US Federal VAT Consumption Sales Tax

[August1991]

The Democrats, leftist Americans on the coast - will have to be honest and impose this federal sales tax.

If the US is a real State, it must be able to collect money from every transaction: -the IRS must take a cut of every deal.

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The US federal Government needs the money. 

 

[herbie]

Why just Dems? Isn't moving tax from income to consumption a conservative idea? Originally a way to give tax cuts on income, yet maintain the tax base?

[August1991]

On 9/27/2022 at 1:55 PM, herbie said:

Why just Dems? Isn't moving tax from income to consumption a conservative idea? Originally a way to give tax cuts on income, yet maintain the tax base?

The Dems will be forced to do it.

With 350 million people, and their ideas of society, they will be forced to do it.

====

In Canada, Mulroney did it - and was reduced to two seats.

In Japan, similar.

[Hodad]

On 9/27/2022 at 2:33 AM, August1991 said:

The Democrats, leftist Americans on the coast - will have to be honest and impose this federal sales tax.

If the US is a real State, it must be able to collect money from every transaction: -the IRS must take a cut of every deal.

====

The US federal Government needs the money. 

 

Sure, any government needs money, but there are many ways to achieve that end. Sales taxes are naturally regressive, so I'd prefer more equitable alternatives like income, wealth, corporate profit, etc.

[herbie]

and Harper reduced it at what turned out to be the worst possible time and it had zero effect on puchases. So now no one will even think of returning it to 7% when that would be useful

As for Hodad, how can you possibly claim a tax on consumption is regressive compared to tax on income? You work to get income, you don't have a choice in the matter. You choose what you buy, you can buy a less expensive item and pay less tax, you can choose not to buy and pay no tax.
As you well know, corporate taxes and on excess wealth have been cut and cut over decades so the vast majority of tax is collect from YOU, the working person.
As you location is not listed I will assume you're American, born and brainwashed your whole life with absolute hatred of any form of taxation whatsoever. And unaware that they usually start by not applying the tax to necessities, food, clothing, medicine and shelter. Then it's up to you to stop parties left, right or center to creep it onto your heat, light, gas, oil, phone, internet etc. etc. etc. like ALL of them can and will do.
I used to live just over the border and was shocked at taxes in Washington State... they were higher and on almost everything compared to BC at the time.

[Hodad]

23 minutes ago, herbie said:

and Harper reduced it at what turned out to be the worst possible time and it had zero effect on puchases. So now no one will even think of returning it to 7% when that would be useful

As for Hodad, how can you possibly claim a tax on consumption is regressive compared to tax on income? You work to get income, you don't have a choice in the matter. You choose what you buy, you can buy a less expensive item and pay less tax, you can choose not to buy and pay no tax.
As you well know, corporate taxes and on excess wealth have been cut and cut over decades so the vast majority of tax is collect from YOU, the working person.
As you location is not listed I will assume you're American, born and brainwashed your whole life with absolute hatred of any form of taxation whatsoever. And unaware that they usually start by not applying the tax to necessities, food, clothing, medicine and shelter. Then it's up to you to stop parties left, right or center to creep it onto your heat, light, gas, oil, phone, internet etc. etc. etc. like ALL of them can and will do.
I used to live just over the border and was shocked at taxes in Washington State... they were higher and on almost everything compared to BC at the time.

It's a long established and well known fact of economics that consumption taxes tend to be regressive. In simplest terms, the less money a person has, the greater the portion of their budget that must be spent on consumable goods. The higher a person's income, the more of their money into investments and other non-consumption activities, leaving it untaxed. Or, to put it another way, consumption taxes tax consumers, and the poor have no spare money to direct away from consumption--it is all consumption.

And yes, you can craft consumption taxes so that they exempt basic goods like food and fuel, but that is a blanket carve out, so you are also exempting the wealthy who don't need such an exemption. Still the bill must be paid, so that difference must be made up elsewhere.

Whereas with an income tax you can structure it progressively with exemptions that apply only to the poor, minimizing the burden on those least able to pay and shifting a greater part of the burden to those most able to bear it. The latter of which, those on top of the socioeconomic pyramid, are also those who most benefit from a stable status quo.

Of course it's also true that you can craft those laws poorly and corruptly to benefit the wealthy (the thoroughly debunked Republican trickle-down nonsense) but setting aside the quality of execution, yes, income taxes are more progressive and consumption taxes more regressive. 

And yes, I am in the US, but I'm perfectly fine with taxes. I live in a high tax area, but I'd be happy to pay more for a better social safety net, national health care, better primary and secondary education etc. 

 

[herbie]

22 hours ago, Hodad said:

It's a long established and well known fact of economics that consumption taxes tend to be regressive. In simplest terms, the less money a person has, the greater the portion of their budget that must be spent on consumable goods.

No it's not 'well known' at all. MOF it's pretty much BS if you believe they 'must' spend more. Spending is entirely discretionary as you decide what you must have vs what what you need. Everyone must spend for what they need to and you're saying it's unfair and the guy who buys a mansion a yacht and a RollsRoyce doesn't deserve to be taxed more than a tenant who buys a Fiat500?

