend much to a discussion of taxes. You know nothing about my life or my taxes and your speculation also lends nothing to the discussion. Complain about the system we have and violently oppose any change. That should help.

@Jaxk There is no chance of intelligent discussion with someone who can’t tell an analogy when they see one and acts dismissive towards anyone who uses them. Likewise, I can see no way for misunderstandings to be so total and persistent without intent, and it’s no use trying to discuss things with those who have no interest in actual discussion. But I’ll see if you can understand this;

I don’t violently oppose any change, only those changes that I see no way how they could be a good thing. To my mind, amplifying existing problems is no solution. While I am generally willing to entertain opposing views, I draw the line at those views I see as harmful to society, such as blatantly regressive taxation. I also feel that if something failed before, I am inclined to think that doing it again without some reworking will likewise fail. I have a thing for sustainability too; I’d like a system that doesn’t leave future generations cleaning up after our mess.

Now, you don’t seem to have gotten that yet, but the idealist in me figures it’s worth giving you another shot at trying to comprehend that. You are not stupid, so I see no reason why you can’t, only reasons why you may not want to. And I’d like to think you are better than that.

Also bear in mind that what we do to correct problems we have now will likely be different from what we have after the problems are solved (or at least mitigated). Given how long we’ve let certain things go on, that transition will be rough as hell too. What the ideal is and what we need to do to get there are really two separate issues.

@Jaxk The problem with a sales or consumption tax boils down to the same one we have with the income tax, that is in that those of means are best suited at evading it. For example, while you, I & Mr. Moneybags may all shop at the Safeway, and my pack of hotdogs costs one twentieth his 2 lobsters, it’s true that he pays appreciably more in taxes. But when it’s time to buy the new yacht, Moneybags can have his 6 million dollar boat built tax free in Panama, register it there, then sail it home to dock, blocking my view of the bay from the trailer park.

@stanleybmanly My experience is that those who advocate for this sort of system look ONLY at absolute numbers and cannot understand the concept of “percentage” very well, at least not in any context that applies to anything economic.

Now, I can see a way that it would be workable, but that way would involve defining “consumption” with enough inclusions and exclusions to rival our current tax code for complexity by combining functions of Capital Gains and standardized deductions. But the only way to may the end result not be worse than our current system is if the system itself becomes more of a quagmire than the system we already have.

Barring that, we would have a system where the lower class would have the highest marginal tax rate while the middle class would STILL be paying the majority of the taxes while the top earners would dodge an even larger share of taxes than they already do.

@stanleybmanly – Whereas nothing is perfect, you’re scenario won’t work. When the yacht is brought into the country, sales tax will apply. Maybe someone could game the system but it would still be illegal. We already do the same thing with cars, yachts would be no different. As for you view, it would still be impaired.

BTW both the hot dogs and the lobster would be tax exmpt in my scenario.

I agree that food should be exempt from taxation, though some nice short stories could be written around a “red lobster” tax. But how do you tax a boat built and registered in Panama?

@jerv – I’m going to try this one more time. If you have a question, I’ll try and answer but if it’s simply an attack with no detail, I won’t.

If you are at the low income level, the first thing that happens is you paycheck gets bigger. You don pay the 7.6% payroll tax and the employer portion also goes back into you paycheck. That means that you take home pay increases by over 15%. Additionall unprepared food is tax exempt. Low wage earners pay a higher percentage of their income for food. So with the higher paycheck and the larger portion of tax exempt purchase, you should be better off than you are with the current taxes. Not to mention any income tax that you currently pay will also be gone making your paycheck even larger. We haven’t even gotten to the part where prices decline. With no corporate tax, the margins can be maintained with lower prices. That means that you have increased pay 15% plus any income tax with holding and you are paying less for the goods you buy. I can’t see how this would make anyone worse off and should make them better off regardless of income level.

@Jaxk Since you’re being reasonable, I’ll do what I can to reciprocate.

To start with, if housing costs are tax exempt, even if only on primary residences, then mansions cost the same as ghettos; there is either an exploitable loophole or complex codifying. And it would get more complex as that part would have to be adjusted regionally due to widely varying housing costs around the nation.

