Is a federal sales tax more fair than the current income tax?
Side Score: 93
Side Score: 72
Currently federal tax income comes mainly from upper middle class and wealthy people. As the income of a person increases, so to does the amount that the people are taxed. This, to me, seems unfair. What is a fair tax rate for a person working minimum wage, should also be fair for a person making six digits; assuming the rate is a percentage of income. If the United States, or any other country, is to ever truly institute a legal system based off of equality, such differences must be reconciled.
I would not suggest that tax rates be raised to the same standards, or lowered necessarily. Rather I would suggest a federal sales tax, which would replace the income tax completely. This is a much more fair system in that everyone is taxed equally. However, the more a person spends, the more they are taxed. Since the wealthy are more likely to spend more they will still pay more into the system, but in a way that is more fair to them. Additionally the entire process of "paying taxes" will be significantly simplified.
Now this may seem problematic as far as income levels (of the government not citizens) and over-taxation of citizens goes. At first it appears that the average citizen will be taxed more under this system, however assuming a person spends less than they make this is not a problem, the government will make just as much money off of these taxes and the people will not be overly burdened by them, in fact the average citizen would be taxed less. Additionally this provides the means for the federal government to tax even illegal immigrants, or visitors. This also provides the means to curb the current trend of over-use of credit cards; which remains a major problem in the United States.
Firstly the most recent data I was able to find was 2006, so this is a little dated but hopefully will present the point.
In 2006 the average consumer unit (family, or independent person) spent about $48,398, and had an income of about $60,533 before taxes. If we exclude food, and health care from sales tax and tax at a rate of 21%, the total income is approximately $1 trillion. Now 21% may seem like a lot of money but this is 13.7% of the average income which is less than the amount that 50% of Americans paid in 2007. And this is across the board. The beauty of this system is that while everyone pays the same tax rate, the wealthy do in fact pay more because they are more likely to buy a greater amount of taxable items, on the other hand lower income families buy less taxable items and thus pay less of their income. My math may be wrong so I've included my sources below.
Although you are right that in a "fair" system, people would be taxed proportionately, you have to understand that we do not live in an ideal world. Being born wealthy has significant advantage that allows the rich to succeed therefor, at the risk of sounding cliche, the rich get richer and the poor get poorer. The idea behind the income tax is to halt, or at least slow the widening of this gap.
Based on your comments I can assume that you have never lived on minimum wage (please correct me if I'm wrong), and are unaware how difficult it is to pay for basic living expenses. In a 100% capitalist system someone who makes minimum wage should pay the same percentage of taxes as someone who makes six figures; but the U.S. is not a 100% capitalist system: no first-world nation is. This is because it never works out like it is supposed to. A person who makes six figures can survive with a 40% tax burden because 60% of 200 thousand dollars is still 120 thousand dollars. Someone who only makes 20 thousand dollars a year needs a smaller burden.
Although so far I have been critical of your idea, I do agree that it could potentially have beneficial implications (tax illegal immigrants and visitors, discourage credit card use). Therefor I suggest that the government should implement a small federal sales tax and use the profits to reduce the income tax instead of getting rid of it altogether.
I do tend to take an extreme view in debate or at least theoretical debates such as this. If we were debating a specific bill I would likely be more compromising. I truly do appreciate the respectful tone that you used in your reply.
By the way, I currently work twenty hours a week at $15 an hour. Turns our that is below minimum wage. And you know what, I get by just fine. I'm a student and my parents do help with some things, but I cover the vast majority of my expenses. I don't even get very much financial aid because my dad is Colonel in the army and makes six figures. Yet even if this weren't the case I would favor complete equality under the law to the staggered system of fairness that we currently have. I suppose fair isn't the word I should use to describe the sales tax that I envision, equal is a better way to describe it; and there is nothing equal about the income tax.
YOu should check out the Steve Forbes tax plan, which is basically a fair tax like you propose, except that you receive a prebate at the begining of the year (based on your income) so that lower income people offset any taxes they would have ended up paying.
There would also be a few deductions allowed. Overall, i think it was a great idea.
Also, there is something caled fairtax which is basically a consumption tax. Now, this one also includes a prebate at the begining of the year (based on income) so that lower income people don't take a huge tax hit at all (if they take any hit at all).
