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In most VAT/consumption tax schemes, food is taxed. If you are explicitly removing property tax and income tax, then it's your goal to hit the poor for taxes harder than the wealthy. It's blatant and obvious.
And wealthy people pay less consumption tax because more wealthy income is hidden in 401k, IRAs, education/HSA and many other very common tax avoidance vehicles.
Wealthy people have trusts, not 401Ks and IRA accounts. Those are middle class wealth accumulation vehicles.
You seem to think that wealthy people don't spend money... That's totally not true. They spend a LOT more on luxury items, such as restaurant meals, designer clothing, vacations, automobiles, technology, etc. You might be shocked to know that many "wealthy" people live paycheck to paycheck just like the lower income folks do. They just spend their money on different things.
Dear god, this comment can't be real. Do people actually think like this? Are you really going to go against every economist ever (not to mention common sense) and try to argue that sales tax isn't regressive? Am I supposed to feel sorry for a few rich people who mismanage their income?
It's common sense. If your income is $30,000/year, you're going to spend a much higher proportion of your income on taxable goods than someone who earns $250,000/year since anyone with a lick of common sense is saving some of that money and isn't buying things that are 8.33 times more expensive.
Last edited by Westerner92; 02-22-2016 at 02:23 PM..
I thought the same thing westerner. Sounds like her comment is an exact talking point to what the wealthy want everyone to believe. Some people just don't get that flat taxes or sales taxes are not even close to a proportional way to tax.
In most VAT/consumption tax schemes, food is taxed. If you are explicitly removing property tax and income tax, then it's your goal to hit the poor for taxes harder than the wealthy. It's blatant and obvious.
VAT taxes are accumulated as raw materials become finished goods. As title passes between different entities in the process, a tax becomes embedded in the purchase price. Once the good or service reaches the final consumer, the retail price includes the taxes that have accumulated during the manufacture and distribution. Its similar to an accounting concept called transfer pricing. (Leave the calculations to the accountants; it's really THAT complicated!)
So if the price tag says $25, it costs $25, any taxes included. In fact the sales tax is not consumer friendly since one has multiply oddly-shaped percentages, such as the Texas maximum 8.25%, for the price of the sales tax to be added on to the subtotal. It might violate a consumer protection law since it's $25 + variable sales tax NOT $25 with sales taxes included, except for the fact that sales tax is in another part of the law code.
Quote:
Originally Posted by Westerner92
Dear god, this comment can't be real. Do people actually think like this? Are you really going to go against every economist ever (not to mention common sense) and try to argue that sales tax isn't regressive? Am I supposed to feel sorry for a few rich people who mismanage their income?
It's common sense. If your income is $30,000/year, you're going to spend a much higher proportion of your income on taxable goods than someone who earns $250,000/year since anyone with a lick of common sense is saving some of that money and isn't buying things that are 8.33 times more expensive.
Well climate-denial, evolution-denial, and maybe Holocaust-denial are big in Texas.
But sales tax is definitely regressive since buying more is penalized. Considering that the U.S. economy (contrary to some secessionists, Texas is part of the U.S.) is consumption-based, meaning that consumer spending NOT manufacturing output is the driver of the economy, it makes no sense to penalize consumer spending! No wonder the economy is in the dumps right now.
Not true at all...higher earners spend a much smaller percentage of their income on items subject to a consumption tax - investments, retirement, savings, or other out-of-state (or otherwise shielded) ventures would likely be exempt. Low income earners tend to spend almost all of their income on items that would likely be subject to consumption tax (utilities, clothing, food(?), rent).
Of course, it all comes down to those exemptions and whether it is a flat consumption tax or tiered (i.e. higher for luxury items or exemptions for food items). My guess is it would not work out in favor of the lower-income.
Note that this is not any kind of binding vote, just a 'poll', essentially, targeting republican voters.
Most very wealthy people live in expensive residences, and there are almost no tax-avoidance mechanisms for property taxes currently. It must bug the crap out of them that they have to pay those and would really love to see that change.
Investments are taxed. If I hold my investments for less than a year then I pay regular income tax, medicare, and social security tax on it. Typically 25%+ of the investment return. If I hold longer than a year, then I pay capital gains taxes (25-39%). Retirement accounts are not TAX FREE (unless you invest in a Roth---but the principal is taxed at current tax bracket rates---again 25%+). Retirement accounts are typically tax-deferred....meaning I have to pay tax on it once I begin to pull from that account....and who knows where tax rates will be if a liberal democrat takes over. Savings??? (Interest on "savings" accounts is taxable---sorry). Other "out-of-state" is taxable if the out-of-state entity does business in Texas.
A consumption tax is fair as it only taxes the money spent. And the current property tax system is, in fact, a consumption tax---as you pointed out---the more you spend the more you pay. Your bitterness and envy is very apparent. Must be a Bernie supporter. Instead of trying to leach off of the wealthy why don't you get a little more ambition and become wealthy?
So lets assume that this consumption tax (CT) affects any money that is spent (rent, durable goods, food, etc). That is the 'pure' form, at least as I understand it. Three possible scenarios, although there are unlimited ones, ofc. Assume property tax goes completely away.
Simply put, though - is the value of your home X property tax rate greater or less than the amount of money you take home but don't 'save' X CT rate?
Family 1 has:
$500,000 valued house
$250,000 family income
$165,000 take-home after various federal taxes/deductions, etc.
$115,000 in 'consumption' in a year
10% assumed effective CT/VAT/whatever is effected, applied to all expenditures.
