I had a quick idea I wanted to get some feedback on.
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Goal:
- Fair: avoid situations where some pay taxes while other's don't (tax evasion schemes, loopholes, black market)
- Progressive: people making more pay more
- Simple: no accountant/lawyer needed
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Idea:
What if we only had sales tax (no income tax)?
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When I first heard of this, it was from Bill O'Reilly which I disagree with on most topics. I immediately discarded the idea as poor people spend all their disposable income, but rich people only spend a small part. In other words, poor people would pay a higher effective rate, which in my view is unfair (even though in absolute terms they'd still pay more tax).
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But it got me thinking, what if the sales tax applied not only to physical goods but also to virtual and financial products? It would be similar to the so called "Speculation tax" Bernie Sanders and others keep talking about. Rich people would effectively pay tax when they purchase bonds, stocks etc the same way they would if they bought a car.
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Side-effects (that i can think of, let me know if you see others):
- Recude the size of the IRS (cost reduction)
- No need for audits, accountants etc (productivity increase)
- No tax loopholes and no reason to store profits in a tax haven country
- People taking cash payment (tips, work for cash) are now taxed to proportionally to their income (assuming they need to buy things). This applies to organized crime too. (revenue increase)
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Potential problems:
- Company that both buys products from outside the country and has workforce outside of country. That company effectively does not pay taxes... but then again, is that company really using the country's resources such as roads?
- People stop charging sales tax. Right now i think people avoid charging sales taxes because they themselves want to avoid the income tax. If they no longer have to pay income tax, I think they'd be no reason for them to not charge the sales tax... other than to give the customer a discount.
- No income tax deductions. Harder to incentives behavior, like giving to charity (although giving to charity is often a tax loophole), green energy initiatives. Would need to give deduction at source.
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Curious to hear your thoughts, cheers!
So... what determines a rich person? What determines a poor person?
Is the poor person going to be taxed on the funds in his 401k? What about the rich person?
How about bonds? I mean "junk bonds" obviously because everybody who doesn't know what those are hates them. But government bonds? Municipal bonds? School bonds? Church bonds?
What about corporations? Are they being taxed on securities purchases? What about issuances of securities? What about non-profit corporations? Like, say, the NFL?
Who's going to collect this tax? Who's going to monitor it? What if I buy foreign securities? What if foreigners buy our securities?
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Speculation taxes are not used to raise money. They're used to curb the use of derivatives, options and other financial instruments that main street USA doesn't understand. Nader has called for them before. The British have had one since 1694. The point of doing this is it theoretically keeps Goldman Sachs from inventing things like CDOs, CDS and other alphabet-soup 3rd-order casino games by making it a pain in the ass to apply multipliers - the idea being that ten thousand options on the April 15 GM .70 can be had for pennies if you only carry it for a few days but if you charge a penny on every share you have an option on, there's a $100 "tax" which will likely kill your speculative desires, thereby discouraging people from trading options. But as far as "real" money goes, that's ten thousand shares of a stock at $31 a share and you're only pulling in a hundred bucks.
So they work for that, up to a point. The problem is that the SEC is ponderously slow at coming up with new regulation because they work for the government. Investment banks, on the other hand, work for the devil so they can come up with new ways to profit off money much faster than any government regulator can dream of controlling. And even then, we're only talking about a nuisance tax, a little sand in the gears to slow things down. If you wanted to get, like, real money out of them...
Your choice is 300 million americans, each crunching through the 1040, trying to pickaxe back the money that's already been withheld through an arcane system of partial self-reportage
OR
The toughest, nastiest, quantiest megacorporations in the world doing their damnedest to hide the money that you don't know about.
Which do you think is going to generate more tax revenue?