All spending should be taxed instead of income. Income is too easy to move and hide. Spending tax could be unified framework encompassing all financial activity. If you purchase anything, labor, imports, energy, stock, politicians, you should be taxed.
Spending is the moment when the money shows its ugly head and does harm.
I don't think so. Rich people buy vastly more. Not just food, shelter and entertainment but also real estate, entire companies and financial instruments. They'd end up paying vastly more tax.
Money changes hands so it's taxed with a purchase tax as a general rule.
> it will become proportional. What is still not very good.
Progressive tax currently is just a theory. Rich actually pay regressive tax. I'd take proprtional tax over ostensibly progressive tax but in reality regressive tax any day.
Correct, and it could be implemented as a power law formula that makes it impossible for the super rich to avoid tax (since they are the only ones that can spend a lot). It also aligns incentives with environmentalism and reducing waste and consumption. And poorer people are automatically exempted from tax since the power law formula parameters be set to slowly ramp up.
This is also easily accomplished now that almost all payments are happening digitally, assigned to a taxpayer ID#. We can easily replace a W-2 or 1099 with total spending instead of taxing working.
Of course, this should also be paired with similarly designed land value and estate taxes to disincentivize hoarding.
So my effective tax rate on consumption is indexed on my ability to hide my assets?
Maybe my household LLC should buy all my groceries while I work for the LLC which employs me as the sole contractor and live in the house that I rent from the LLC which I am the sole owner of. For major purchases, I can hire a low-income person to do the purchase and then sell the item to me, or maybe they lease it to me.
I'm not a tax lawyer but it's pretty easy to see the many loopholes in alternative tax proposals.
>So my effective tax rate on consumption is indexed on my ability to hide my assets?
Where are you getting this from? Sales tax has nothing to do with one's assets. Also, land value taxes make hiding assets moot, since all real assets have to be stored on land. Of course, copyright protections would need to be reformed to be for far shorter durations of time.
>Maybe my household LLC should buy all my groceries while I work for the LLC which employs me as the sole contractor and live in the house that I rent from the LLC which I am the sole owner of.
Why should LLC's be exempt from the tax?
>For major purchases, I can hire a low-income person to do the purchase and then sell the item to me,
How does this help? You are still purchasing the item. If you are referring to purchasing it with cash and committing tax evasion, the same is possible with income tax today.
>or maybe they lease it to me.
Renting something is still considered a sale. You get charged sales tax at hotels. Renting apartments is not usually subject to sales tax, but that is a policy choice.
> Where are you getting this from? Sales tax has nothing to do with one's assets
Earlier you said
> And poorer people are automatically exempted from tax since the power law formula parameters be set to slowly ramp up
I too am very confused on how you envision this sales tax working where it's variable in some way that poor people don't get the tax but rich people do so I understand why OP is asking about asset tracking. If you're talking about it as a tax that increases the more you spend you've still got problems of hiding how much I'm spending through various legal entities. It also has a macro economic problem, at least how the consumer economy is structured, that could slow down the gears of business until society realigns (if it does) because people will be incentivized to consume less. You've got alternative models where you go after specific products and tax more for conspicuous consumption like yachts but that feels like it has all the inefficiencies of central planning a market.
>that poor people don't get the tax but rich people do
Because poor people can't spend money (since they don't have it), hence they pay much less (or even no tax). The curve of a power law formula can be modified to whatever is socially acceptable. Otherwise, rich people who are hoarding assets will get taxed via land value taxes utilizing the same framework.
>you've still got problems of hiding how much I'm spending through various legal entities.
Same with income tax. Completely stamping out tax evasion is not a realistic goal with any system. Also, various legal entities are all tied to beneficial owners with taxpayer ID numbers. Databases would make quick work of sorting this kind of stuff out.
>It also has a macro economic problem, at least how the consumer economy is structured, that could slow down the gears of business until society realigns (if it does) because people will be incentivized to consume less.