Both of these systems would - by leaps and bounds - improve our government. Filing taxes would become easier, so more people would do it. There would be less of a need for a huge IRS, so government spending also drops. And you'd see economic growth pick up as well.
The tax book is HUGE. It's freaking ridiculous. It's riddled with loopholes and industry incentives. Why not just simplify the tax code and make it fairer?
The top 1% of America's wealth will sooner or later completely leave America so long as there is an income tax. They will leave for countries with less-intrusive tax policies.
Furthermore, income taxes penalize working people. Whereas, a federal consumption/sales tax penalizes consumption instead of working and will yet reward investments. "The more you buy, the more you spend."
Side: Top One-percent are leaving America
It depends on which goods and services are being taxed more, both income and sales taxes can be exploited and abused. The problem that nobody realizes or mentions is the lack of necessity for the current income tax. Our monetary system is an outrageous fraud perpetrated by wealthy bankers for the sole purpose of extorting money out of every individual not part of their club. It's funny money and debt. Our income taxes are just paying the interest on that debt. What we really need is to nationalize the Federal Reserve so the government can issue the currency, like the constitution originally intended. That will immediately fix our debt problem, as most of it is to the Federal Reserve, and it will stop the redistribution of wealth through inflation to the hands of the insanely wealthy. It's the most important step, but only the first of many. We need to recognize what the problem is before we can agree on a solution.
Its is more than a question of what is fair. My view is that the Federal Government has no business knowing how much I make, how many children I have, nor to whom I am married. We come before the government and as such, we should be able to budget how much we pay in taxes through our purchases. The governemnt has no right to dictate to us what we owe.
To address the smaller aspect of is a sales tax more fair, the answer is yes. The rich will still pay more becuase they buy more. However, the poor will no longer be paid to stay poor.
Essentially I agree, that a flat tax is more fair than the current income tax. However I personally do not like the message that an income tax sends to people, that is "If you make a lot of money we're going to take a lot of money away to help people who don't make a lot of money." I do think that the government should help the poor, but I also think that the government should encourage economic success. The income tax just doesn't seem to encourage this idea.
The message that you say income tax sends is exactly the kind of message we need to be sending. The rich people get taxed more because they can afford it, and the poor people get taxed less because they can't afford it. If there were to be the same tax on both income levels, poverty levels would explode.
The Federal Income Tax, when used progressively, is much more fair than a sales tax.
The system is designed to negate the wealth-concentrating phenomena of the free enterprise system. The unfairness of the capitalist system needs to be balanced through taxation if the people are to be even remotely prosperous and if the government is to be able to gather the funds necessary to operate.
Here is an issue by issue explanation for why this is, in fact, fair:
First off, the wealthy may make up a disproportional amount of the income tax given to the government; however, they also make a grossly disproportional amount of income to the rest of the population. Therefor, while they make up a disproportional amount of the income tax paid; they themselves pay an amount usually less than proportional with regard to their own income.
A wealthy man or woman, for example, may pay 30% of their income (amounting to several million dollars), while a middle class person may pay a couple thousand dollars; which ends up amounting to 40-50% of their income. Sure, the wealthy individual pays more in total; but they do not pay more in proportion to their own income.
Also; someone with an income of 100 billion dollars a year could pay 90% of that income and still be filthy rich; never having to want for anything, getting anything they want (save for large islands and small countries).
However, someone with an income of 50 dollars a year and paying only 10% of that would find themselves having even less. They do not have much discretionary spending, if any.
If sales tax would be the only means of taxation the burden would fall almost exclusively on the poor and middle classes. Most of the rich have too much money to spend; most of it would go into banks, the stock market, and investments (generating them even more untaxed income).
The poor and middle classes, however, do not have large sums of money to invest; the only things they can or must use their money on are consumer goods; taxed goods. As far as percentage of income goes; the wealthy would pay only a minuscule amount of their income to the government while the poor and middle classes would bear the brunt of government funding.
This is actually a recipe for disaster, nations that have relied on such taxation found themselves in terrible positions if war or economic crisis set in. If there was a great depression and sales dropped severely the government revenues would drop both in amount and in proportion; the great reserves of wealth that the rich have wouldn't be able to be touched. The government, and the lower classes, would starve.
