I'd kind of dismissed the idea of a consumption/sales tax as terribly regressive, but it doesn't have to be, and lately I've been wondering what the distribution might look like. To make a sales tax more progressive, you might in effect say that the first $20,000 you spend is tax-free. If you have a 10% tax, then you just give every individual $2,000 cash (and ignore that some people spend less than $20,000 – that's the sort of loophole that can never grow very large).
Given a system like that I'd be curious what the numbers might really look like. How high a tax would we need? What would the actual tax burden look like for different amounts of cash-back? Could we replicate something similar to the progressivity we have now?
But there's still distortions. Consider high Shipping & Handling fees – these are often done because S&H is considered a service, and so sales tax is not levied on that portion of the cost. But a $0.01 book with $7 S&H is clearly bullshit. But who is there to call the seller on that bullshit? Why are goods taxed but not services? I've never been clear on that.
One interesting form of taxation might be to tax purely status purchases. e.g. in countries like Singapore, where you don't really need a car, they tax cars heavily -- yet rich people still go out of their way to get super expensive cars to show off. