Sale Tax is regressive

[fskimospy]

Yes, a consumption tax with a wage/compensation component for workers.

So nothing then.

Gotcha.

 

[Zorkorist]

lol

-John

 

[bshole]

Funniest thread ever. Do a google search on regressive tax, literally every link that pops up uses the sales tax as an example of a regressive tax. Silly argument anyways. No way will we ever go that route. Not gonna happen.

 

[Zorkorist]

Government pigs, are deciding what you do, and how you do it.

-John

 

[werepossum]

About this, if that's true that they don't want to manage their retirement..... have they noticed the fate of so many pension funds in recent years? I would much rather get the money up front and let it grow, than depend on a fund not being mismanaged. Perhaps because I'm a gen-x'er, and invest as much as I can..... I don't know.

I'm not sure what they have noticed, to be honest. The combination of believing that Social Security will not be there for them AND not wanting control over their own retirement funds simply baffles me.

Funniest thread ever. Do a google search on regressive tax, literally every link that pops up uses the sales tax as an example of a regressive tax. Silly argument anyways. No way will we ever go that route. Not gonna happen.

What we're discussing here is a sales tax where some amount is prebated back to you each month. Thus, those at that level of income effectively pay zero taxes, those above that level of income pay an increasing tax rate, and those underneath that level get a subsidy that increases the more under that set amount they earn. Remember, low income workers pay fixed payroll taxes, which makes the income tax considerably less progressive than it appears on the surface. It's basically a national sales tax coupled with a basic income, but also replaces the personal income tax, all payroll taxes, and (at least for the FairTax) the corporate income tax. I don't think it replaces the capital gains tax, but I could be wrong.

EDIT: The FairTax sets the rate at the federal poverty rate, to minimize Congress' ability to buy votes by giving away money (or get campaign deductions by giving away tax breaks.) But there is no inherent reason it has to be based on the federal poverty rate. It could for instance be based on twice the poverty rate, or even median income, to make it more progressive and shift the tax burden toward the higher income earners.

 

[dank69]

I'm not sure what they have noticed, to be honest. The combination of believing that Social Security will not be there for them AND not wanting control over their own retirement funds simply baffles me.


What we're discussing here is a sales tax where some amount is prebated back to you each month. Thus, those at that level of income effectively pay zero taxes, those above that level of income pay an increasing tax rate, and those underneath that level get a subsidy that increases the more under that set amount they earn. Remember, low income workers pay fixed payroll taxes, which makes the income tax considerably less progressive than it appears on the surface. It's basically a national sales tax coupled with a basic income, but also replaces the personal income tax, all payroll taxes, and (at least for the FairTax) the corporate income tax. I don't think it replaces the capital gains tax, but I could be wrong.

EDIT: The FairTax sets the rate at the federal poverty rate, to minimize Congress' ability to buy votes by giving away money (or get campaign deductions by giving away tax breaks.) But there is no inherent reason it has to be based on the federal poverty rate. It could for instance be based on twice the poverty rate, or even median income, to make it more progressive and shift the tax burden toward the higher income earners.

You have to understand that, just like in climate threads, bshole isn't here to learn anything. I pointed out that current sales tax systems are regressive but there is nothing stopping us from making a progressive sales tax system way back in post 66, when he first chimed in to alert everyone in the thread that he has no idea what anyone is talking about. Now here he is again telling everyone that the google tells him that sales tax is regressive...

 

[dank69]

As for Eskimo and Bowfinger, you two are just talking past each other at this point and have lost sight of the statement that kicked the whole argument off:

"Sales tax is always regressive."

Maybe it is true that at the tippy top, sales tax is always regressive, but the plan Eskimo is talking about makes the system largely progressive. So what do we call a system that is very progressive until we reach the top 0.01% class where it becomes regressive again? Does the fact that it is regressive for that tiny minority mean the whole system qualifies as regressive? No, and I think that is Eskimo's point which Bowfinger should probably acknowledge. Eskimo should probably acknowledge that sales tax is regressive for those at the high end, which is why some other tax system is needed in order to counter it, unless he does have some concrete evidence that a pure sales tax can be progressive even at that level.

 

[fskimospy]

As for Eskimo and Bowfinger, you two are just talking past each other at this point and have lost sight of the statement that kicked the whole argument off:

"Sales tax is always regressive."

Maybe it is true that at the tippy top, sales tax is always regressive, but the plan Eskimo is talking about makes the system largely progressive. So what do we call a system that is very progressive until we reach the top 0.01% class where it becomes regressive again? Does the fact that it is regressive for that tiny minority mean the whole system qualifies as regressive? No, and I think that is Eskimo's point which Bowfinger should probably acknowledge. Eskimo should probably acknowledge that sales tax is regressive for those at the high end, which is why some other tax system is needed in order to counter it, unless he does have some concrete evidence that a pure sales tax can be progressive even at that level.