Finally; you may say that it is only fair that everyone be taxed equally. That the rich don't deserve to be taxed simply for being successful. However; they didn't succeed on their own. The wealthy have gotten the most out of the collective efforts of our entire nation, is it not fair to ask for more from a group of people who were given so much? The Federal Income Tax, even at its most progressive, never made a wealthy person poor. All it did was force them to buy 17 luxury mansions instead of 25, 10 new cars instead of 18, five new yachts instead of 12.
Our society couldn't possibly have developed the roads, highways, schools, universities, parks, preserves, military, NASA, NOAA, and thousands of other functions and millions of jobs without a system of taxation that utilizes the inheritance, stocks, incomes, and property of the wealthy to add to the pool of public funds.
The problem is the governments intervention of the tax code. The Income tax was SUPPOSED to be progressive, but strayed thanks to greedy politicians and corporations.
When you give the government the power to easily change something, they'll ALWAYS change it in their favor.
A consumption tax (which includes a prebate) is much harder to manipulate. Especially if you force a 2/3 majority in order to make any major changes.
The income tax, on the other hand, has changes made to it in virtually every bill that crosses congress. Various earmarks to give corporation A a small tax break, or corporation B, a tax credit. By the end of the year, the changes are various.
So in the end, the federal income tax is not a good design. And significant reform is needed to bring the tax code back to some form of normalcy.
Also, last time I checked the wealthy buy many expensive items, from cars, to mansions, to islands. But often times, the wealthy don't pay much taxes on any of these things. Why? Because of the way they cheated the system in the first place.
You see, a sales tax makes it much harder to evade the tax. With less evasion, tax revenues should move higher and the IRS should become smaller. That means less government spending, too, and the chance for even lower taxes for you and me.
Also, just check my earlier comment about the sales tax prebate. It pretty much takes care of the concern that lower income people would get hit hard by the tax. In fact, they would pay no taxes at all and receive a lump sum at the beginning of the tax year.
Let's take this point by point:
1. What you are saying is that the current tax system isn't working properly. You actually agree that a system of progressive taxation would be best.
2. However, because this system isn't working as it should due to government mismanagement and corruption you've decided to scrap the entire system and put one in place that is ten times worse.
The rich may buy more expensive goods, but by far their money is not spent on luxury items. You would be leaving billions upon billions of dollars from corporate incomes, stocks, bonds, inheritance, property, completely out of the reach of the tax code. What probably amounts to a majority of the wealth in this country (not liquid resources such as money). In other words, instead of the wealthy manipulating a system to their advantage you are giving them a system perfectly suited their needs; in other words, to their need to not be taxed at all.
"You see, a sales tax makes it much harder to evade the tax."
It makes it completely unnecessary, why try to evade a tax you barely have to pay?
The Federal Income tax is actually a very good design, it is complicated but it has worked wonderfully for years. Without it we wouldn't have the schools, highways, universities, space programs, and war machines we do today. Our economy would drop by a third or more without the tax revenues gotten by this system.
It needs to be fixed, of course, to keep it from deteriorating to an unacceptable or dangerous level. However, the only way to do that is to become politically active and make sure good people are elected to high, medium, and local office.
If you vote in good people they will do everything in their power to keep the corporations, the wealthy, and all other tax dodgers in line.
"Also, just check my earlier comment about the sales tax prebate. It pretty much takes care of the concern that lower income people would get hit hard by the tax. In fact, they would pay no taxes at all and receive a lump sum at the beginning of the tax year."
In other words; you are planning on completely destroying the Federal Government (well, and every single state, city, and county if you plan on taking that plan to them as well). You do realize that you can't not tax people and still have a government, right? Do you really think we sell enough mansions and yachts to fund even 1/1,000,000 of the schools? I doubt we'd be able to pay for a single tank, much less a missile defense system.
Your plan amounts to this:
Step 1: Get rid of all taxes.
Step 2: Levy a tax on consumable goods.
Step 3: Give back 99% of that tax.
Result: Government collapses, country hit by depression, depression spreads to the rest of the world. Anarchy ensues.
This is what always gets me; people see a flickering light bulb. Instead of tightening the bulb or fixing the wiring they decide to smash the bulb to the ground and put a much worse bulb in its place.
The solution to these problems is not scrapping a disfunctional system and replacing it with a simpler, worse one. All you have to do is elect the right people.
