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The problem with VAT or a national sales tax is that it is very regressive. The less you make, the more you pay proportionally. I think this is backwards from what we really want.
I skimmed this last page of nutty claims that people making $35K pay more in taxes than a wealthy person. The guy who gets nailed the worst is the self-employed person with an AGI just over $100K. They're in the 28% tax bracket. They pay both sides of the FICA/Medicare self-employment tax. They pay their own unemployment insurance. They pay their own workman's comp. They pay their own medical insurance with after-tax dollars. Their state thinks they're rich so if they're in a state with a graduated income tax, they're paying big there. They probably own some commercial property and their town taxes that at a higher commercial property tax rate. Their effective tax rate is at least 50%.
VAT taxes are not "regressive" by nature as they can be varied or not even applied to goods and or services that mostly/mainly affect the poor.
Just as some states enact or not sales taxes on food, clothing, certain services such as laundry and so forth. Another solution would be to expand earned income tax schemes and or tax credits/deductions to "give back" some of the funds spent by the poor.
Almost every major western and quite a few eastern nations have some form of VAT taxation scheme; yet somehow they manage to provide for the "poor" nor is it considered regressive.
Truth to tell many so called poor often purchase goods and services they shouldn't which is where a good part of their limited income goes.
Walk around any "poor" area and why is you see expensive sneakers, big screen televisions, Mercedes-Benz and other expensive cars and so forth? Leaving aside the criminal aspect of earning money there is of course credit. I can see that someone needs clothing, shoes and transport, but it does not have to be top shelf. Oh and why is it the poor always have money for ciggies and booze?
Taxing income is one of the most inefficient methods of generating revenue for a government.
First you want to encourage that activity (employment) and taxing it only creates either an incentive not to do so (hence earned income tax credit schemes) or persons find ways to avoid paying (unreported income).
Taxing income also creates disparities as often earned and unearned are not taxed at same rates. Over the past one or two decades vast fortunes have been created not the way of old; industry barons or whatever, but by merely paper wealth; stocks, real estate, investments and other assets. At least the robber barons of old could point to something that was physical and solid as a source of their wealth. Today's dot.com billionaires, Wall Street bankers et al cannot say the same.
Pay yourself what you want for income, then take the rest at dividend tax rates.
As for the topic, because the country won't work with a sales tax instead of income tax and it's a regressive, not progressive tax which would be terrible for the economy.
A 5%-er corporate drone like me doesn't have that LLC/S corp option. I have always lived in the world of a W-2.
I agree about the regressive nature of a sales/VAT tax. The bottom half pretty much pays no Federal income tax, as Mitt so correctly pointed out. I'm fine with a tax policy where "everybody has a stake" and pays something but sales/VAT would pretty much invert the effective tax rate between rich and poor since 1%-ers proportionally consume so much less relative to their income.
[quote=GeoffD;41019142]Again, Social Security isn't a tax. It's a government-run annuity and disability insurance program where the benefit distribution is very progressive.
I'm a 5%-er. I'd love to have that $37K per year my employer and I pitch in as part of my retirement portfolio. After 30-ish years of maxed out contributions and assuming my investments merely tracked inflation, I'd something approaching a couple million bucks. Social Security exists because the unwashed masses have a totally crap savings rate and would otherwise starve to death if they couldn't work. This is a case of the Federal government saving people from themselves. I'm totally fine with the government saving people from themselves even though I don't particularly benefit from it. I don't feel rich but being in the top-5% for wealth and income, I get kind of screwed by the government pension system in the same way I get kind of screwed in my effective tax rate compared to most taxpayers.[/vQUOTE]
Geoff D, regarding differences of semantics between FICA payment as a “tax” or “insurance”, I paraphrase the familiar response: Due to Social Security’s conceptual similarity, behavior, and the consequences of its behavior being all more similar to a tax rather than insurance, I choose to regard it as more similar to a tax rather than as insurance.
Other than this question of semantics, I doubt that you’re aware that your evaluation of the Social Security retirement plan does not severely differ from those that I posted within the thread “FICA payroll tax; our most regressive tax”. We are not as far apart as you seem to believe.
... As for the topic, because the country won't work with a sales tax instead of income tax and it's a regressive, not progressive tax which would be terrible for the economy.
Lord Squid, I advocate to whatever extent feasible we replace our federal taxes upon net incomes with a general sales tax.
To the extent that we would grant the same per capita income tax credit (rather than a deduction of taxable income) for income taxpayers and their dependents while additionally eliminating favoring of some types incomes or income earners, our taxing of incomes would be less rather than more regressive while increasing our net tax revenues.
To the extent that we increase the per capita income tax credit and pegged that credit to the cost/price index number, our income tax system would become additionally less regressive.
If we would employ these concepts to replace some portion of our income tax revenues with a general sales tax, our taxes and all of the intended tax burdens would be less rather than more regressive.
Currently “on the books” wage and salary earners and their families fully pay all of the taxes that that were the supposed purpose of our income tax system. All other income earners more or less evade contributing their full share to our governments’ revenues.
Among those still striving to eliminate FDR’s “new deal” policies, there are factions that have some regard for our constitution preamble’s mention of promoting “the general welfare” but they question if any social program can be considered as promoting the general welfare and they do not accept the contention that those social programs are also of net economic benefit to our nation.
Reduction of incidents and extents of poverty reduces peoples’ fears and increases their optimism; thus they threaten the status of others that lack confidence of their own self-worth.
Refer to the threads entitled “FICA payroll tax; our most regressive tax” and “Social Security’s justification”.
If you examine how some European countries broke up "one percent" so to speak, it was done via taxation on land and other assets not merely income taxes alone.
Great Britain in particular post WWI and WWII imposed some very high tax rates on land, investments and other assets including death duties. The results were great landed and family estates were broken.
GB also eliminated and or curtailed certain trusts (such as the fee entail of Downton Abbey fame) that kept funds/assets tied up money and thus kept it from being taxed for generations if ever.
When BO spoke about reforming the US tax code and lowering certain dynasty trusts from 100 years to perhaps 75 or even lower more than a few teacups were rattled.
FICA is a mandatory insurance premium -- not a tax.
It is not the most regressive -- high income earners don't benefit from SS down the line; most of the benefit is means-tested away.
You've repeated this many times but I'm not sure why you feel the need to make things up
Quote:
Federal Insurance Contributions Act (FICA) tax /ˈfaɪkə/ is a United States federal payroll (or employment) tax imposed on both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, the disabled, and children of deceased workers.
You've repeated this many times but I'm not sure why you feel the need to make things up
It's clearly a tax
Do not understand what is it about the USC and the power of Congress to levy taxes that these persons do not comprehend. Did they not just witness a year or so ago the SCOTUS uphold Obamacare exactly for that reason; the power of taxation?
If FICA were merely a "contribution" that would mean it is not mandatory which clearly is not the case. Many have tried over the years to make such an argument and have lost in court time and time again. If you are subject to FICA taxation *YOU WILL PAY* or suffer the consequences should the IRS find out.
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