General Question

Nullo's avatar

No politicking, just economics. Would simply taxing all goods and services work better than the American system of taxation? Akin to sales tax.

Asked by Nullo (21973points) January 2nd, 2012

I said it before: no political talk in here, just money.

Observing members: 0 Composing members: 0

36 Answers

Imadethisupwithnoforethought's avatar

I think, and have for awhile, taxing individuals is messy and inefficient. Taxing all goods and services is even more messy and inefficient. If I had to redo from scratch, I’d perhaps only tax corporations, inheritances, and capital gains as a way to simplify everything.

JLeslie's avatar

I’m confused. So, do you mean only businesses would pay taxes? No taxes passed on the the final consumer?

robmandu's avatar

A simplified tax code would be great for many of us individual folks – if nothing else, it’d almost completely eliminate the need for complex tax filing forms. And that’s why you hear some people get excited about the prospect of a flat tax.

However, I don’t think it will ever happen.

The current tax code equates to POWER for the government. And how many politicians – of any stripe – actually work to decrease their power and influence?

Unfortunately, while an economic case can likely be made for massively simplified taxing, I think that a political discussion will always be on the table.

elbanditoroso's avatar

In general, no.

The problem is that a tax on goods and services is more regressive to the poorly paid. In other words, a poor family would make less money and pay a larger percentage of their income in taxes. So a goods and service tax would make the rich richer and the poor poorer.

Of course, you can throw in exemptions for one thing or another, but then you have reinvented the overly complex system we have now. No real improvement has been made.

Of course, if you are a member of the ruling class, having a poorer laboring class to step on might very well be a goal you want to reach. After all, being a member of the 1% isn’t a whole lot of fun unless there are people beneath you to spit on.

submariner's avatar

Michigan has a 6% sales tax on goods and a 4.35% flat income tax; it used to have a separate tax on businesses. A few years ago the state gov’t tried to pass a 2% tax on services to replace the business tax and close a budget deficit (at the time the governor and state house were Dems, and the state senate was GOP). There was a huge outcry from business owners, large and small, of both parties, and from GOP voters and others who were opposed to any kind of tax increase. The service tax was rescinded before it went into effect. I never quite understood why it is any harder for a business to collect a service tax than a tax on goods, but the proposal upset a lot of business owners, even though they wanted to get rid of the business tax.

RealEyesRealizeRealLies's avatar

I believe in a flat sales tax, plain and simple. No other taxes beyond that. Rip up the tax code and dismember the bloated branch of government that gets paid to confuse us with it.

Charles's avatar

I have no idea. And neither do thousands of MBAs and PhDs.

zenvelo's avatar

Unfortunately, you can’t break the method from the politics. It all depends on whose ox is gored.

When I studied taxation, it became evident there is no “fair” tax, any tax method ends up being disproportionate to someone. A progressive income tax is about as fair as it gets.

As noted above, a sales tax/use tax/value added tax, affects the lowest income groups disproportionately more than income taxes.

Nullo's avatar

@zenvelo Mostly I mean that I don’t want this to degenerate into a bash-fest.

HungryGuy's avatar

On the one hand, I like the idea of freeing private individuals of the paperwork and responsibility of paying taxes, and putting that onerous responsibility exclusively on businesses and corporations.

On the other hand, as others have said, taxing goods (whether a US style sales tax, or a European style VAT) is a regressive tax that, in effect, taxes the poor at a higher rate than the wealthy.

Unfortunately, any kind of progressive tax will probably have to be an income-based tax that puts the burden on individuals to certify their economic status to those who determine what taxes they pay.

Even with a flat tax, people will have to report their income to the tax collector as part of paying that tax.

RealEyesRealizeRealLies's avatar

”...a regressive tax that, in effect, taxes the poor at a higher rate than the wealthy….”

Convert the food stamp program into a tax coupon program.

marinelife's avatar

It is a regressive system of taxation that falls most heavily on the poor.

CaptainHarley's avatar

Draw a line below which are people making no income, or only sufficient income to avoid starvation. People below the line would pay no taxes, and would additionally be paid a guaranteed income sufficient to bring them up to the line. People above the line would pay a fixed percentage of their income in taxes, with no exemptions, no deductions, no exclusions.