PST is a consumption tax and only Alberta and the territories don't have one. And I know of no one that the GST prevented them buying something.

Edited September 30, 2022 by herbie

[August1991]

On 9/29/2022 at 5:10 PM, Hodad said:

It's a long established and well known fact of economics that consumption taxes tend to be regressive....

 

 

I disagree.

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The US is the only civilized state without a central consumption tax - a federal sales tax.

In my mind, the definition of civility is not how many people vote - but rather tax compliance.

All Americans should pay every time they buy. It's a vote for America, as Democrats will soon say.

 

[Hodad]

On 9/30/2022 at 4:05 PM, herbie said:

No it's not 'well known' at all. MOF it's pretty much BS if you believe they 'must' spend more. Spending is entirely discretionary as you decide what you must have vs what what you need. Everyone must spend for what they need to and you're saying it's unfair and the guy who buys a mansion a yacht and a RollsRoyce doesn't deserve to be taxed more than a tenant who buys a Fiat500?

PST is a consumption tax and only Alberta and the territories don't have one. And I know of no one that the GST prevented them buying something.

Of course it's well known. You're arguing against basic definitions that you could look up anywhere. Let's not reinvent the wheel. You didn't like my explanation, fine, go read some others.

 

Quote

 

Brookings

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So if you move the tax from income to consumption, you’re raising the relative burden on low savers, which are low and moderate income households, so almost any revenue neutral shift from the income tax to a consumption tax will be regressive in that manner. There are ways, there are conceptual ways to do it that doesn’t add burdens to low and middle income households, but I don’t think that they would actually happen.

Investopedia

Quote

A regressive tax affects people with low incomes more severely than people with high incomes because it is applied uniformly to all situations, regardless of the taxpayer. While it may be fair in some instances to tax everyone at the same rate, it is seen as unjust in other cases. As such, most income tax systems employ a progressive schedule that taxes high-income earners at a higher percentage rate than low-income earners, while other types of taxes are uniformly applied.

 

Although the United States has a progressive taxation system when it comes to income tax, meaning higher income earners pay a higher percentage of taxes each year compared to those with a lower income, we do pay certain levies that are considered to be regressive taxes. Some of these include state sales taxes, user fees, and to some degree, property taxes.

 

TaxFoundation.org

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What Are Some Examples of a Regressive Tax?

The burden of a tax results from both the design of a tax and the true economic burden of a tax. A regressive tax is often flat in nature, meaning that the same rate of tax applies (generally) regardless of income. These taxes include most sales taxes, payroll taxes, excise taxes, and property taxes.

 

Edited October 3, 2022 by Hodad

[Hodad]

On 10/1/2022 at 9:22 AM, August1991 said:

I disagree.

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The US is the only civilized state without a central consumption tax - a federal sales tax.

In my mind, the definition of civility is not how many people vote - but rather tax compliance.

All Americans should pay every time they buy. It's a vote for America, as Democrats will soon say.

 

^^see above.

The Unites States is also awash in super rich and high income earners. The answer is NOT to shift our tax burden further toward to the poor and middle class through consumption taxes. That only increases the wealth gap and drags on spending. Far better to rethink deductions and exemptions and capital gains and undo the generations of arcane carve-outs designed solely to benefit the wealthy.

Talk to me about a deduction-free progressive tax structure instead of turning to regressive systems. 

 

Edited October 3, 2022 by Hodad

[herbie]

declining to mention the low and middle incomes get the GST rebated....

declining to acknowledge that even though all pay a little more, low spenders pay far less than big spenders

There's also the option to; instead of a massive rebate program, simply drop the taxes on LOWER INCOMES massively

[Hodad]

1 hour ago, herbie said:

declining to mention the low and middle incomes get the GST rebated....

declining to acknowledge that even though all pay a little more, low spenders pay far less than big spenders

There's also the option to; instead of a massive rebate program, simply drop the taxes on LOWER INCOMES massively

Will you now concede that it is well established that consumption taxes are regressive? You can find it defined that way on any finance and economics site, yeah?

With regard to consumption taxes, low income people have less to spend and will typically pay less tax in absolute dollars, but will typically pay more as a total portion of income. It hits them harder. (The less money you have, the more your spending is tied to subsistence, and hence non-discretionary.) 

The virtue of consumption taxes is that they are supposed to be easy to implement, manage and collect. As I mentioned in my first post, one could try to construct a consumption tax that was also progressive, but at that point it becomes pretty impractical. How, for example as you mention above, would you lower consumption taxes only on the poor? Would each link in the chain have to verify and adjust rates at time of sale based on some kind of income documentation? It loses the advantage of easy administration while still being inherently regressive. 

Taxing income and wealth are both better ways of creating "fair" taxation schemes.

 

 

[herbie]

No I pointed out 2 ways to reduce the burden on lower incomes.