Yes, that is why it is a pipe dream. But it would actually accomplish environmental goals as opposed to just pay lip service and pretend.
>You've got alternative models where you go after specific products and tax more for conspicuous consumption like yachts but that feels like it has all the inefficiencies of central planning a market.
Completely unnecessary to complicate things which also opens up avenues for corruption. A yacht is super expensive, it's obviously going to be hit with a ton of tax. Just come up with a tax curve (like we already do with the various income tax deductions/brackets) that provides the tax revenue and still allows people to spend enough money to provide for their basic needs.
> Because poor people can't spend money (since they don't have it), hence they pay much less (or even no tax)
Poor people can buy a car. Middle class families can buy 2 cars. Neither can buy 100 exotic cars. Is the purchase of each additional car going to increase the tax paid? Are exotic cars taxed more? You keep stating to use a power law formula but you're critically omitting what the inputs are to determine your tax rate. And now you've also admitted that assets determine your sales tax whereas you seemed to be arguing earlier that that wasn't the case when asked if the sales tax rate is dependent on your ability to hide assets.
> Otherwise, rich people who are hoarding assets will get taxed via land value taxes utilizing the same framework
Rich people hoard assets in all sorts of ways including collecting physical items which you can store where land is cheap if you wanted. That's why the income tax is effective - it's taxation at the moment the money changes hands / you've realized a gain.
> Is the purchase of each additional car going to increase the tax paid?
Yes, tax liability = total spending during the year plugged into the power law tax formula.
>Are exotic cars taxed more?
Depends how much the taxpayer spends in a year. There is no tax rate for each specific item. The tax rate is for a total level of spending, which eliminates all loopholes.
> You keep stating to use a power law formula but you're critically omitting what the inputs are to determine your tax rate.
The input is total spend in a year. Just like right now, the input is income in a year.
> And now you've also admitted that assets determine your sales tax
No, I did not. The formula to calculate sales tax liability only requires inputting total spending. Land value taxes are a separate thing. We currently have land value taxes, except they are flat rate and too low because property taxes inefficiently tax improvements on the land more than the land itself.
> That's why the income tax is effective - it's taxation at the moment the money changes hands / you've realized a gain.
Sales tax can also be at the moment the money changes hands. It currently is. Even with the complication of a power law tax formula, I can’t see why the government can’t email you a monthly invoice.
I don't like this idea of collecting this tax yearly. I'd skip the power formula and have this tax to be just fixed percentage on every purchase to be able to collect it immediately and automatically by using the banking system itself.
My capital gains tax is immediately collected as my bank sees any capital gains. I physically can't dodge it.
Similarily I could have tax on every purchase I pay for with any kind of bank transfer immediately collected.
A flat sales tax rate is regressive. I don’t see a reason to give rich people that benefit. Roughly speaking, the effects of consumption are not linear. A private jet, yacht, and large and heavy vehicles are going to consume much more public goods (including the environment) than cheaper goods.
You can skew the tax by giving more tax credit to the poor.
Also those are not only taxes on consumption but every purchase. Yacht might be too cheap in comparison of resources used but rich don't just buy yahts, they buy entire companies.
The power law formula already skews the tax rate. There’s no need to further skew it with tax credits or other complications. If you want to adjust tax rates, simply modify the curve of the power law formula so that a given level of spending is taxed a lower or higher rate.
Only of you have something to feed into the power formula and you don't unless you collect data more personal than what people are used to having collected.
Some people even object to paying with cards today because they don't want their transactions to be tied together to their identity.
So alternatives to power formula that achieve similar effect in different ways might be worth considering.
> Sales tax can also be at the moment the money changes hands
Are services included in this sales tax? e.g. if I hire a cleaning company to clean my apartment? I'm assuming they would be right? Now what distinguishes that scenario from an employee being hired?
Yes, I don’t think I have come across a US state where sales tax doesn’t also get applied to most services.
> Now what distinguishes that scenario from an employee being hired?