HungryGuy's avatar

I don’t know if this is a good idea or not. It’s not my idea, someone proposed it a few years ago and I’m just tossing it out into the discussion…

The government gets all its income from a sales tax/VAT. This frees private individuals from the onerous responsibility of reporting their income and paying taxes. This, of course, is an extreme regressive tax that taxes the poor more than the wealthy. But there’s also a negative income tax. If your income is below a certain amount, you can file and get a refund through the negative income tax.

RealEyesRealizeRealLies's avatar

That’s similar to what I suggested @HungryGuy. Sales tax discount coupons could easily be distributed just like food stamps to those who qualify.

But what I don’t understand is how some here claim that a flat sales tax would somehow be more burdensome to the poor. I’d appreciate if someone could explain it to me.

submariner's avatar

^Because they’d have to tax the poor more to raise the same amount of revenue.

Suppose tax rates are 15%, 28%, and 35% for different income levels. Taxing everybody at 15% won’t raise the same revenue.

Alternatively, they could tax everybody at 15% and cut spending drastically, but that would mean cutting programs that the poor rely on and/or gutting the military budget.

Edit: Oh, you said flat SALES tax. Did you mean flat income tax or simply sales tax? I don’t know if anybody has proposed a graduated sales tax, though my state exempts food from sales tax.

Judi's avatar

I think it would reward the hoarders and stagnate the economy. (You said no political answers, but I have to add that I agree that the poor who spend ALL their money would be taxed at a much higher rate and I think that’s immoral.)

RealEyesRealizeRealLies's avatar

Remove all taxes except for sales tax. No more income tax. No more property tax. No more tax codes. No more loopholes. No more deductions. No more fancy accounting to hide money off shore. No more tax free out of state purchases that encourage consumers to buy beyond their local communities.

Offer sales tax coupons for those who qualify. Run the program like the current food stamp program.

submariner's avatar

A sales tax is a tax on consumption. The poor have to spend more of their income on consumption, and more of their consumption is basic needs. Your coupon idea might get around that, but then people would still have to report their income to qualify, and then we’re off and running with the tax code again. I’m not saying the coupon idea is unworkable, just that it might not be as simple as we might hope.

Taxing consumption might be the way to go if we want to shift to a more investment-oriented economy. Maybe we could just tax energy consumption, and those who use energy for manufacturing or farming or other business purposes would pass the costs to their customers. We’d have to figure something out for imported goods, though.

JLeslie's avatar

@Nullo I’m curious to know what you think? Do you want taxation only on spending? I like a combination of taxing income and sales, similar to how we have it now, but I would like it tweeked a little.

Nullo's avatar

@JLeslie I had heard someone describe the VAT as a tax that you pay on the things that you use, an idea that I find attractive in its simplicity. But I’m not really sure that you could reasonably expect to support a government with it; I suppose that it would adapt, eventually.

I’ve seen some intriguing answers in here, especially from @RealEyesRealizeRealLies and @submariner and @robmandu and… well, pretty much everyone. Nice answers, folks; I’ve got my mental floss for the next few days.

I am uncertain whether the regressive or progressive tax is the more unfair. While the regressive would consume a larger proportion of a smaller income, the other one smacks of discrimination – are we not all created equal? I suppose it’s down to relativism vs. absolutism.

JLeslie's avatar

@nullo I think maybe don’t think in terms of progressive and regressive and decide if you think everyone should be taxed the same on their income or not. At least that is where I would start in the thought process. Should the guy who makes $250k a year pay a smaller percent on his income than the man who makes $50k? Why would the richer man be entitled to pay less? You use the word discrimination, I don’t agree with that word in this context, but I’ll use it, and ask you, isn’t the system discriminating against the lower income person if he pays 20% taxes on income and the richer person only pays 10%?

RealEyesRealizeRealLies's avatar

If I were King, there would only be sales tax. And you wouldn’t even realize it because the listed price of every product would already have it figured in. The tax would be the same for local purchases, online purchases, and out of state purchases.

The only warnings you’d get would be:
1 – a big fat red white and blue sticker that said:
THIS PRODUCT MADE IN THE USA.

2 – a big fat black and white sticker that said:
THIS PRODUCT NOT MADE IN THE USA.

truth stings… keep it stupid simple

JLeslie's avatar

@RealEyesRealizeRealLies So you are fine with wealthier people paying much less tax on their income?

RealEyesRealizeRealLies's avatar

I don’t look at income as a source to incumber purchasing power.

I clearly stated above that tax coupons could be applied like food stamps are used today.

