Why wounldn't a consumption tax work?

you have to have some exceptions thats why it is not a good idea...it is estimated that you could cut 30 to 35% of government spending and it would not affect anyone...why do we have a federal education dept when it is a state issue?..chanber of commerce?.. same thing ..a state issue..and so on...

 

Taxcutter says:
No you don't.

Prior to the coming of the income tax all federal; taxation was tariffs and excise taxes. No exceptions. that system worked Ok for the valid purpose of taxation - raise operating funds for the government. The bureaucracy required to operate a "no-exception" consumption based tax scheme was a tiny fraction of the behemoth IRS we have today.

 

Exemptions go against the very idea of a flat tax, and nobody benefits if you exempt the billions of transactions per year in stock exchanges, bank CD's purchases, bond purchases, etc, except those with the most to invest in those vehicles. The very idea I was proposing was to tax them as well so it brings down the level of taxation needed for everything else. Considering who buys the largest number of those trading volumes, it forces even the wealthiest to pay tax on their investments without giving them an "out" that helps them avoid taxes like they can do now (other than capital gains). If we all share the burden equally (percentage-wise), the required tax percentage actually drops, easing the burden on the lower income levels of the middle and lower classes, although, yes, the folks who pay nothing today would actually contribute to, and pay for, things in their nation at a federal level.

 

Taxcutter says:
Making securities transaction subject to the "consumption" tax would radically change Wall Street. If you had to cough up 25% on purchase and sale of securities you wouldn't do it very often. Suddenly dividends and interest payments would be king - not capital gains. It would effectively change the business perspective from short term thinking to long term thinking.

Big drawback: Squelching the short-term mindset would leave investors utterly defenseless to the whims of the bureaucracy. Today, the investors live with the bureaucracy because they can move faster than the bureaucracy. They get in, make their buck, and get out before the government can act. Deprived of that agility, I suspect many investors would take their money and invest it in other nations. I would.

So going to a consumption based system that included securities transactions would have to follow a general attenuation of the bureaucracy.

It always gets back to the fact that the bureaucracy is the enemy.

 

go ahead and tax stocks and cd's...all i have to do is investment in foreign stock markets not the new york stock exchange and i dont have to pay taxes..buy my cd's overseas...tax free..great idea...

 

I understand what you're saying. I imagine a consumption tax, if it included securities, would be significantly lower than 25% because of the dollar volume that crosses our exchanges in transactions annually. I don't know what that dollar figure is, but I suspect it exceeds $1T per year. Adding in a percentage of that, the dollar amount flowing in taxes would be high enough that the overall rate for all consumption would be able to be set much lower (single digit % I suspect, but cannot substantiate). I couldn't imagine hitting the level of a 25% tax on anything, but if that would be required to meet revenue requirements, then I'd agree it wouldn't work.

 

Except they could create a mechanism to tax you on those as well. Nothing's impossible and the idea would be to remove the loopholes that have for so long been complained about, leveling the playing field for everyone in our nation. Even people who work for cash, the mafia, prostitutes and others who don't have to claim income would start paying federal tax because their purchases would be taxed. Why that's a bad thing I have no idea. And every citizen who pays nothing would contribute something to the nation in terms of revenue because we all need toilet paper, food, etc. I'd only protect foreign investment from taxation if the money earned to buy those investments was from outside the nation and kept outside the nation. In that case Uncle Sam would have no claim on the money or taxes from it if the asset wasn't repatriated.

Any escapes from consumption taxation would require a fix to the system so short lived work-arounds wouldn't provide a permanent avoidance of taxes. When everyone contributes, we all enjoy the decrease in tax rate. Having loopholes would only cost everyone else more money to make up for revenue losses.

 

you are not getting it...if you pay taxes on stock purchases and pay taxes on buying food later you are being taxed twice...and you working for wages is only taxed once...

 

How do you figure? You're taxed on every purchase you make. Once per purchase.

I don't understand your concern about being taxed twice. You'd be taxed probably hundreds of times a year, each time you make a purchase of anything. But the same money isn't taxed twice. You can only earn and tax the money that gets taxed one time because you give that money up at the purchase. Only the rest of your money gets taxed later as you spend it so you don't have the same money available for taxation more than once.