Not sure why this is relevant to this discussion, but the cleaning service’s employees do not become your employees because you don’t get to manage the cleaning service’s employees and it’s usually a limited time work engagement. There’s quite a bit more that goes into creating an employer / employee relationship.
Personally I wouldn't do the spending tracking for individuals to decide tax rates just because it's complex and perhaps to intrusive.
I'd go with same tax rates for everybody, but tax credits for useful activities. Since being a poor consumer is useful activity because those pay most attention to what they buy I'd be just giving people tax credit for existing and possibly for working if I wanted to incentivise that. Since purchase tax for individual consumers should be collected and paid by the sellers to save the individuals the burden of it and to ensure compliance then the best form of tax credit for consumers is just cashed given them directly from the government. Some for existing some possibly to supplement their salaries if they work. There's some risk that they won't spend it all to pay for their purchase tax but this can be forgiven as it'll mostly happen for the very poorest.
How is it complex or intrusive? We’re almost already completely there via various electronic payment methods linked to each individuals’ tax ID#.
You would no longer have to give out your tax ID# to employers or customers. The electronic payment company (which should be a government utility, but that’s a different conversation) simply reports your purchases, just like we do with various 1099/W-2 forms right now.
You'd have to have huge database of what every individual bought ever. How many beers, how many condoms per month they purchase. Or at least how many times they were making purchases in sex shop, liquor store, marihuana dispensary.
Currently your payments as a customer aren't bound to your TAX is if you don't specifically opt into it and you have no reason to do that if you don't have a company.
That's increase in a intrusiveness many would strongly oppose.
You can of course compromise and base your tax progression only on the sum of large purchases that are being registered already like houses and cars and investments.
But there's still issue of charging the correct tax if you don't connect consumer with their tax id on every purchase.
I think that companies that sell directly to consumers should collect purchase tax of consumer and pay it. And the rate should be the same for all consumers. To award consumers tax credits government just could give them cash directly that will come back to the government in the form of purchase tax that consumers pay (to sellers or through payment processors that transfer it to the government).
You can still punish the rich by reducing their tax credits progressively with how much assets such as cars, real estate and investments they own.
Ownership can be tracked. You're tax rate can be proportional to all of your assets along the ownership tree (tax already paid by the branches on what they own can be deducted).
You can of course "own" things informally but then you don't get any support from courts when the paper owner decides you really own nothing.
Purchase tax would work like reverse VAT. Companies could be awarded tax credits for their sales (not 100% though) and pay tax on their purchases. This would be harder to evade and additionally incentivise companies to do more with less which might be good for environmental transition.
Why not 100%? How is that even supposed to work in low-margin markets like construction, where the profit is 100x less than the costs, so even 1% tax would erase it? But any markets really, this makes innovation and business so risky that I'd probably close down my IT company too.
Markets will adjust, sure. It will be priced in, but that's the problem. They will become less efficient, quality will be worse, everything will be slower, more risk averse, and thus more expensive to the customer - that is necessary to survive in this new environment. That also means that people's income gets lower and grows slower.
It'd be risky because I have no idea if I'm actually going to make money or not. European states set very draconian rules like 1% daily interest on unpaid taxes - no way I'm taking this shit on.
Two factors are responsible for the bulk ens*ttification of the markets: any barriers to competition and information asymmetry between purchaser and seller. Taxation is not a factor unless it's done with too much micromanagement that incentivises doing weird things to your product/service to avoid higher tax.
VAT is already a purchase tax, just collected from the end consumer. You could just raise VAT and do away with income tax. But since the burden is on the end consumer only (not along the chain, because of 100% deductions) it would have to be raised very high. And VAT is with us long enough that many ways to exploit its edge cases were discovered. General purchase tax collected at all steps of production chain could spread the tax burden away from final consumer to the people who exploit them (aka businessmen) thus fulfilling the role that income tax currently fulfills. It would also have way less edge cases and could replace things like import tariffs and social security fees, excise taxes and many more.