I don’t believe in taxing income at all. I don’t believe in penalizing people for making more money than I do. But I do believe in helping people where they need it most.

JLeslie's avatar

@RealEyesRealizeRealLies But, would it be a penalty if the rich are taxed exactly the same percent on their income as the poor? I know you said you don’t believe in taxing income, I’m just curious why you think the wealthy are entitled to pay a much lower percent on their income compared to the poor? Or, maybe income truly does not factor into the equation for you.

RealEyesRealizeRealLies's avatar

Why should a person be penalized for earning more money than another?

mattbrowne's avatar

In Germany we got two different VAT rates. A much lower one for all the essential products and services like flour and bread, and a higher one for everything else. The principle could actually be expanded to more than two levels. Just as an example

3% essential
10% not essential, but positive effect (such as books, bicycles, computers…)
25% luxury goods

This way it would not hurt poor people so much.

JLeslie's avatar

@RealEyesRealizeRealLies I don’t see taxing everyone at the percentage a penalty, but I guess you do.

CaptainHarley's avatar

@mattbrowne

That has real possibilities for the US. Not a bad idea at al!

elbanditoroso's avatar

@mattbrowne – who decides what is ‘essential’ or ‘positive’ or ‘luxury’?

Who is someone else to decide what is essential TO ME?

RealEyesRealizeRealLies's avatar

@mattbrowne In addition to the VAT taxes, is there also an income tax in Germany?

My point about doing away with US income tax is that there are so many loopholes, deductions, and barely legal ways to get over on the system, that the rich don’t end up paying the percentage they’re supposed to anyway.

This is not just a problem pointed at the uber rich. Any self employed business person understands that they can get over on the tax code by keeping their personal wealth low while keeping business profits high and reinvesting the profits back into material assets for the business to show no profit on paper. And no paid on the material asset because it’s viewed as a “business expense”.

So lets say I bill a client $1000 for services rendered. Three months pass and they call to let me know my bill is too low because they need to show a loss on the job. This not only benefits their profit/loss deductions on taxes, but in ensures they will get the same budget number to work with in the next year. They end up paying $4000 for a $1000 bill, just so they can claim a loss.

What do I do with the extra cash? Putting it in the bank only causes me to pay more taxes. Now I’ve got to seek a shelter too. The best solution is to purchase equipment, a material asset which not only depreciates, but is as good as gold if needed to sell. It’s like putting the money in a holding pattern that pushes the tax away until the depreciation nullifies it.

So my little scenario is no different than a major corporation investing profits in low income housing, or green technologies, or anything that looks good to the public, and shows great potential for creating jobs… but the real reason for the investment is simply to hide the money.

All this could be overcome with a pure consumption tax. Investments would be made purely on the profit potential, and the tax would be collected at every transaction along the way. GE would have to pay consumption tax on every nail and stick of lumber purchased to build the low income housing project they create as a tax shelter. And they would have more incentive to make it profitable, rather than hope it goes belly up in failure just to achieve the loss required for deductions.

JLeslie's avatar

@RealEyesRealizeRealLies You can be in favor of getting rid of the loopholes and write-offs and for a flat income tax, rather than ditch the entire idea of income tax altogther.

Comsumption tax would be awesome for me personally, regarding my bank account, but it seems so unfair. The rich would really get richer with that set up, and our country was the most prosperous and stable when our middle class grew. A consumption tax would be hard on the poor and most of the middle class.

I’m interested in @mattbrowne also, but it is not apples to apples America and western European countries, because their C-level executives and business owners do not make 150 times more than the other employees in an organization. America is quickly becoming rich and poor.

submariner's avatar

We should probably just get used to the idea that we will have to scrape the barnacles off the tax code from time to time. Like so many other things in life, the tax code needs periodic maintenance to combat rot and parasites. Rather than scrapping the income tax, we just need to clean it up every 10 years or so, and get rid of all the special breaks that have outlived their usefulness or were snuck in in the course of legislative sausage-making.

Simplicity and elegance are desirable, but results are what matters, and a complex tax code that raises the needed revenue in the fairest way possible is better than a simple tax code that is unfair or leads to structural deficits (Michigan’s current tax code has both of these problems).

mattbrowne's avatar

@elbanditoroso – A group of experts would decide on the lists.

mattbrowne's avatar

@RealEyesRealizeRealLies – Yes, there’s also an income tax in Germany and it’s higher than the one in the US. Property taxes are lower.

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