[nightski]

This is why I truly believe in a consumption/sales tax instead of income tax (aka FairTax). You can build as much wealth as you'd like, but it doesn't do you any good until you spend it. At that point there is no avoiding the tax and it's much easier for the IRS to track.

Even if a black market developed, at some point that money flows back into the economy and is taxed whereas today it does not (aka tax havens and many other schemes).

It's also very logical to be taxed for what you take from society vs. what you give to society. But that's just a minor point.

[barrkel]

Wealthy people don't consume in the way you understand consumption. Wealth, at the higher levels, is almost synonymous with power. It's what amplifies your agency. By owning large organizations, investing in new developments, starting new organizations, controlling organizational output (think media companies in particular), wealth is converted into control over people and to a certain extent, governments.

Wealth gets "consumed" by bad investments. Those "bad" investments might even be considered as expenditure, almost as consumption, by the wealthy, e.g. subsidizing a newspaper - but what does sales tax (or some other consumption tax) look like when it's applied to journalists' salaries? Doesn't really make sense, does it.

[nightski]

I actually understand all of this. But if you are investing in society, then that is different than consumption. That should be encouraged imho.

Actually if you dig deeper into fair tax it is theorized that cost of goods would largely remain the same. this is due to the removal of corporate income taxes altogether. Also companies would not pay any sales tax on goods/services.

[ohyes]

This is even easier to tax dodge because you just pay cash and do stuff off the books.

Regressive taxation schemes don’t take into account the disproportionate advantages that the wealthy get from having sound infrastructure provided by the government.

How does a sales tax properly impact the monopolist who is getting advantages from state sponsored research and educational subsidies?

They also don’t take into account that the wealthy can pay more in taxes without it substantially affecting their quality of life, whereas a poor person it will make a huge difference in their diet and ability to save.

It may be logical on a simple level, but logical at face value doesn’t make it sound public policy.

[nightski]

How do you avoid a sales tax by paying cash? I don't understand that at all.

Sure, the tax can't go back in time and make up for the poor system we have now. But you have to start somewhere - at least we could get on the right track.

[dorchadas]

> How do you avoid a sales tax by paying cash?

Simple: you just make a deal with someone saying that, if you pay cash, they won't report or charge the tax. Maybe you'll even pay them a bit more (but less than it would've cost you with the tax) to do so. With cash, how can you trace it?

But, a sales-tax based system is absolutely awful regardless; it does nothing but hurt those who can least afford it.

[nightski]

There are quite a few people who take cash and yet do not report it as income. However, in the case you are describing a business would have to sell something illegally (without reporting their sales to the IRS). In my mind controlling businesses is far less burden on the IRS than individuals (how many returns are audited again? less than 1%?).

Not only that, if that money is then used to purchase legitimate goods the tax is still received. However, in the case of not reporting income you can consume whatever you want to from society without incurring any tax.

[dorchadas]

> There are quite a few people who take cash and yet do not report it as income. However, in the case you are describing a business would have to sell something illegally (without reporting their sales to the IRS). In my mind controlling businesses is far less burden on the IRS than individuals (how many returns are audited again? less than 1%?).

You can easily do the same thing. Just take the cash from selling stuff and don't report it as income. Hell, you could report it as a loss at that, and maybe even get some benefit from that. There's still ways around it, and they will be found by those who have the money to find them.

> Not only that, if that money is then used to purchase legitimate goods the tax is still received.

But it's not. The tax on what the new person bought is, but not on the original purchase. The tax of the original purchase still isn't received.

Either way, it hurts honest people and the poor, who likely don't have the connections or money to get around paying taxes; not to mention it's a much higher percentage of their income that's being taxed, so it doubly impacts them if it's sales-tax only.

[nightski]

This narrative that it hurts the poor is just not true. You get a prebate for basic consumption. It only hurts the poor who spend beyond their means on luxury goods, which is a hopeless situation anyways. (hurts is a poor term, because the cost of goods might not go up at all even with the tax included due to reasons stated elsewhere)

If anything, it allows the poor to pay less tax and save more of their paycheck if desired. It puts the choice in their hands.

Before it is claimed that the poor don't pay tax now anyways - that is only true if you consider gross income to be representative of financial status. You can make an above U.S. average salary and still be poor depending on where you live. This system does not discriminate based on gross income. It's like a no-limit IRA that you can withdraw from at any time.

[stanleydrew]

The idea is nice, and I'm sure I'm not introducing anything you haven't already considered, but a flat consumption tax is in fact regressive.

The simplest way to think about it I guess is that regardless of wealth, everybody needs a certain number of calories to live. If you are poor and can only afford subsistence, you are paying a much larger portion of your overall wealth just to stay alive.

That may be ok with you, but for a lot of people it's not.

Something like a wealth- or income-based tax credit would possibly correct this, although poor people are also less likely to know how to take advantage of such tax breaks.

[mpreda]

A flat consumption tax would be regressive if the two extremes (rich vs. poor) would buy the same goods; but they don't. The very poor buy cheap food, the very rich buy diamonds and services ("dog walking", "garden design", "personal trainer"). Not to mention the two buying different kinds of habitation, in different locations, at very different price-points.

[stanleydrew]

This is all true but doesn't invalidate the point unless the rich and poor are spending the same proportion of wealth/income on these various categories.

The fact that the rich can afford to save more of their income proves that isn't true.

A more pedestrian proof would be that even if I make 10 times as much money as someone else, the most expensive gallon of milk I can buy is still only double or triple what a poor person would pay.

[nightski]

Fairtax has a prebate to cover all tax for essentials (everyone, poor or wealthy, gets a "check" at the beginning of the month). You theoretically only pay tax on non-essential items.

[eeZah7Ux]

> It's also very logical to be taxed for what you take from society vs. what you give to society. But that's just a minor point.

Not so minor! Taxing based on how money are spent is very reasonable (but goes again consumerism).

It also ties very well into resource-based taxation. (see https://en.wikipedia.org/wiki/Polluter_pays_principle )

[coldtea]

>This is why I truly believe in a consumption/sales tax instead of income tax (aka FairTax). You can build as much wealth as you'd like, but it doesn't do you any good until you spend it. At that point there is no avoiding the tax and it's much easier for the IRS to track.

That would be even less fair. For a rich person, spending (even with luxuries in) is a small percentage of their income.

For a poor person rent for a small apartment, plus food, plus basic clothing for the kids basic healthcare, etc eats most of their income (or all in most cases).

Rich people also don't need to spend as much. For most of their fortune, they can accumulate and wait. For the rest, they can arrange all kinds of schemes (e.g. their car is leased by their company, not them personally, and so on) to appear not to spend themselves.

Plus, a lot of what they do is buying influence, which you can do with political donations, "charity", and other such things, that are low or not taxed (and in some cases, are even tax deductible).