Why not a national sales tax instead?

[Openmind]

I like to use an analytic approach when trying to understand a scheme. To set the rates of a multilevel tax plan would require knowing how much is spent on the various items in each level. The top level is equivalent to a luxury tax, which was tried in the past and failed because these items have a large price elasticity -- sales dropped and industries suffered.

All the data necessary to explore a multilevel tax is available, but to compute various schemes would require a few weeks of work. It was easier to compute flat sales tax. However post #88 above shows that it would be imperative for the second level to be around 29.2%. Sales would suffer there too.

I understand about the elasticity of some items (precisely because they are not "necessary items."). So, yes, the luxury car dealers would suffer, and the yachts manufacturers, and the jewelers.

However, have you noticed how many luxury cars are foreign made? How many of top jewelers are also foreign? And the same goes with yachts construction.

Now, if people choose not to buy a Mercedes because they don't want to pay the "luxury tax" on those cars, they will STILL need cars, and may turn to more basic, less expensive cars Made in America. . .whether they are American brands or not, as long as they are manufactured here. . .it would be a positive change for job creation.

 

[Lagboltz]

However, have you noticed how many luxury cars are foreign made? How many of top jewelers are also foreign? And the same goes with yachts construction.

Now, if people choose not to buy a Mercedes because they don't want to pay the "luxury tax" on those cars, they will STILL need cars, and may turn to more basic, less expensive cars Made in America. . .whether they are American brands or not, as long as they are manufactured here. . .it would be a positive change for job creation.

I would hope that they would turn to American made. How do you define a luxury car -- say, a car that's over $50,000. You can bet that a lot of foreign and American cars will be built to cost $49,999. Multilevel sales taxes would cause quite a complex market to evolve. A new type of cost-demand curve would have to be understood for each market.

 

[Openmind]

I would hope that they would turn to American made. How do you define a luxury car -- say, a car that's over $50,000. You can bet that a lot of foreign and American cars will be built to cost $49,999. Multilevel sales taxes would cause quite a complex market to evolve. A new type of cost-demand curve would have to be understood for each market.

I would say that a car over $40,000 would qualify as a luxury car.

And. . .nothing wrong with the manufacturers building more efficient, smaller cars under the $40,000 level.
Yes, it would change the cost/demand curve, but with computer technology, it would take all of 1 week to get all the new curves in place.

Maybe it would even help convince people to buy smaller, more energy efficient cars. . .and, please, do not tell me they are more dangerous because if they are hit by a big car, they get more damaged!

The idea is to prevent accidents, not to built a tank to survive accidents! In fact, even if you take the biggest, strongest cars, they would be nothing in an accident with a truck. . .and you can't take the trucks off the roads!

Those "big cars" just give a false sense of safety. . .that's all!

 

[Pandora]

These are IRS figures from 2008, the latest I could find. The government revenue from income tax was $1.03 T. The total income of everyone in 2008 was $8.43 T. If we went to a flat tax to collect the same $1.03 T amount it would be 1.03 / 8.43 = 12.2%. A family earning a minimum wage would have to pay 12.2% x 15,000 = $1,833 extra taxes because of the flat tax. That would really be hard to take. Government assistance would have to make up for it for poor families.

On top of that would be FICA at 7.65%. That makes it roughly 20%. The FICA would bring this poor soul's payroll tax deduction to around 20%.

The FICA part of Buffet's tax would be minuscule, so Buffet would be paying only around 12.2% total, not to mention his capital gains at 15%. So rather than paying 17.7%, Buffet would probably be paying 13 or 14%. That simply is not fair. In short the "fair tax" is not fair.

I agree the fair tax is not fair, thats why i wanted to try something else.

 

[Pandora]

A sales tax would be too high of a percentage to replace the income tax. This conclusion comes from a simple arithmetic, but still, I may have missed something.

The total income tax revenue for 2008 was $1.03 Trillion
The total amount Americans spent was $4.4 T. (US Census Bureau)
The percent sales tax to equal the income tax would be 1.03/4.4 = 23.4%.
The total government receipts was $2.17 T, which means 1.14 T came from other revenue sources. I will assume that is the same.

So the conclusion is that if we were to replace income tax with a sales tax, the sales tax would have to be 23.4%. That's way too high. It shows what we already guessed that the poor buy a lot more stuff as a percentage of their income than the wealthy. The average household spends 78% of their income.

Couldn't it be lots lower if we taxed on all things?

 

[Pandora]

What about having three level of sales taxes?

One. . .absolute necessities (basic food, medication, medical care, electricity and gas, water, etc. . .) would not be taxed.

Two:. . ..necessities of modern living (basic cars, cable TV, internet connection, clothes, shoes, toiletries, appliances, public transportation, including basic airfares, basic hotel rates, most electronics, houses up to the "jumbo loan" level, etc. . .) would be taxed at, let's say, 20%

Three: . . ."wants" and luxury items (luxury cars, luxury homes, furs, designer clothing and accessories, jewelry, perfumes, first class air fares, Luxury hotels, yachts, private planes, etc. . .) would be taxed at, let's say 30 or 35%.

ANYONE who resent paying the 30 or 35% sales tax could just abstain from purchasing the "luxury" items.

I actually like this idea except the no tax on some things. I would rather see a 5% tax on food and the stuff in the first list and a 15% instead of a 20% on the second list, I am ok with the third list,

at least then you are taxing the item not targeting people who have done well in life.

 

[Lagboltz]

I agree the fair tax is not fair, thats why i wanted to try something else.

Right. I was just trying to put ballpark numbers on the flat tax since it was easy to compute.

 

[Lagboltz]

Couldn't it be lots lower if we taxed on all things?

That's pretty much what I was doing -- taxing all spending. I'm not sure what you mean by all things. Since spending is 78% of household income on the average, there is only about 22% left. That's probably savings.