Next comes the fact that there are certain things that are neither housing nor food that people at all income levels use. I already have my buying power dropped almost 10% by living where I live compared to living in NH, which means I consume less. Those that make a living from production and distribution will feel a hit if you multiply that out by the population that is just getting by as is.

I don’t think a 15% increase in net income would help much either because, like many who wind up filing bankruptcy, that “extra income” would still not increase my discretionary income. It’s not like that 15% would be enough for people to do the things one would think would be possible with 15% more money, especially not if their purchasing power is reduced by higher prices. I see it as no real benefit to those that could use that 15% for something other than investments no matter how good it sounds; it may get the well-off enough to buy the V-12 Benz instead of the V-8, but it wouldn’t help the common folk that are the majority in this country.

That brings us to the matter of capital gains. If we didn’t institute some sort of luxury tax on spending without consumption, it would be regressive to the point of being repressive, but if we did the tax code would be so full of attempts to clarify what gets taxed as consumption and what gets taxed as luxury with just as many holes as there are now that it would be pretty much our current system only with tax brackets being determined by means other than AGI. I mean, those who work their asses off to make a business and sell it shouldn’t be penalized for that hard-earned windfall, but without a few thousand pages of Legalese, that would be the only way to tax those whose income is vastly greater than their consumption. Do you want something that’s just a repackaged version of what we already have? I don’t.

Now, if we were starting from a clean slate and institute Consumption Tax in concert with other MAJOR reforms then I could see it possibly working, but the fact that it would require a clean slate alone makes it non-viable without even getting into the other changes that would be required to make it work. And that assumes that we get it perfectly right, which I don’t see happening given how they’ve had plenty of time to make the current system work yet have failed to do so.

So, in short, I see it as so highly idealistic that it’s totally unfeasible. And sadly, we’ve let our current situation go on long enough that I think the best we can do is delay the inevitable and hope we can cushion the hard landing; no amount of reform can save us from the tides of history now.

@Jaxk and @jerv: I was looking at it more from the standpoint of Mr. Moneybags owns a company, and the fancy car or yacht is provided by the company, at no cost to Mr. Moneybags himself. Mr. Middleclass has to pay for the car out of his earnings, and so feels it more from the bottom line.

@jca To be sure, there would be plenty of that too.

@jca – Doesn’t really matter, the sales tax is paid either way. The company doesn’t get a write-off because there are no write-offs. The company no longer has that incentive, the cost of the car (yacht, whatever) comes right off the profit.

@Jaxk Actually, it kind of does unless the company is run by the shareholders. Those who own their own businesses won’t be able to pawn their bills off on others while a little skimming can allow larger companies to spend other people’s money instead, which really isn’t optimal.

~Not that anyone would ever be unethical enough to do a little creative bookkeeping mind you…

The reason a company might provide a car as a benefit is that it saves them tax dollars. They can provide $100K in benefit to the employee but it only costs them $65K to provide it. The car expense is written off as a business expense and is there fore pretax dollars All that goes away with the sales tax. There is zero tax benefit with the sales tax regardless of whether bought by the company or the individual. Book keeping has nothing to do with it. You’re thinking about this with current tax mindset. It doesn’t work that way and that’s one of the benefits.

@Jaxk Help me understand the workings of your point as I have seen these tax write-offs and tax incentives for companies to buy certain sized fleet vehicles as helping the big 3 sell more cars…which means good jobs and more sales tax revenue. Win win. I know I would not have bought the company car I am driving if I did not get to write it off. I have only 7 miles each way to drive and would easily drive a paid for car for 10 years or more if I had to personally eat the costs probably even ride my bicycle on nice days. Being an S corp only muddies the water more as what I don’t spend (as in a company car) I will be taxed on the unspent profits at 30% or more depending on the year. Not good for the government, for me and or for the car dealer and employees who depend on car sales to make a living.

@Cruiser – Sure. The biggest problem to get past is that there is no income tax. So whether you buy a car through your company or out of your income makes no difference. It’s all pretax. The government doesn’t care whether you buy it through the business or from your own pocket, whether it an expense or a capital investment. They don’t even look at your books. The tax gets paid when the car is purchased regardless. Those unspent profits that were taxed at 30% no longer get taxed at all. This allows you to lower your prices without lowering your income. The car you purchased will be taxed but the cost of the car will be lower. We all are so ingrained to consider the tax ramifications of everything so it’s hard to think of a system where that isn’t a concern. Think of doing whats best for your business instead of what gives you the best tax break.

