When it comes to taxes, why wouldn't this work?

Question

I have wondered....When I go to work and finally get my paycheck....we all notices the large chunk missing from taxes. Most everyone agrees that it stinks working for that money then have it taken away by the Gov. Why does no one ever try and do it the other way around. Why cant the Gov. tax people on what they spend. It seems like it would balance out. If they left my work check alone, and raised taxes on products we buy like food, mountain dews @ the gas station, just whatever, why would that not work? You could even tax things like Ciggz and Alcohol more than every day products....But it seems like by raising sales tax, and letting the worker keep their paycheck without taxes being taken, people could save more money and be taxed for the things they buy, if they dont buy alot then good for them they get to save up some money. It just seems to me it would balance out if you just flipped it around.

I guess I feel discouraged to buy things when I do not have much of a paycheck. I think I would feel more like saving or buying more things if I felt I had the money to do so.

Answer 1

Those of us that are middle class or poor would pay a greater share of our income in this type of tax, since we have less income than the rich do. They would be buying the necessities just like we do and paying the tax on them, but they'd still have much money left over to do whatever they wanted with, compared to the middle class and the poor.

Answer 2

First of all, the government already does pretty much exactly what you are describing. Sales items are already taxed, and there already are higher taxes on alcohol and cigarettes than there are on other items. So what you're proposing is that we should basically raise sales taxes.

Raising sales taxes would discourage consumption, which is a very, very un-American way to do things. Income taxes don't discourage you to buy things nearly as directly as sales taxes do, so the government will probably keep sales taxes at a low level so you don't hesitate to buy, buy, buy!

I'm currently living in Europe, and the sales tax here is 20%, and to be honest, I'm don't think most Americans would take to it very well, even if income taxes were lowered a lot.

Answer 3

this has been discussed it is called a user's tax.

It has been proposed several times and is something that is still being considered.

The problem you run into is putting an even larger burden on the poor. that is what has kept it from passing. well its not the only reason. and then you would be taxing (more tax) on life providing items like food, water, clothes and the poor can not avoid buying those.

I think that they could come up with a plan to impement this that would work, but something that seems so simple is really not so simple there are a lot of things to think about.

And this is not the same as a VAT (value added Tax) I live in england now and we have a VAT tax but still pay income tax. the plan you are talking about where income would not be taxed is called a user tax system

Answer 4

This idea has been discussed. Look at Canada they have a GST and PST, ie 15% sale tax. That is double the US.
Sales taxes would encourage more savings.
One problem is that sale taxes can be considered regressive, ie adding a $1 tax on gas hurts low income consumers more than higher income folks.
US voters have rejected these ideas as they believe that when they raise sales and user taxes the other taxes will not be lowered. And they are probably right.

Answer 5

Actually, some parts of the country have done just that.

There are nine states that do not have income tax on wages. Instead those states get their revenue from other sources, such as sales tax, property tax, selling the rights to their resources, and so forth. Sales tax and property tax tend to be rather high in those states, to make up for the lack of income tax.

Wondering which state to move to? You can choose from Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming.

Answer 6

Much discussion about a VAT, Value Added Tax, which is what you are describing. The problem is: everyone would have to have a national ID card to apply variable rates of taxation. VAT falls heavily upon low wage earners.

The graduated income tax, first advocated by Karl Marx, had as its purpose to keep all the money in circulation. It's a sound idea, it's just that the variable rates in place have been miscalculated with tax cuts that only help the high-end of wage earners.

Answer 7

High sales taxes discourage consumption and purchase, and are generally unfair to those who make lower levels of income, since those folks usually spend 100% of what they make. That's not the case with higher income folks. There's just so much those folks can buy, and then they start investing their funds.

While a national sales tax sounds proper, in reality it would toss the higher share of revenue onto the lower to average income worker, while giving a substantial free ride to the wealthy.

Answer 8

It would fail primarily because we would need a national sales tax of around 25% - 30% to replace the revenue raised by the current graduated income tax. This would be on top of state income taxes that average 6% and run as high as 10% in some areas.

The tax burden would be transferred primarily to the poor and middle class. The wealthy amass wealth, they don't spend it all. Most of them would pay much less tax. On the other hand, the poor spend neary every penny they get their hands on on essential goods and services.

Consider a single mother with 2 school aged kids making $8.00 an hour. Her income is low enough that she doesn't pay any income taxes and she picks up about $4,000 a year with the Earned Income Credit. Her cash flow is about $18,500 a year. They survive, but only barely. If you dumped the income tax in favor of a 25% national sales tax, her income would drop by $4,000 immediately. Her tax burden would sky rocket by around $3,600. Her cash flow would plummet to around $10,900 a year. Within a few months of the "new and improved tax" she and her kids would be tossed into the streets.

The truth is that a graduated income tax as we have now is the fairest of all possible taxes. It takes into consideration the taxpayer's ability to pay the tax, which is rule #1 of taxation. Sales taxes are the WORST possible taxes as they do not consider the taxpayer's ability to pay and therefore skew the burden to those who can least afford it.

Look at it another way. You buy a new car for $20,000. You head down to the DMV to register it. We have a national sales tax of 27% and your state levies an 8% sales tax. You'd have to write a $7,000 check just to register your car. Can YOU afford that? I made over $100k last year and I can't afford it!

Also, consider the "Rule of Unintended Consequences." With a tax levy that high, there would be a thriving black market in untaxed goods. Look what happens with booze and cigs in high-tax areas such as NYC. Organized crime is involved in significant black marketing of those items due to the high tax levies. Do you want the mafia and gang-bangers controlling your access to DVD players and Capt Crunch? No thanks!

There is NOTHING "fair" about the so-called Fair Tax! There's a good reason that it is touted by lots of rich folks. They'd laugh all the way to the bank while the rest of us would be scrambling to survive.

Answer 9

Replacing income taxes with a tax on purchases would have some advantages - it would tax the underground economy.

The big disadvantage is that it would hit the poor very hard, hit the middle class seriously, and give a huge break to the rich. Well, depending on where you sit, that could be a disadvantage or an advantage I suppose.

Answer 10

You have just described the Fair Tax which many Americans are trying to get passed.

www.fairtax.org