What I should have said in my original post is that we should replace the income tax with a consumption tax instead of saying a sales tax, as a consumption tax is what I was thinking of, although I doubt the response would have been meaningfully different.

Even though I wouldn't prefer a tax system based solely on one consumption tax I've already provided ample evidence that a pure consumption tax can easily be progressive at all levels, regardless of income and without any additional tax component.

He seems to want to reclassify the wage consumption portion of the X tax as an income tax despite no economist I am aware of considering it as such, hence why he has been unable to provide any evidence for it being an income tax. Seems like a strange hill to die on, but it's the internet I guess.

 

[Bowfinger]

As for Eskimo and Bowfinger, you two are just talking past each other at this point and have lost sight of the statement that kicked the whole argument off:

"Sales tax is always regressive."

Maybe it is true that at the tippy top, sales tax is always regressive, but the plan Eskimo is talking about makes the system largely progressive. So what do we call a system that is very progressive until we reach the top 0.01% class where it becomes regressive again? Does the fact that it is regressive for that tiny minority mean the whole system qualifies as regressive? No, and I think that is Eskimo's point which Bowfinger should probably acknowledge. Eskimo should probably acknowledge that sales tax is regressive for those at the high end, which is why some other tax system is needed in order to counter it, unless he does have some concrete evidence that a pure sales tax can be progressive even at that level.

I acknowledged that in my first or second post, that a prebate can shift the regressiveness tipping point higher. The problem with that is a prebate is a handout that in effect reduces your tax base. Bigger prebates require higher tax rates to collect the same amount of revenue. Higher tax rates increase the incentive to cheat, which means lower compliance and higher enforcement costs.

The reality is any prebate we can afford will move that "tippy top" down to the moderately well-to-do, i.e., somewhere in the top few percent, not just the 0.01 percent. This will only aggravate wealth disparity, which is exactly why consumption taxes are so popular in Washington. Follow the money.

 

[swamplizard]

Hi Bowfinger,

Sales tax is regressive and no amount of tweaking the numbers will ever make it progressive in practice. Further, sales tax is administered by the state and my assertion is that a state that wishes to be competitive in the current market place would be better off to repeal its sales tax and replace its revenues with a progressive income tax.

Your argument is sound, while eskimopie's (is that his name, oh well you know who I'm talking about) is rooted in fantasy in real world application. Studies have shown this to be true and on the mark.

Good argument, but Bowfinger wins the debate IMHO.

 

[dank69]

What I should have said in my original post is that we should replace the income tax with a consumption tax instead of saying a sales tax, as a consumption tax is what I was thinking of, although I doubt the response would have been meaningfully different.

Even though I wouldn't prefer a tax system based solely on one consumption tax I've already provided ample evidence that a pure consumption tax can easily be progressive at all levels, regardless of income and without any additional tax component.

He seems to want to reclassify the wage consumption portion of the X tax as an income tax despite no economist I am aware of considering it as such, hence why he has been unable to provide any evidence for it being an income tax. Seems like a strange hill to die on, but it's the internet I guess.

Here's where I have trouble understanding, so maybe you can explain it to me like I'm 5:

Isn't it true that for the most part, people making hundreds of millions a year do not come close to spending most of it? Is there data that shows how much they spend and how much they invest? How does a pure consumption tax system account for that?

 

[swamplizard]

Here's where I have trouble understanding, so maybe you can explain it to me like I'm 5:

Isn't it true that for the most part, people making hundreds of millions a year do not come close to spending most of it? Is there data that shows how much they spend and how much they invest? How does a pure consumption tax system account for that?

It doesn't and can't, a true progressive tax is one that is based on income without special interest perks that allow the wealthy to pay less than the middle class. It is in the best interest of all (including the wealthy in the long run) to eliminate regressive taxes and make up the lost revenues by enacting and enforcing strong progressive income tax legislation IMHO.

 

[dank69]

It doesn't and can't, a true progressive tax is one that is based on income without special interest perks that allow the wealthy to pay less than the middle class. It is in the best interest of all (including the wealthy in the long run) to eliminate regressive taxes and make up the lost revenues by enacting and enforcing strong progressive income tax legislation IMHO.

I hope you'll excuse me for deferring to eskimo, who actually works in a field related to tax policy IIRC.

 

[bshole]

I acknowledged that in my first or second post, that a prebate can shift the regressiveness tipping point higher. The problem with that is a prebate is a handout that in effect reduces your tax base. Bigger prebates require higher tax rates to collect the same amount of revenue. Higher tax rates increase the incentive to cheat, which means lower compliance and higher enforcement costs.

The reality is any prebate we can afford will move that "tippy top" down to the moderately well-to-do, i.e., somewhere in the top few percent, not just the 0.01 percent. This will only aggravate wealth disparity, which is exactly why consumption taxes are so popular in Washington. Follow the money.