@Jaxk “This allows you to lower your prices without lowering your income.”

And it’s exactly that sort of thing that makes me think the whole thing is idealistic. If the economy were filled with nothing but 100% rational actors who did only the most logical thing, then maybe. But humans are prone to all sorts of irrational things, including going against their own self-interests or acting solely in their self-interest regardless of the consequences on others; sometimes even with blatant disregard for their own future. The best-case scenario is that people invent creative new ways to pass the buck and we wind up back at square one.

My take is that if @Cruiser loses the incentives, he will buy fewer vehicles for his fleet, and the tax doesn’t _ get paid when the car _isn’t purchased. How does people not buying stuff help any? How does trimming production and cutting back on distribution benefit anyone? It seems like an incentive to just have money stop circulating since just about anything you do will be taxed unless you have so much money that you don’t care about piddly things like cost.

So far, all I have really heard is “It must be better because it’s simpler!”, and a few things that conflict with what I know of humanity and history. You think we’re all thinking of the tax ramifications that your system would render non-issues. Maybe someone else is, but I’m actually looking at how ingenious humanity has expressed selfishness over the years. I’ve lived the majority of my life paying no state income tax and wound up paying in other ways anyways, whether it be the 9.5% sales tax here (6% WA state and 3.5% King/Snohomish county) or New Hampshire’s high property taxes that drove up costs on property owners, squeezing them hard for their non-rental properties and passing on the expense to tenants of rental properties. Yes, they passed the tax burden along in the form of higher costs!

To my mind, the best test of an idea is to look at how it can go wrong and assess the chances of those conditions where things go awry actually making things so sideways. I’ve seen a few ways consumption tax can go wrong, placed those odds at near-certainty that they would go wrong (think “playing Russian Roulette with a semi-automatic”; the gun could jam, but heavy odds are that you’ll lose) even if they don’t find some other way to fail that I haven’t thought of, and am still waiting to hear about the safeguards in order to prevent the creative accounting that would ensue.

@jerv
“My take is that if @Cruiser loses the incentives, he will buy fewer vehicles”. Isn’t that exactly what everyone is complaining about. Businesses that get tax breaks, everyone else doesn’t get? Whether @Cruiser would buy the car or not is anybodies gues. If he had no need for the car he wouldn’t have bought it even with the tax break. But the equation changes when the money left (the profit) isn’t reduced by 30%. And yes, I think that anyone that owns a business is always thinking of the tax ramifications. If you own a business, you have to.

You seem obsessed with creative accounting that might ensue but I keep telling you that it doesn’t matter. Creative accounting is only beneficial for tax purposes and that goes away. If you want your books to reflect zero profit, go ahead it makes no difference. With the sales tax, accounting is only for your own tracking. Point of sales (the sales tax accounting) is already in place and the only change is the amount of tax. All those systems currently exist. Public companies will still need accounting to report to their stock holders but those system and safe guards also currently exist.

Finally, I do believe that eliminating the tens of thousands of pages of tax code and neutering all the tax lawyers would be a good thing. If you don’t like it, that’s OK. We’ll have to agree to disagree.

@Jaxk “Finally, I do believe that eliminating the tens of thousands of pages of tax code and neutering all the tax lawyers would be a good thing. If you don’t like it, that’s OK. We’ll have to agree to disagree.”

Yes, but replacing it with tens to thousands of different pages and having the tax lawyers merely use different tricks than they do now would not be a good thing, yet having it simple enough to avoid both to those things would basically be telling those who are already struggling, “Here’s a 15% raise, but everything is now costs 20% more”.

Maybe the reason we can’t see eye to eye on this is that I know all too well how people are; resourceful, creative, intelligent, not always benevolent, and even when they are they are prone to shortsightedness. Nothing you can say or do will change my views of humanity, so I’ll take you up on your offer to agree to disagree.

Do you not have a fringe benefit tax in the US?

@Earthbound_Misfit Many fringe benefits are not taxed, and a fair number actually lower your AGI just like any other deduction would. In some cases like a 401k the tax is merely deferred, but in others the “income” of fringe benefits just plain does not count.

ABSOLUTELY!