Why a Consumption Tax is the Best?

[QuestioningStudent]

I'm still trying to get responses to this, any thoughts from those of you who have a grasp on this concept would be very much appreciated.
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As I understand it, paying taxes is a way of paying for the benefits you get by being part of a particular society, protected by that society's government, etc. For example, we pay taxes in America because we derive benefit from our government and society, and taxes are our way of paying our dues. Does that sound about right? Of course, this does not address the purposes on which tax money would be spent; I'll go with the standard reasoning that those goods for which people wouild not derive sufficient profit to find worth producing themselves, or those goods which have their benefits so diffused amongst the population that collecting a fee would be ridiculously tough to do in any other form save taxes, are the _minimum_ that taxes should be spent on.

If that's the case, and please let me know if you think otherwise, then it seems like the most morally/ethically appropriate tax modality would be some sort of a national retail sales tax. Before anyone gets too upset with that, please allow me to explain myself.

Granted my first paragraph being accurate, then:
-The justification for taxes is the benefit we derive from our
society and government.
-If we are going to expropriate someone's life (in the form of
taxation of money they have earned), it makes sense we have a
logical standard. It seems that standard should be the value of the
benefit they have obtained from living in our society.
-While we obtain money through employment (either working for a
business or corporation, being self-employed, etc.) we do not derive
any actual benefit until we spend our income. More money=more
spending power, yes, but it is only when we spend the money that we
realize a value, whether that value be in the form of food, shelter,
transportation, health care, entertainment, etc.
-If we only derive value from spending money, then we only derive as
much (objectively measurable) value from society as money we spend.
-So to be fair and equitable about taxing people in proportion to the
amount they benefit from our society (and, although the reasons
might be debatable, don't the rich actually realize more of a
benefit from our society than anyone else?), and thus, in proportion
to what they spend.
-In other words, a national sales tax seems like the most (ethically/morally) desirable system of taxation.

Okay, I know that went on for a very long time, wasn't terribly concise, etc. I will appreciate anyone's constructive criticism--I'm not trying to cause trouble, etc., it just seems to me like this is a rather logical train of argument. If I'm wrong, please tell me (politely and courteously) how, so I don't make that mistake again. Thank you!

[AP]

1. I responded to this already

In short, the benefits you derive from society are actually not in proportion to the consumer goods you consume. In fact, you could more accurately say that your benefit from society is in proportion to the difference between the amount of income you make and the amount you spend on consumer goods.

A lot of poor people spend a larger percentage of their income on consumer goods than rich people, and LOTS of middle class people are in debt.

Furthermore, if you're rich, not only do you spend a lower percentage of your income on consumer goods (being rich means you spend much less than you make), but you derive a lot of benefits from buying non-consumer, non-taxed goods, like, you make political donations, you buy untaxed things like education, you go abroad and spend your money where the US can't tax it, you make investments which pay dividends, or LTCG, and, if you buy equity, you control corporations.

Getting and accumulationg money is the way you benefit from society in America, and not necessarily spending it.

Here's my answer in more detail:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=114&topic_id=1029&mesg_id=1029

[AP]

4. National sales tax is NOT the answer.

Here's the right link to where this was, uh, "not addressed" by me

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=104&topic_id=369525#380075

I partly agree with your characterization of taxes. My impression of taxes is that we only having them because they're the way you maximize wealth and productivity in society. We didn't have income tax for a long time, and the government could only do a limited number of things. So we needed more money, to do more things which could create even more progress and more revenue. There's no way that you could ever convince Americans to simply give the government money in exchange for a return that is dispersed so broadly that few people would see the connection between the investment and the return, so the smartest way to do this is to compel people to pay in (in theory, in fair proportions) and, if you don't like the investments the government is making, then you stop voting for Republicans and start voting for Democrats.

And we decided that, theoretically, if you benefit a lot, you should pay a little more for the benefits. Also, in the interest of making
sure that taxes themselves created an competive edge or an undo burden, we collect them progressively. (I can't keep reapeating stuff over and over again, throughout this thread above is the discussion of the fact that your marginal valuation of an additional dollar as a function of hom many dollars you already have).

So, if we got rid of taxes tomorrow, we'd go through a period of negative growth and misery, and then we'd just vote to have them again so that we could get back on track.

Now, I've already addressed the sales tax thing here as well, so I'll hit the main points:

1) If your goal is to equalize tax burdens, the best way to do it is to make the tax burden relate to how rich you are. How much stuff you buy probably does correlate to how rich you are, but it's a pretty dull instrument. A billionaire could be a hermit and drive a 20 year old car and clip cuppons if he or she wanted to. A poor person who has to spend 110% of his or her income on consumer goods just to make it to the next day does not have a choice.

2) Whereas income tax taxes your income, sales tax taxes your consumption. Rich people are rich because they consume way less than their income. However, poor people AND middle class people often spend more than they make every year. Do you know middle class people who are taking out home equity loans, have 2 or more mortgages, are still paying off their college debt, and put everything on credit cards? I certainly do. For those people, granted not all their purchases are consumer goods, but every consumer good purchased is putting them farther into debt. That means, if we financed the government out of a sales tax, people who go into debt year-on-year, would be paying tax on money they never received. That would be like, if you made 50K a year, but the government made you pay income tax on 75K or 100K. Is that fair? No. Then why's it fair to raise revenue the same way from sales tax.