 

i buy 350,000 in stocks..taxed 35,000 for your 10% sales taxed...ok...i sell the stocks,,and i live off the money to feed my family..taxed again...so i have to hope to make 20% a year on that sale so i can have so income to live off of...good luck with that...

 

and sales tax and use tax. Consumption Tax, by many other names, has been a mainstay of government(s) revenue flow since the country was founded. Eliminating Income Tax and replacing it with a "consumption tax" is just 'renaming'. The good: no paperwork due in April. The bad...big time job killer

 

Kinda like when you buy a car, pay sales tax, then sell it later for money? It's no different, just a bigger scale. $350,000 in Apple or AutoZone stock would have done you quite well if you bought it and held on for a number of years, then sold it to live on, regardless of the up-front cost of the tax. But I'd imagine a single digit tax level if everything is taxed equally. And a single year gain of 10% would make up for your tax loss in the scenario you posted, so a long term investment you'd have for retirement purposes would likely ignore that cost over a long term unless you trade often in large amounts. You wouldn't need 20% per year to make up for that one time tax, and making 6-15% per year on investments is not all that difficult.

 

when you retire you will understand...good luck you are going to need it

 

Putting any sort of sales tax on securities would extinguish the high-frequency trading market.

I never thought that market added any liquidity to the economy.

 

If you look at a consumption based tax like the FairTax, it is a pretty fair system that does not unfairly tax the poor (they get the tax back in the form of a 'prebate', PRIOR to having to spend it on life's essentials). The main obstacles to implementing such a system, in my view, is:

A) ...because it only taxes NEW items (there is no tax paid on used items; it was already paid by the original purchaser), there will be a HUGE shift towards repairing, repurposing, and reusing items; thus a shrinking taxable base in the short term, (that is supposed to level itself out over the years following its adoption, but I'm not so sure).

B) (and this is the big one) ...the tax system is a huge political tool that our leaders use to reward their cronies and to punish their opposition. They will NOT give that up for any system that would take that power away from them, like a consumption based system would.

'B' above This is the reason it will never be implemented though, not why it would not work. I believe the FairTax would be a vastly superior system of taxation that would encourage frugality and thrift, and discourage waste. The ones who consume the most beyond life's necessities (rich folks) are the ones who foot the largest portion of the bill, while those who are just purchasing lifes necessities get a check every month to PREimburse them for the tax they will pay on those items.

 

There is no pure version of a Flat Tax or National Sales Tax that wouldn't raise taxes on the working poor and middle class...and more (if in some cases, totally) be avoided by the wealthy.


That is why the Right favors those proposals. it falls into several elements that they support ideologically

A. Plutocracy or plutocratic political policy. The basic instinct of the "conservative" to do what is best for the wealthy....the "jobs creators" and "the successful"....over the middle class or poor.

B. Using regressive taxation to an advantage in pushing a libertarian role of Government.

IOW, going to middle class voters and saying "Your taxes are so high because the greedy welfare leeches are sucking you dry".....sort of like they do now. And then using that to enact various policies that bring us back to the 1890s in terms of poverty alleviation... including elimination of not just Medicare but Social Security....

and even going after governmental oversight and regulation on things totally unrelated to "welfare", such as industrial, labor, and environmental laws. "Let us allow States to determine of a 9 year old can work in a coal mine....and we'll be able to cut your taxes!"

 

A lot of states have sales taxes but they are fairly small. Unfortunately if you got rid of income taxes the national sales tax would have to be larger than what people are used to. Even if you aren't paying income taxes anymore (which many people don't anyways to begin with) the price increase makes it virtually impossible to implement politically.

 

Notice what you had to do there (What Steve Forbes had to do, as one of the main proponents of the Flat Tax)......you had to create a "prebate" for the poor.

Why? Because a true Flat Tax...would hurt the poor. Even its proponents (like you and Forbes) acknowledge that.

And how soon after a Flat Tax was enacted...would proponents then start pushing for the elimination of the "prebate"....calling it "welfare"?

 

[/Straw man]

 

It would also disabuse the poor of any notion that they could be not poor.

Staple food and other things immediately necessary for survival should be exempted.

 

Than its not a consumption tax .

 

Sure it is. Your taxes paid on consumed (purchased) items goes to the federal government to use.