I don't know why some people seem to think that the government is this giant monster that isn't directly answerable to us. We have complete control over what goes on in the government; the problem is people are too easily deceived, too easily distracted, too dumb, too apathetic, or a horrid combination of all of those things.
In your argument you say that it is very easy for the rich and cooperations to avoid paying taxes. With a federal sales tax it will be even easier. All companies will have to do is buy goods from outside of the United States, a practice already hurting our economy. You will encourage those who can to spend money in places outside the United States. Does this sound like a better system to you?
excellent post. I disagree with pretty much every word but love the way you constructed it and supported it. It is a valid opinion well presented and well reasoned. Kudos!
I would point out the following:
1. Poverty is not a disease we can cure. Social engineering is not the role of the IRS. I have no problem paying more when i make more but if the poor are given more money taken from me, prices rise because they can afford to pay more. That is a free market, capitalist society. They might have a higher standard of living but they don't close the gap with the rich. This country already has more and better safety nets for minimum subsistence than most nations.
2. Inspiring the "rich" to put more into stocks bonds and other such investments is a GOOD thing, not a bad thing.We are a capitalist economy. It depends on capital. Such investment raises capital and lessens the amount of capital we raise in foreign markets. Such investing is investing in America. We should all be doing it and as a point of fact, over 63% of American households are invested in the capital markets in one way or another. As a further point of interest, according the FEC filings the Obamas are NOT invested in America in this manner. I find this curious and more but I suppose some will give them credit for this. In my opinion every single American should be invested in the capital markets in some manner and to some degree. I have started many of my friends on DRiP plans where they invest as little as $25 a month into equities. You don't have to be rich to do it. It is another whole argument but instead of being ripped off by our government partial privatization of our social security tax should be invested where it not only out performs the 1.5% return we get from social security before inflation, but it actually does the country's economy some good and is backed by actual dollars and not an IOU. This investment creates jobs, grows the economy and makes our country strong.
3. Taxation jiggering away from a flat tax is a matter of being punitive or rewarding someone. Manipulation of taxation is usually done in return for a behavior we deem socially advantageous. In other words if you want oil companies to put R&D;money into wind energy research, you incentivize them. If you want consumers to conserve energy you either tax the heck out of it as Al Gore proposed with his kilowatt tax or we reward those who buy a Prius, solar panels etc. If you want people who want to smoke to stop, you tax cigarettes like crazy as Clinton did.
4. Infrastructure was built before Income Tax. Railroad Barons floated bonds. They cheated their workers and that should not be condoned. In today's society it would not be. We have minimum wages, OSHA, child labor laws etc. Today a worker would be paid comparatively well, protected from unsafe work environments, have retirement plans and have health insurance for themselves and their families. However they would be contributing labor and being fairly compensated for that labor. But the railroad baron would be risking everything. His financial well being would be risked on the venture and in exchange for that risk, he is compensated in a huge way. The parallel you try to draw between the contributions of labor vs the contributions of the entrepreneur leaves out the whole equation of risk, and the issue of what value added each brings. A worker creates the value of his own job. No more. An entrepreneur creates many jobs and assumes risk. In a capitalist society, that is rewarded. The difference, as is common, is who can do it more efficiently. Do you want the govt to tax you and spend 4 million building a railroad they cant run efficiently or do you want a private investor to build the same railway for 3 million and then profit from it?
5. Your tale of woe and disaster is a mite off from the facts. Before income tax when economic disaster struck, JP Morgan acted as a one man federal reserve system and operated much more efficiently than todays fed. In time of war or economic disaster as spending dries up so does income so that is a wash IMO. This is exactly why Alexander Hamilton said that "A national debt, if it is not excessive, will be to us a national blessing". It allows us to borrow funds when needed in times such as you envision. Of course we can discus for decades what defines "excessive".
Here's the fundamental flaw in your logic. Simply put the rich in general receive less services from the government, so forcing them to pay a disproportionate tax can only be be justified by the idea that everyone should be forced to work for the greater good. That line of reasoning leads down only path: Communism. From experiments throughout the world it can be shown that Communist societies inevitably fail when they are translated onto nation-state levels. When there is no incentive to exceed the average, most people choose to work slightly below average.