 

[Pandora]

That's pretty much what I was doing -- taxing all spending. I'm not sure what you mean by all things. Since spending is 78% of household income on the average, there is only about 22% left. That's probably savings.

I thought you were not doing clothing and food

Pocket presented a good argument to tax all things so it brings the tax down
and open mind gave a good pitch for a 3 tier tax


There just has to be a way to get the money the government needs to run without forcing some to pay for others against their will. At least with a sales tax you can decide by what you purchase how much tax you want to contribute.

 

[pocketfullofshells]

SO work vehicles are not luxury cars? Truckers should pay huge taxes so they have the joy of hauling our crap around? A work truck/van?

Also do you want a system that says...buy a car...but if you buy It would be best you don't buy a luxury one ( the ones that car companies make the most money on)? I am sure that would go over well with the auto industry thats just trying to get back on its feet. Create a artificial price point that all of the sudden...I am buying a 38000 care, but If I add the sunroof, leather seats and a nice sound system...all of the sudden my car not only cost 2000 more...but I have to pay a new tax rate? well screw it skip the extras then ( you know the options that make the money for the car company's)

Does public transportation count limo rides?

Perfume is a luxury? is that just the 300 buck bottle or the 30 buck one my Gf likes? does it count 10 buck knock offs?

Food is taxed at the low rate...what about fast food? same rate as the grocery store or Restaurant? If I go to 7 stake house for a 80 buck steak...do I pay a higher tax rate?

1st class airfare? ok but not 2nd? so what if I just call out best seats 2nd class? or something else?

why should gas and water not be taxed? do we want to make it easy for companies to just use up resources and drain the local water supply and drain the power system with huge volumes of it at no extra cost?

Is my 27 inch tube tv one tax rate and the 60 inch LED 3D 1080i the same?

by the time you guys are done, I will have to hire a accountant to go with my when I shop.

 

[Pandora]

SO work vehicles are not luxury cars? Truckers should pay huge taxes so they have the joy of hauling our crap around? A work truck/van?

Also do you want a system that says...buy a car...but if you buy It would be best you don't buy a luxury one ( the ones that car companies make the most money on)? I am sure that would go over well with the auto industry thats just trying to get back on its feet. Create a artificial price point that all of the sudden...I am buying a 38000 care, but If I add the sunroof, leather seats and a nice sound system...all of the sudden my car not only cost 2000 more...but I have to pay a new tax rate? well screw it skip the extras then ( you know the options that make the money for the car company's)

Does public transportation count limo rides?

Perfume is a luxury? is that just the 300 buck bottle or the 30 buck one my Gf likes? does it count 10 buck knock offs?

Food is taxed at the low rate...what about fast food? same rate as the grocery store or Restaurant? If I go to 7 stake house for a 80 buck steak...do I pay a higher tax rate?

by the time you guys are done, I will have to hire a accountant to go with my when I shop.

The three tier was more simple till you came along

 

[pocketfullofshells]

The three tier was more simple till you came along

I know I am crazy with all my ...devil is in the details.

Why not give up and listen to my simple idea...income it taxes...4 tiers...each raise in tiers only effects money made after that amount. ( if it was 10% up to 10,000 and 15% over 10,000...and you make 20,000...you pay 12.5%...only the 2nd 10,000 is taxes at 15%) ( numbers used just to make math easy not real percents)

Very few loopholes...just the basics...home mortgage, Medical, and education. Not charity...or limited...( its used as a loophole...like Bill gates "donates 20 million...but its donated to his own Charity...) And what you want to buy after that is up to you...you want to spend 50,000 a car because you know what you got a 100,000 house and not the 200,000 one you could have got and you like cars and your not home often anyway and it fits your needs.

the Sales tax system says if I value a nice care more then a spendy house...I should be punished. I would rather have a small house and be able to have a boat to go fishing on...should I be punished for that because what I value is not the same as someone else? Plus this leaves it very open to Buying lower tax rates with lobbyist...I am the auto company...I give 5 million to the candidate who says raise the luxury rate on cars from 40,000 to 50,000...

 

[ProudLefty]

I thought you were not doing clothing and food

Pocket presented a good argument to tax all things so it brings the tax down
and open mind gave a good pitch for a 3 tier tax


There just has to be a way to get the money the government needs to run without forcing some to pay for others against their will. At least with a sales tax you can decide by what you purchase how much tax you want to contribute.

Your premise is that people are happier paying sales tax than paying income tax? The poor are happier paying a higher effective tax rate than the rich are paying?

My observations are that people grumble about Income Taxes but they are used to it and huge change will be very unsettling to everyone.

 

[Lagboltz]

I thought you were not doing clothing and food

Pocket presented a good argument to tax all things so it brings the tax down
and open mind gave a good pitch for a 3 tier tax


There just has to be a way to get the money the government needs to run without forcing some to pay for others against their will. At least with a sales tax you can decide by what you purchase how much tax you want to contribute.

You just have to remember the total amount Americans spent in 2008 was $4.4 T. There would not be enough revenue to substitute for the income tax revenue of $1.03 T unless the average sales tax is 12.2%. That is way too much for the lowest 50% of the population.

 

[Pandora]

Your premise is that people are happier paying sales tax than paying income tax? The poor are happier paying a higher effective tax rate than the rich are paying?

My observations are that people grumble about Income Taxes but they are used to it and huge change will be very unsettling to everyone.

no my premise is that i hate the current tax system that thinks some should do nothing but get a check back and some should pay far more than others and some should pay a little.

forcing someone to pay more because they made it so someone who never bothered to even try to make it could get something back that they never put into it is just so wrong on so many levels.

at least with a sales tax we could decide how much we want to contribute based on what items we want to buy.