3) Who would benefit from a national sales tax? Credit card companies and banks which load money out. It would increase the price of everything. People who take out loans to buy things (ie, the middle class) would end up financing their tax bill, with the interest (profit) going to the banks. Now, should the government be in the business of GUARANTYING INCREASED PROFITS TO BANKS? Ok, well, I know they do that in so many ways, but should we really be giving them one more way?

[kentuck]

2. Also....

When you would need revenues the most, is when you would get the least. When times are bad, people spend less, therefore the consumption tax would be minimal. It wouldnt work.

[Gore1FL]

3. A consumption tax

proportioannly affects the lower and middle class as a larger perctentage of their income is taxed for buyin basic goods and servies. Correspondingly, the richer have more left over at the end of their monthly purchases.

It is a regressive tax, just like a flat tax, just like payroll tax, just like what Bush is doing in his flattening of the tax code.

Consumption taxes hurt those most who can afford to be hurt the least.

[Yavin4]

5. Also, Sales Taxes Would Destroy Our Economy

We've become a consumer-based economy. Consumption accounts for two-thirds of our economy. I don't like it either, but that's another thread. If you impose a national sales tax, you would greatly slow down consumption, and throw even more millions of people out of work. I'm talking about the people who work in low-level service jobs like store clerks, waiters, and hotel workers.

Additionally, the sales taxes are regressives which has been shown earlier. A regressive tax would further concentrate the wealth into the hands of the very few. This would create a rigid class structure, for there'd be no incentives on the wealthy to invest and no incentives for the working class to work their way up the socio-economic ladder.

[Lydia Leftcoast]

10. Case in point: Japan

Japan had a 3% consumption tax for years (starting during one of those years in the 1980s when I wasn't able to visit).

However, Prime Minister Hashimoto made the drastic mistake of raising the consumption tax to 5% at a time when the economy was already teetering on the brink of recession. Although there was a brief flurry of buying of high-priced goods in anticipation of the rise from 3% to 5%, consumer purchases slumped drastically afterwards. It was so bad that stores would run special sales in which they offered to "eat" the consumption tax themselves.

The rise in the consumption tax was far from the only factor harming the Japanese economy, but it helped push it over the edge.

[Yavin4]

6. This Quote From Your Post Bothers Me

-If we are going to expropriate someone's life (in the form of
taxation of money they have earned), it makes sense we have a
logical standard. It seems that standard should be the value of the
benefit they have obtained from living in our society.


It bothers me because you're assuming that the money that someone earns did not come from the sacrifice of others. Yes, you may make money, but you were taught by a school system that was paid for by tax dollars. You were protected from criminals by a justice system that was paid for by tax dollars. You were protected from a toxic environment by someone else's tax dollars. You are being protected from foreign enemies by someone else's tax dollars.

IOW, no one makes it on their own. We're a part of a social fabric where everyone has different duties and contributes to the public good. Taxes on the income of the wealthy is not "expropriat someone's life". It's just asking the people who have benefitted the most to contribute more than the people who have not benefitted as much.

The wealthy in this country are not taxed unfairly. Our progressive income tax system has worked well for a century.

[AP]

7. I agree. It's not an expropriation in the sense that,

if we didn't tax money where it ciruculates, the eoncomy would shrink because the people who make the most money off of society would stop paying taxes which were invested in maintaining the infrastructure which allowed them to make a lot of money.

Of course, those same people have been trying to shift the tax burden down the income ladder over the last twenty years, but, if it gets to the point where it breaks everyone's backs, or where Europe starts competing more effectively because it's middle class isn't so burdened, or if we got rid of progressive income taxes altogether (or taxes altogether), the rich would so quickly agree that it was time to tax income progressively again, because that was the best way to fairly ensure that good investments were being made in the infrastructure which allows them to get wealthier.

Amd they would not be saying that their money was being "expropriated".

[papau]

8. I agree with the excellent posts above - a National Sales tax is not the

answer.

However - if you are looking for a Corporate tax for manufacturing that fits world trade, the value added tax - a form of national sales tax - does indeed have value.

But the size of the tax as a percentage of the sales price can get as high as the mid 20's - as in France. And then the countries that have such a tax still have an income tax - quite wise those countries! :-)

The very basic problem is that our corporate services economy has a real problem with a sales tax on services - especially if you are trying to tac financial corporations like Banks. What is it that you tax? There is no service fee as the make their money on the spread between what they pay you for the use of your capital and what they earn on that capital. For this reason even in countries with a national sales tax or a value added tax - financial institution activity is "zero rated" (see the Canadian CST).

[Monte Carlo]

9. National sales tax results in taxed Labor, untaxed Wealth.

Consumption goes hand-in-hand with labor, and a tax on that consumption is effectively a tax on labor. If we eliminated the income tax as well, accumulated capital would have no limits on it's growth; it would sit there, stagnating the economy. Now, that may sound dandy, but that brings back the Vanderbuilts, the Rockefellers, and whoever else, because the strongest capitalists are the ones that end up with the lionshare of capital in a nation.

Paul Krugman put it this way "earned income is taxed, unearned income is not".

Progressive income tax is based upon the principle of declining marginal utility. Suppose I make $10k a year, you make $100k a year. If we both were taxed at a 10% rate, I'd have to give up $1k and you'd have to give up $10k. Seems fair, but here's the kicker; the $1k I lost is more valuable to me than the $10k is to you.

I think Chris Rock put it the best, when talking about marital assests being split in half during divorce - "If you have $20 million, your wife wants ten, big deal! You ain't starving... but if you make $30,000... and you're wife wants fifteen... you might have to kill her!!"