Socialism, essentially is the attempt to avoid this problem by maintaining some sense of individual property but redistributing "excessive" wealth to the less fortunate. However, this system creates a solid, recognizable class distinction between the "haves" and the "have-nots" in a way that Capitalism and Communism do not. In a Capitalist society, the market does not care whether any person succeeds or not; it is a matter of personal will to survive. On the other hand Communism is the opposite, everyone is bolstered up upon each other but anyone who attempts to work above and beyond the norm is immediately cut down; but everyone is treated exactly the same.
As I said Socialism institutionalizes classes. It would be difficult and utterly wrong to argue that the poor should not be helped to succeed on their own, but it is equally wrong to assume that society as a whole owes anything to its members. Each individual has a responsibility to contribute to society; society does not have responsibility to the individual. It should be expected that the wealthy should choose to help the poor but it can not be something that is forced upon them. In doing so we have forced the will of the mob upon a minority.
Its hard to imagine how one can claim that most of the wealthy didn't have to work to get where they are. The wealthiest people are most often entrepreneurs who were very good at what they did. Bill Gates, for example, started Microsoft with Steve Ballmer from nothing. The supposed "robber barons" of the 19th century were often rags-to-riches stories as well.
The point isn't that anyone can afford the pay the income tax, rather its the message that the United States is saying to its people: "All men are not created equal." The same message it's been playing over and over again for more than two hundred years.
Not true. A sales tax would discourage consumption and encourage savings (since you don't get taxed on what you save, the capital gains you earn, or the dividends you collect).
So when you retire and pull money out of your 401(k) or IRA, then you pull money out completely untaxed. That can be a huge savings. This is huge. The US has a horrid ( i believe negative) savings rate. Compare that to the people of china who have a savings rate of over 20%.
A tax like this would encourage Americans to save, and not spend. This mentality would've avoided everything that's going on today. So the economic benefits should speak for themselves.
As far as the really poor people (the ones already living paycheck to paycheck) most proposals include a prebate based on the poverty level. Let's say poverty is $15,000 a year and the sales tax is 15% per year. The prebate would actually refund them that 15% up to the poverty line.
So the net affect on people who earn under the poverty line is no tax.
As opposed to the income tax which taxes rich people disproportionately? If there is no income tax then the poor will have more income to spend, not less which means that while they will continue to feel the strain of taxation it will not be a greater strain. The idea is to provide a flat tax that is not variable based off of one's economic standing. Additionally the tax need not apply to everything purchased, essentials such as groceries could be excluded or taxed less heavily.
Untrue. The poor would feel more of a strain because income tax is designed to not put the tax burden on those least capable of paying it. As opposed to the wealthy who may save large portions of their income, the poor must live paycheck to paycheck meaning that comparatively the poor are already spending more. I find it difficult to sympathize with the rich people you seem to think are so oppressed by the current tax system. A system of sales tax would not only not help the poverty gap in this country, as you seem to imply, but would in fact widen it.
from what i've seen, rich people buy really expensive shit. it's wise to save, but they save an amount... not all their money. they still spend it... and they buy the expensive shit too... if anything, they're still getting taxed way more than poor people under this system.
i don't care though, i prefer sales tax.
No, I don't think it's more fair and I believe it would be more cumbersome than the tax laws now in place. Of course, I'd have to it laid out which we cannot do here but I have some concerns. If we were taxed on what we spend there would be just as many, if not more, loopholes in that system as we have now. Would you tax money that's put away (spent) on a college fund (s) for your children, retirement, trust funds and such? Then there are the exorbitant outlays of money for health care including medicines. Wealthy people can hide money in a myriad of locations and simply spend on what won't be taxed in many situations. The poor and middle class of this nation virtually spends every dime on living expenses including food and health care. Most live beyond their means and many of those must in order to get by. Would you tax one of those people fully for a car they spent 5 years saving for, just for a down-payment, and will spend every last dime paying for? I wouldn't. There are so many details that would have to be taken into consideration I believe you'd create another monster. I think I'd much rather have a flat tax so that everyone pays their fair share with less loopholes to pour taxable income into.
Angelo makes well thought out arguements on this side, and if anyone's interested in actually thinking about this issue and not just replying out of turn, they should read those first.
I'm not going to comment on the actual taxation since Angelo laid it out so well.
