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Originally Posted by Butterfly  Quote: |
Originally Posted by surasak That's how it should be. No income tax and a universal sales tax with certain exceptions such as medicines, unprocessed food, etc. | How about a progressive tax on what you spend on a yearly basis ? those who work hard and save, will not pay much, while others who have "spending" addictions would be taxed to death. The millionaires with all their Ferraris will pay the most. |
The whole idea of a sales tax is to encourage savings (of which Americans do very little to none of). By switching from an income tax to a sales tax people become less and less slaves to teh government and more in control of what they pay.
I simply disagree with changing tax rates based on income or wealth levels. All other taxes are the same regardless of wealth (state and local sales taxes, so-called bed or tourist taxes, stamps, gasoline taxes, etc).
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Problem is it will never happen as it would desroy consumption. Which brings an interesting question: what are the main driving forces of our economy ? the ability to "produce" income ? or the ability to "spend" that income ? which incentives should we tax ? which incentive is more important ? and again which incintive is more central to our economy ?
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It won't destroy consumption. As you suggesting that taking money before a person has a chance to save it actually encourages consumption.
Think about it. A person makes $30,000 and pays $6,000 in combined taxes (state and federal income). Someone like that doesn't make enough to buy a house, so, the so-called mortgage deduction is out of reach. What happens is this person ends up subsiziding someone else's mortgage by paying a higher marginal tax rate than someone who can afford a mortgage (mortgage deductions are a massive form of government welfare in the United States).
Now, change the scenario. The person making $30,000 per year suddenly gets an additional $115 per weekly paycheck. You telling me he's really going to start consuming less because he suddenly has more money?
Get rid of the entire tax system (which puts a huge burden on employers, Americans, and inflates everything you buy with hidden costs), make it simple, and let the people decide.
The guy who buys those Ferraris every year is going to pay for the 'luxury' of buying them. And he's still going to pay taxes at the pump like everyone else.
Consumers drive 2/3 of all economic activity (consumption) while the goverment consumes the remaining 1/3.
Let's look at this this way: in 2005 the combined estimate income of all households was $4.3 trillion dollars. The GDP in 2005 was about $12.41 trillion. The U.S. budget for 2005 was $2.4 trillion. Tax receipts in 2005 totaled about $2.05 trillion (about $1 trillion in personal income taxes, about $800 billion in so-called retirement taxes, and around $250 billion in corporate taxes). This means about 16.5% of the GDP goes to paying taxes.
Of household income above the marginal direct income tax rate becomes about 25% and the retirement tax burden about 18% (in reality employers pay half and workers pay half, but, seld-employed pay the whole burden...I'm tacking on the whole amount since we end up paying it indirectly). So, the average American is already paying around 43% of their income to fund the government.
In contrast, as 16.5% of the GDP, the tax burden becomes less because it's a measure of economic performance versus taxes...in other words, the value of goods and services produced each year. A hidden sales tax, so to speak.
The inherent unfairness about the current tax structure is that the more wealthy pay higher taxes. Well, even in a flat tax structure the wealthy will pay more anyways. But, in the current system the wealthy are able to exploit loopholes not available to many people....multiple home mortgage deductions, capital gains (which have lower rates than income tax rates), etc. Get rid of all that and you end up with the wealthy paying what they should instead of what you think they should.
I think if everyone pays the same tax rate at the local 7-11 then everyone should pay the same tax rates on their wealth. A flat national sales tax and no income taxes. I've lived in states with income taxes and sales taxes, states with no income tax and a sales tax, and, states with no sales taxes but income taxes. I much prefer the sales tax only.