I think a tax that would be much more effective would be an inheritance tax that starts at 5% at 1 million dollars and progressively moves up to 75% at 1 billion dollars or more. A consumption tax is an obvious nod to the uber wealthy. 40% of their income goes into savings and would be therefore exempt. I would imagine raising the consumption tax on them would just shift most of their purchases over seas, which would harm America in multiple ways, less taxes and less participation in American markets being the most obvious.

 

[fskimospy]

I hope you'll excuse me for deferring to eskimo, who actually works in a field related to tax policy IIRC.

I am a policy analyst, but not tax policy.

 

[swamplizard]

Excuse for getting your name wrong eskimosky. I worked as an independent accountant before I retired at the end of 2013. It was my job to assist my clients in paying as little tax as possible without breaking the Code. I lost one account which consisted of a myriad of corporations and a partnership because I wouldn't cheat. That man is now in prison for other charges, but the IRS began auditing his books and stated that he would go back in for more time due to his obtaining an accountant who looked the other way, I understand that accountant is barred from practicing now.

 

[fskimospy]

Excuse for getting your name wrong eskimosky. I worked as an independent accountant before I retired at the end of 2013. It was my job to assist my clients in paying as little tax as possible without breaking the Code. I lost one account which consisted of a myriad of corporations and a partnership because I wouldn't cheat. That man is now in prison for other charges, but the IRS began auditing his books and stated that he would go back in for more time due to his obtaining an accountant who looked the other way, I understand that accountant is barred from practicing now.

You can call me whatever you want, I don't care, haha. If you're genuinely interested in progressive taxation I would strongly suggest looking into the X Tax. It's not only more efficient than our current system but it can be as progressive or even more progressive than what we have now.

It might put a lot of accountants out of business though, so there's that.

 

[ElFenix]

This is not how any competent individual would calculate the progressivity of a tax system because as I said before it assumes independence between variables that clearly does not exist. You don't even need to use any math to see why what you're saying is ridiculous. How many people do you know that make $200k and only spend $20k? Even one? If not, does that sound like a model of taxation that's going to give you accurate results as to what percentage of someone's income they are likely to pay in taxes?

people making $200k may not spend 20k, but they're also not spending $200k, which is the flaw in your reasoning. as the marginal propensity to save increases, the effective tax rate decreases.

Oh this is also wrong.

Keeping track of consumption can be almost no more difficult than keeping track of income taxes today. People report their income and their savings for the year. Any income not saved is considered consumed. Pretty simple.

it's weird that you see the hole in your argument but don't seem to recognize it as a hole.


edit: here's a spreadsheet showing how a consumption tax with prebate works:

20% tax rate and $5000 prebate. everyone spends their entire stack of cash until they get to $80,000 spent. from there to $200000 in income half of each additional dollar is saved, and from 200,000 on up 75% of each additional dollar is saved.

 

[Bowfinger]

people making $200k may not spend 20k, but they're also not spending $200k, which is the flaw in your reasoning. as the marginal propensity to save increases, the effective tax rate decreases.



it's weird that you see the hole in your argument but don't seem to recognize it as a hole.


edit: here's a spreadsheet showing how a consumption tax with prebate works:

20% tax rate and $5000 prebate. everyone spends their entire stack of cash until they get to $80,000 spent. from there to $200000 in income half of each additional dollar is saved, and from 200,000 on up 75% of each additional dollar is saved.

Great info, thanks. It's noteworthy that in that model, people making $75K pay the highest effective rate. After that, the rate drops. At $275K, the effective rate is already below 10%. Continuing those same assumptions, at $1M the effective rate drops to 6.4%; at $10M it drops to 4.8%.

Once again, that's why consumption taxes are so popular in D.C. They shift more taxes to the middle and upper-middle class while giving a tax break to the wealthy. Follow the money.

 

[rudder]

Greetings fellow politicos,

Sales Tax is regressive in nature and application. It effects the poor much more heavily than the rich, while supplying revenues to the state. Solution: implement or increase the Income Tax on the wealthy or reduce the Sales and Usage Tax to only luxury items.

No the poor need to feel the pain of taxes. maybe this will motivate them to get a little knowledge about politics rather than listen to the how much free stuff can I get without consequence message from democrats.

 

[buckshot24]

No the poor need to feel the pain of taxes. maybe this will motivate them to get a little knowledge about politics rather than listen to the how much free stuff can I get without consequence message from democrats.

Some people who only get tax refunds can't understand that taxes actually need to be paid.

 

[fskimospy]

people making $200k may not spend 20k, but they're also not spending $200k, which is the flaw in your reasoning. as the marginal propensity to save increases, the effective tax rate decreases.