I was curious what you think the effect of implimenting a maximum income system would be though? That is individuals or corporations would only be allowed to make X amount of prophet/ year, anything over would be forfeited. Of course they would try to get as close to that number as possible without going over, this would mean in many cases scaling back production of their product or service. I think that this would leave more room for competition. If Coke for example makes X prophet in New York alone, then why sell their product in Nantucket? So then, an entrepreneur in Nantucket sees a demand for a product, and starts his own business. Soon he's making X dollars a year, and has no reason to sell his product in Juneau. And on down the line.
Along with increasing the number of "rich" people instead of just increasing the richess of the top .001%, it would seriously decrease the influence of special interests in WA if vast amounts of wealth could no longer be concentrated in one place, with one person or corporation. Power to the people I think.
I don't know what a fair number would be for maximum income, like 10mil/year for individuals, and maybe 300mil/year for a corporation? There is literally nothing you can't buy for 10 million a year that anyone has any right wanting, and if there is, they would quickly lower the price anyway since no one would make that much anymore.
Any one think that would work? Or am I just dumb on this issue?
Side: maximum income
I am not opposed to income caps to a certain extent, though the effect you described is likely to occur. People would simply stop trying to earn over and above the allotted amount.
This has two outcomes simultaneously:
I agree that you would probably find a rise in small and medium-sized businesses, that would be a good thing in my opinion.
Secondly, though, if noone is earning above the cap where do the taxes come from? How will the government be funded?
What I would favor is a pyramid-like squeeze; little to no tax at the bottom with an ever-increasing gradation so that, at a certain point, a person is taxed to a de facto cap.
That way we end up with an income-capping system with its benefits AND plenty of taxes to support government services.
I wouldn't say you are dumb as any thought on this subject should be entertained. However you are just building inefficiencies into the system. Using your example of Coke, the key to Coca Cola is distribution. They don't distribute filled bottles ready for sale. They distribute syrup to be mixed, bottled and sold locally. In your suggestion these efficiencies and other economies of scale are barred from the system lowering productivity. Additionally what happens with an industry like automobiles or building jet planes. The sheer cost of entering the business prevents too many players from competing. Then look at utilities where one area does not have the raw materials needed. If one oil company does not build a pipeline to a location far from any refineries, how do you have growth of population centers or new cities when energy is not available readily. Also if a drug company is making its limit of profits, why would they invest in further R&D;to come up with new needed drugs? Profit equals motivation. I wont even address the issue of your comment about how much someone has "the right to want".
Regardless, sales tax are far from fair than the current income tax. A sales tax is a regressive tax while the current income tax is a progressive. Progressive tax is based on ability to pay, which means the more money you earn, the more you are going to pay while sales tax is a flat rate, so the more money that you have, the less sales tax affects the consumer.
I'm not sure if I am the only person who thinks that the INCOME TAX is the most unfair tax ever created, but does anyone see my point? First of all; all the drug dealers, prostitutes, thieves, pimps, hustlers and con (people) not to mention all those illegal aliens and anyone else not paying in to the INCOME TAX are being supported by you the hard working taxpayer. Why has the U.S. Government not enacted a federal sales tax. A sales tax of as little as 6% would be possible to eliminate the entire INCOME TAX. I am not an economist but I can speculate. If all the money spent in the United States paid 6% federal sales tax, can you imagine the windfall the government would receive. We are a nation of consumers, we all want a piece of the pie. Instead only the poor schmucks who work for structured companies willing to withold taxes for the government have to pay into this system. Don't get me wrong when the country needed an emergency tax to get us past the great depression it may have been a fair tax. Back then a lot more U.S. citizens actually worked for a living. I'm not sure, but I believe I pay somewhere around 30% in INCOME TAX. I welcome any economist, tax expert , or government official to repudiate these numbers based on the combined amount of state sales tax collected in the last physcal year. I honestly believe 3 or 4 % would be enough, but I know how big government is, it takes a lot to run all the social programs for the aforementioned prositutes, drug dealers, thieves, pimps, illegal aliens, and the rest of those not paying in to the antiquated INCOME TAX system. I also believe if we got to choose where our tax dollars go, many would not vote for a war in the middle east, but for medical research to improve the length and quality of life and for better education so that we had at least a chance at the good life. Thanks Galan