2.5% current property tax rate
$12,500 currently paid in property taxes
$11,500 would be paid in CT taxes
--------------------------------------------
Family 2 has:
$1,400 per month in rent (~$17,000/yr)
$50,000 family income
$40,000 take-home after federal taxes
$40,000 in 'consumption' in a year
10% assumed effective CT/VAT/whatever is effected, applied to all expenditures.
0% current property tax rate (accounted for in rent, but not deductible as a tax by the renter)
$0 currently paid in property tax
$4,000 would be paid in CT.
The question here is, would rental prices come down by $335/month due to the removal of property tax? I find that unlikely, although they would most places come down some. In tight supply/demand areas (i.e. Austin), the drop would likely be tiny and the affordability would fall even further (especially for the people hit by the CT tax).
-----------------------------------------------
Family 3 has:
$300,000 valued home
$150,000 family income
$105,000 take-home after various federal taxes/deductions, etc.
$80,000 in 'consumption' in a year
10% assumed effective CT/VAT/whatever is effected, applied to all expenditures.
2.5% current property tax rate
$7,500 currently paid in property taxes
$8,000 would be paid in CT taxes
The other issue at hand here is the following scenario that could affect ALL homeowners (rich and poor).
You work all your life to pay off your house so that you can retire in it "free and clear" of any mortgage. But since we have a property tax in Texas, you actually are NEVER "free and clear" as you owe the state, county, and city in perpetuity because of the tax. If you become disabled, face a financial crisis due to illness or family issue and LOSE that way to pay your property taxes, the state can foreclose on your property even though it is "paid off." Does that seem fair? And it is more likely to hurt the poor in the scenario I just presented as the wealthy often have saved and put away for a rainy day. Should people be at risk of losing their house due to an inability to pay property taxes?
So lets assume that this consumption tax (CT) affects any money that is spent (rent, durable goods, food, etc). That is the 'pure' form, at least as I understand it. Three possible scenarios, although there are unlimited ones, ofc. Assume property tax goes completely away.
Simply put, though - is the value of your home X property tax rate greater or less than the amount of money you take home but don't 'save' X CT rate?
Family 1 has:
$500,000 valued house
$250,000 family income
$165,000 take-home after various federal taxes/deductions, etc.
$115,000 in 'consumption' in a year
10% assumed effective CT/VAT/whatever is effected, applied to all expenditures.
2.5% current property tax rate
$12,500 currently paid in property taxes
$11,500 would be paid in CT taxes
--------------------------------------------
Family 2 has:
$1,400 per month in rent (~$17,000/yr)
$50,000 family income
$40,000 take-home after federal taxes
$40,000 in 'consumption' in a year
10% assumed effective CT/VAT/whatever is effected, applied to all expenditures.
0% current property tax rate (accounted for in rent, but not deductible as a tax by the renter)
$0 currently paid in property tax
$4,000 would be paid in CT.
The question here is, would rental prices come down by $335/month due to the removal of property tax? I find that unlikely, although they would most places come down some. In tight supply/demand areas (i.e. Austin), the drop would likely be tiny and the affordability would fall even further (especially for the people hit by the CT tax).
-----------------------------------------------
Family 3 has:
$300,000 valued home
$150,000 family income
$105,000 take-home after various federal taxes/deductions, etc.
$80,000 in 'consumption' in a year
10% assumed effective CT/VAT/whatever is effected, applied to all expenditures.
2.5% current property tax rate
$7,500 currently paid in property taxes
$8,000 would be paid in CT taxes
Tough question on the renter scenario. You would hope the landlord would pass along the tax savings to the renter but either way, if he does pass on the savings, the renter would have more money to spend (consume) and thus pays the tax. We already pay a consumption tax on property and on purchases. The state does NOT tax food that is purchased in a grocery store as long as it is not "prepared and consumed" on site. We could take that a step further and restrict sales taxes on utilities (propane, natural gas, electricity). Essentially, eliminate sales taxes on essentials for living (food and utilities). Eliminate property taxes on homes or properties under $500,000 (residential). Any property over $500,000 then allow a 1% tax on the next $1 M and have a graduated tax from there. If you don't want to pay high taxes, don't build a $5 M house. But odds are, if you build a $5 M house, you have the money to pay the higher taxes and it won't prohibit you from doing so. Conversely, if you build a $300,000 home that gets paid off over 30 years and is now worth $475,000 you are not at risk of losing your home due to inability to pay property taxes. This policy would allow people to own and keep a home in retirement without fear of losing it and it would likely allow an increase in revenues from property taxes from those that live high consumption lifestyles. It also protects the poor against paying high property taxes (puts more money back in their pocket), encourages responsible home ownership (instead of renting), and only puts a consumption tax on items that are non-essential for living.
Bottom line, one should not be taxed for "living". And that is what we do here in Texas.
The retired folks can already defer their taxes, if they want to. Comes out of your estate eventually, but prevents you from having to worry about losing the home.
As mentioned in other threads, rental prices are based on supply and demand, not taxes, so the 'curative' effect would be that more people might be able to buy instead of rent.
And yes, there are lots of combinations of taxes that could be considered, but I doubt anything remotely 'fair' is being envisioned by those proposing to eliminate property tax and establish a CT. And while we don't currently tax food, many consumption taxes do and there is no mention of what is really being 'proposed'.
Finally, the whole school funding system would have to be re-worked, for better or worse, since there would be a massive decrease in taxes in non-commercial areas.
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You are completely wrong here
