’)A National Sales Tax or a Flat Tax Hinder a Progressive Society
By: Anonymous
As the government searches for new sources of income, many in conservative circles favor a VAT - Value Added Tax. This sales tax is a tax at a flat rate on all sales coupled with a flat income tax rate, also known as the "Flat Tax" or "Fair Tax". At first glance the revenue source may appear appealing - there are no income tax forms to fill out or property values to assess, it is a simple guideline with few loopholes and affects all people equally. However, this tax's "equality" is exactly the problem it possesses.
Suppose, in a world with no other taxes, person A makes $20,000 a year while person B makes $200,000. In the graduated income tax system we currently have, person A would pay a much smaller percentage of their income to taxes than person B. For the sake of argument let us say 10% for person A with 30% for person B.
Therefore, person A pays $2,000 to the tax man, while person B delivers a whopping $60,000, providing the government $62000 of income.
This may seem wrong, but consider the following; after taxes Person B still has $140,000 dollars of income, while Person A only has $18,000.Now, let's consider essential "survival expenses" - housing, food, clothing, ect..., and put the cost of survival at $10,000 a year for both parties.
Therefore, after taking care of taxes and the most basic necessities person A has $8,000 left as disposable income while person B has $130,000 to do with as they will. Now, applying a little math let's look at how much living a year has cost both parties; person A has spent 60% of all income while person B has only spent 35%.
Now let's consider the case of the "Fair Tax" / Sales Tax option. The government still has to collect $62000 in income.
Let's start by setting the income tax level on both person A & B's incomes at 20%. Person A will pay $4,000 while person B will pay $40,000, leaving A with $16,000 and B with $160,000.
The government has collected $44,000 but still needs $18,000. Already, the cost of survival has increased dramatically for person A, going to 70%. Person B's has dropped to 25%.
A sales tax must still be implemented to make up for the lost revenue, even neglecting to tax essential items this will affect person A far more than person B. Person A will likely spend all their disposable income in a year, while person B, even living a lavish lifestyle, is likely to save at least some.
Let us say that person A spends $5,000 while person B spends $100,000 on their lavish lifestyle. To collect the revenue the government institutes a 17.143% sales tax. Person A pays $857 while person B pays 17,143.
We can see that the effective tax rate for person A has increased dramatically under this system - he now pays 24.3% of all income to the government, and sees his buying power after taxes and essentials decrease by 36% to $5,143. Person B meanwhile is doing fine -- he only pays 28.6% of his income to taxes (still higher, yes, but he is buying much more!) and has seen his buying power increase 2.2% by to $132,857.
This tax system hinders the poorer person A at great expense with little benefit to Person B. In reality, the problems faced by the poor would be much greater, as the number of poor in the nation far exceed the number of rich, thus the weight that they bear would have to be proportionally greater under this flat scheme, while the benefits visited upon the rich would also increase.
Do the rich of the nation pay a very large portion of all taxes? Absolutely. But that is because they can afford to. When fixed expenses are considered -- (isn't that the same as a tax on being alive, really?) tax rates affect their lives far more than they affect the rich. And with high, graduated income tax rates the wealthy do still see benefit from their work, they still do make quite a bit of money.
When discussions of taxes enter the public sphere, also remember that spreading information on an issue takes money, and the only people who could afford to advertise on the issue to are just the same who would unfairly benefit from altering it.