How is that a flaw in my reasoning? I agree with this entirely and have said as much in this thread. That doesn't make his calculation any less dumb.

it's weird that you see the hole in your argument but don't seem to recognize it as a hole.

edit: here's a spreadsheet showing how a consumption tax with prebate works:

20% tax rate and $5000 prebate. everyone spends their entire stack of cash until they get to $80,000 spent. from there to $200000 in income half of each additional dollar is saved, and from 200,000 on up 75% of each additional dollar is saved.

I don't think you have read the entire thread. There are lots of ways to account for decreasing marginal propensity to consume at higher incomes, several of which have already been discussed.

 

[s0me0nesmind1]

Hi Fanatical Meat,

I have worked in the taxation industry for considerable time and I am convinced that elimination of the Sales Tax would increase actual sales and revenues in the state. With the turnover rate of the dollar this multiplies to a significant degree. There are 6 states without an income tax and 5 of them rely heavily on sales tax (Alaska has no tax on anything, more on that later). An upper level income tax increase would supply the needed revenues for the state treasury since these would benefit greatly from an elimination of sales and usage tax.

While we're at it, I also propose an exemption on property taxes that would substantially help the lower income families. But that is a topic for another thread.

Thanks for responding.

You obviously have zero clue what you are talking about and CLEARLY do not work in tax.

The liberal countries you fondle over in Europe are entirely based on VAT instead of income tax, which is a form of consumption (sales) tax. Furthermore, eliminating sales tax would not make people spend more. People are too stupid to realize that 19.99 is $20, let alone the fact that they are too stupid to know or calculate sales tax.

 

[swamplizard]

You obviously have zero clue what you are talking about and CLEARLY do not work in tax.

The liberal countries you fondle over in Europe are entirely based on VAT instead of income tax, which is a form of consumption (sales) tax. Furthermore, eliminating sales tax would not make people spend more. People are too stupid to realize that 19.99 is $20, let alone the fact that they are too stupid to know or calculate sales tax.

Greetings s0me0nesmind1,

If you say so, but it is not hard to envision that those with a low to modest income will have more to spend without a sales tax and thus increases the profits of those selling goods and services. When you apply a sales tax, you effectively place an artificial ceiling on demand which in turn reduces sales.

Glad that you are of substantial intelligence to make blanket judgements as to other folks reasoning and areas of expertise. TTFN.

 

[werepossum]

You obviously have zero clue what you are talking about and CLEARLY do not work in tax.

The liberal countries you fondle over in Europe are entirely based on VAT instead of income tax, which is a form of consumption (sales) tax. Furthermore, eliminating sales tax would not make people spend more. People are too stupid to realize that 19.99 is $20, let alone the fact that they are too stupid to know or calculate sales tax.

Um, pretty sure he can work for decades in tax accounting in Kentucky with little or no knowledge of taxation in Europe. In fact, I'd bet that the vast majority of tax accountants in Kentucky have little or no knowledge of taxation in Europe.

As far as your larger point, I think anything that leaves people with more money encourages them to spend more whilst anything that leaves people with less money forces them to spend less. If you take money away from people up front, they obviously cannot spend that money. If people have to pay an additional sales tax, that does tend to discourage spending, but since most people spend most of what they earn, if they start with more money (because of no income tax) then they will spend more.

Greetings s0me0nesmind1,

If you say so, but it is not hard to envision that those with a low to modest income will have more to spend without a sales tax and thus increases the profits of those selling goods and services. When you apply a sales tax, you effectively place an artificial ceiling on demand which in turn reduces sales.

Glad that you are of substantial intelligence to make blanket judgements as to other folks reasoning and areas of expertise. TTFN.

Hi buddy. Hope you're doing well.

If it's only a sales tax, then I would agree. Any way the government takes money from people results in people spending less. But with the FairTax or the version Eskimospy is referencing, the government is pre-bating back what everyone spends at some level, whether that level is poverty level or an arbitrary level based on average income, nice round number, or beheaded chickens falling on a particular square. Thus people who earn less than that end up with net more money to spend, and people earning exactly that amount have exactly as much money as before. Where it is different is that if they choose not to spend all of what they earn, then what they save is tax-free. Whether that is a good thing depends on how much one values the power of the federal government to incent or disincent certain behaviors using tax code, and whether one believes that spending everything one earns is necessarily the best for the nation.

With people who earn more than the set amount, the percentage they pay depends on how much of that they spend. With a 20% sales tax and a set value of $50,000, someone who earns $200k and spends it all (including the prebated $10k) pays 20%. Someone who earns $200k and spends $100k pays only 5%. And someone who earns $200k and spends $300k (from savings, inheritance, trust fund, etc.) pays 25%.

Thus sales or consumption taxes which include pre-bated or rebated credits up to a set amount are very progressive for the low earners, mildly regressive to mildly progressive for the middle earners, and increasingly regressive for high earners, although depending on behavior and situation they can be progressive for high earners too.