> It'd be risky because I have no idea if I'm actually going to make money or not.
That's the inherent risk of business. You have to decide if it's worth it regardless of whether a server costs you $x or $x+10% purchase tax.
> European states set very draconian rules like 1% daily interest on unpaid taxes - no way I'm taking this shit on.
You would never have unpaid taxes because they'd be automatically collected by the bank at the moment of purchase. If you don't have money to pay for purchase tax you don't have money to make a purchase.
> Just do the same thing but with VAT...
We could do some of that if we reduced VAT deductions from 100%. But it would be worse because VAT is very limited and thus has a lot of edge cases where it comes in contact in systems outside it's domain. Those can be used to get away from paying by doing superfluous operations.
...or you can just use a VAT, which are also paid at purchase. Tech companies have high margins and low expenses, so if the point is to tax tech companies, taxing purchases and giving a credit to sales is literally the exact opposite of what you want to do.
VAT with 100% deduction places entire tax burden on the end consumer. Income tax aims to extract additional tax from entities that extract money from consumers for investors.
VAT could do a lot of the same things that I'm proposing (if the deductions weren't 100%) but is limited in scope. And because of that it has a lot of interfaces to other domains like real estate, import, labor, financial intruments. Interfaces that can be exploited to avoid paying taxes.
General purchase tax could replace all taxes and fees transfered from the markets to governments (and effectively goverment managed buckets like social security or public healthcare).
Taxes have this strong moral objection that they are punishment for creating value. Purchase tax could help with that by ostensibly being punishment for using up value not for creating value. It might also compose well with transition to stable state economy that will have to replace old economy based on unbounded growth.
Income taxes make everything less straight forward, more risky, more costly, just harder. Small companies are incredibly disadvantaged. If most/all income taxation could be avoided, it potentially translates to incredible productivity gains.
What are the reasons to tax corporate income? The usual reason is so that it doesn't spend the money on executive wages, parties, and so on. The less public reason is so that it doesn't extract all money to a foreign corporation through license/patent fees (dividends are taxed more).
We can do so much more today with the computers we have than the primitive taxation schemes of 1980s Europe. We already have the infrastructure to audit corporate spending and investments - let's just keep using that to avoid the lavish parties and otherwise not serving the shareholders as efficiently as possible. Let's cap wages at 200k - if you want more, get some stock options and share the risk. Any out of country value transfer (money, gold, financial assets...) is taxed 50% (each individual gets an exemption up to 100k/year). Add a 5% inflation rate to discourage cash hoarding.
Now the fun stuff - let's use Land-Value Tax and Progressive Value Added Tax - VAT with progressive rate based on item class and price. Zero rate on basic needs in raw form + everyday items like hygiene. Everything is calculated automatically using the country's E-Cash Register system - absolutely zero bureaucracy, everything is clear upfront and there is no forward risk created by taxation. And it's super hard to avoid taxes when they won't give you the new Lambo unless you pay right there and now.
Most EU countries already have all of the infrastructure in place. Though this scheme would work best in a borderless, continent-wide European state.
> The less public reason is so that it doesn't extract all money to a foreign corporation through license/patent fees (dividends are taxed more).
Purchase tax would fix it by taxing money "on exit" on foreign purchases of anything. This also works as a tariff without singling out any foreign country as a target for tariff.
> VAT with progressive rate based on item class and price.
Here's your bureaucracy. VAT classification is huge catalog that many businesses are trying to gamble to jump to lower tax rate. Creating it, updating it, adhering to it is a huge pile of decentralized and distributed bureaucracy.
What you are proposing is a spaghetti of solutions. Every interface between the parts and every solution itself is an attack surface for tax dodgers.
Genral purchase tax is unified framework on all transactions that can consistently extract money from the rich through taxing all their spending that intrudes on the markets only when you specifically wish to and gives you clear tool for intrusion in the form of tax credits for specific market actors for whatever reason you wish.
Spending is the moment when the money shows its ugly head and does harm.