And I really don't care if bean counters picked a word and labelled it "bad" I heard enough economic doublespeak when I lived with an accountant, and see enough whenever a company has massive layoffs and their stock value shoots up.

 

[Hodad]

12 hours ago, herbie said:

No I pointed out 2 ways to reduce the burden on lower incomes.

And I really don't care if bean counters picked a word and labelled it "bad" I heard enough economic doublespeak when I lived with an accountant, and see enough whenever a company has massive layoffs and their stock value shoots up.

 

Ah, okay. Well, then if you're going to persist in making up your own definitions for words perhaps you'd consider providing some kind of glossary? 

I'm kidding. Please don't. But do consider putting some study. Economics is a fascinating subject. I don't have any problem with people not knowing the subject, but conversation becomes pretty pointless if one isn't at least willing to learn.

[herbie]

Not objecting to the use of the word, just to implying there's something wrong with taxing everyone at the same rate. That's the whole point and was stressed when Canada's GST was introduced, Added onto the price later so it's clear you're paying a tax and that everyone is getting nailed not just some.

The rebating part was somewhat complicated and came with a huge new bureaucracy to send out the cheques to low income and calculate those qualifying incomes year after year.
When I ran my business, it was easy as hell. Calculate the money I collected on sales and deduct all the GST I'd spent on all goods & services to provide what I sold. No complicated paperwork required. Far easier than the Provincial tax where you needed to keep records of what the PST applied to and only got a tiny % for collecting it.

The original question is why in the fiscal position of the last couple decades does the USA not use one when it surely would benefit from a GST/VAT?

Plus, let's not forget that it causes more money to move between suppliers, produces, sellers, gov't and citizens.

 

Edited October 4, 2022 by herbie

[August1991]

On 10/3/2022 at 5:29 PM, Hodad said:

Will you now concede that it is well established that consumption taxes are regressive?

Consumption taxes correct for a distortion between spending and saving.

(The US 401k and Roth show this.)

The VAT is easier to collect. In Canada, the CRA only has to verify some 100,000 people to collect the GST. (In Quebec, Revenue-Quebec collects the GST. Imagine.)

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Regressive? Our GST exempts rent and food. We have GST refunds. Mulroney was once smart dude.

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As I said in my OP, the US Democrats will be forced to impose a federal VAT. 

[Hodad]

20 hours ago, herbie said:

Not objecting to the use of the word, just to implying there's something wrong with taxing everyone at the same rate. That's the whole point and was stressed when Canada's GST was introduced, Added onto the price later so it's clear you're paying a tax and that everyone is getting nailed not just some.

The rebating part was somewhat complicated and came with a huge new bureaucracy to send out the cheques to low income and calculate those qualifying incomes year after year.
When I ran my business, it was easy as hell. Calculate the money I collected on sales and deduct all the GST I'd spent on all goods & services to provide what I sold. No complicated paperwork required. Far easier than the Provincial tax where you needed to keep records of what the PST applied to and only got a tiny % for collecting it.

The original question is why in the fiscal position of the last couple decades does the USA not use one when it surely would benefit from a GST/VAT?

Plus, let's not forget that it causes more money to move between suppliers, produces, sellers, gov't and citizens.

 

I don't think there is any inherent benefit, and there definitely isn't an appetite here for this approach. Americans are whiny about taxes in general, but doubly so about a tax that lands disproportionately on the poor and middle classes, who make up the bulk of the electorate.

Most Americans believe in a progressive tax system, but I'll readily acknowledge that we've f*cked it up with cuts and exemptions for the wealthy. Politicians know where their bread is buttered when it comes to fundraising. If you have enough money you can avoid taxation almost altogether. That's a big problem. And frankly that's the problem we should be fixing rather than moving to a system that is inherently regressive and trying to counteract that with more carveouts and rebates and bureaucracy.

Most often when we talk about tax reform in this country we talk about a simplified system in which all the elaborate deductions and sheltering go away and people pay something resembling their assigned rate.

[Hodad]

12 hours ago, August1991 said:

Consumption taxes correct for a distortion between spending and saving.

(The US 401k and Roth show this.)

The VAT is easier to collect. In Canada, the CRA only has to verify some 100,000 people to collect the GST. (In Quebec, Revenue-Quebec collects the GST. Imagine.)

====

Regressive? Our GST exempts rent and food. We have GST refunds. Mulroney was once smart dude.

========

As I said in my OP, the US Democrats will be forced to impose a federal VAT. 

Yes, they are inherently regressive. I'm curious why you think Democrats, of all people, would support a VAT? Why would democrats support a new tax that lands squarely on the constituency they are courting, poor and middle-class families, students, the elderly, etc?

[herbie]

I don't think he really thinks Democrats would....
we know Americans loathe taxation at any level by anyone so for either party it would be political suicide.

Best chance to have done it was during Reagan, it was more in fashion at the time. Missed the boat on a good gov't revenue stream.

I don't think a 5% tax would hurt anyone in the US if they brought it in as soon as inflation's corralled, everyone would be numbed to higher prices. It would hurt everyone else, as the value of the USD would go up.