Sales Taxes are Regressive Taxes

I’d like to show yall the definition of the regressive sales tax.

regressive tax

A tax that takes a larger percentage of income from low-income groups than from high-income groups.

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The people that pay the most sales taxes as a percentage of their income are about 50% to 90% of retirees. Those who can not afford to retire.

What are you thoughts on sales taxes?

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I liked sales taxes when I lived in Montana. But now that I live in Nevada I do not like them as much.

Andy

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How much were you paying? How much are you paying now?

In Montana we didn’t pay sales tax. In Nevada I pay 8.38 percent. It ranges in what municipality you live in.

Andy

How would you feel about 25 to 35%?

Some folks think it would be great. I am talking all of us paying a flat whatever in that range.

Yes, sales tax is regressive. But people know very well how to minimize this problem.

In NJ, food, clothing, and drugs are exempt from sales tax. That covers most situations used by the poor. Yes, you pay sales tax on restaurant bills and on items like furniture or TVs. But its an easy compromise.

Recently we discussed VAT value added tax. Also regressive. The calculation is complex. One advantage of sales tax its easy to calculate and not subject to arguments.

Leap I understand the problems with Sales tax very well. It is a terrible way to raise money. I am for a tax on income with limited deductions. House, children ( because everyone is worried about the population decline) and that is about it. Than tax at progressive rates. 40,000 0 tax 75,000 10 percent and keep going up till 50 percent tax. If someone making a billion dollars a year can’t make it on 500 million cry me a river of tears.

Andy

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If say the sales tax out of say DC was 30% or 25% someone making a billion would pay about what? $100k to $1 million in sales taxes if s/he bought a yacht. Yacht maybe $60 million in sales taxes. About 6% of a billion in a blue moon.

A sales tax need not be regressive. One example is this proposal described by a member of the Brooking’s Institute. It pairs a 10% VAT with a universal basic income (UBI) that comes out to $5,200 for a family of four.

“The Tax Policy Center estimates that the VAT in conjunction with a UBI would be extremely progressive. It would increase after-tax income of the lowest-income 20 percent of households by 17 percent. The tax burden for middle-income people would be unchanged while incomes of the top 1 percent of households would fall by 5.5 percent.”
https://www.brookings.edu/blog/up-front/2020/01/30/how-a-vat-could-tax-the-rich-and-pay-for-universal-basic-income/

I favor VAT or sales taxes over income taxes for three reasons. First it is a difficult tax for the wealthy to avoid paying. Second, it helps the environment by reducing consumption of goods. Third, it promotes savings over consumption (Americans are not saving enough for retirement).

A VAT addresses a lot of problems.

The problem with this is that most people who “make” a billion dollars in a year don’t actually realize an income of a billion dollars…it is an unrealized paper gain. There are a few exceptions such as Musk selling lots of Tesla shares to fund his silly Twitter purchase.

Mike

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“JCs” would not buy yachts, any more than they buy Gulfstreams. The company, meaning the shareholders, buy the yachts and Gulfstreams for the “JC” to use, for life.

Jamie Dimon pulled in $80M last year, but he can’t use any more toilet paper than I can.

Steve

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The wealthy can buy offshore.

The FAA has a rule that executives have to bill air fare to the corporation. David Kay Johnston documented that in Perfectly Legal.

I doubt the corporation has to pay in anyway for a yacht. Unless it is rented for a week for a company meeting. I am talking yachts owned by major shareholders.

There does not appear to be a high correlation (or perhaps any) between a high VAT and high savings rates.

Compare the savings rate of European countries to their VAT:

Take Greece for example. It has the lowest savings rate and one of the highest VATs.
Lux, with the lowest VAT, has the second highest savings rate.

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Hawk,

It does create some efficiencies perhaps. The Europeans try different approaches to many things whereas the Americans can be much more wasteful. I do not think that is fully a tax policy issue. Ironically as the Chinese manufacturing base came up and explored waste in China boomed in many regards as well. I would not say the Europeans are insulated against waste by their cultures or tax policies.

The impact of a consumption tax on savings depends on the amount of disposable income (money available for nonessential buying). Make nonessential goods more expensive with a VAT in a population with significant disposable income (Luxembourg) and there will be a shift from consumption to savings. Do the same in a poorer population (Greece) and the impact on savings is smaller because there is much less to shift.

If the income tax is replaced by a VAT people will take home more money but nonessential goods will be more expensive. More disposable income but now saving has become more attractive than consumption. Same thing happens if a VAT is combined with a UBI or tax rebate.

Everyone in the US who has saved money has done so after taxes.

Would we then tax them 30% on their spending? That bankrupts most of the seniors in one stroke.

College students paying of student loans?

Families trying to buy their first home?

Parents trying to send a kid to college and retire?

Brilliant? Well thought out as usual? Helping America? Helping American citizens? Caring? Intelligent? Throw a bone any bone.

I guess it is unfair to tax the rich.

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I’m not sure this is entirely true. I’ve saved quite a bit in my 403B (as others have in 401Ks).

Pete

However, it is still taxed when you make a withdrawal in order to actually use your savings. Then you would be taxed a second time for using the money.

DB2

I think a national sales tax would be a disaster.

If you have a 401 plan, would withdrawals now be tax free? If not, I am paying tax twice on the same money, once when withdrawn and once when spent.

Same with after tax savings. You’ve already payed taxes on the money, now you have to pay taxes again when you spend it.

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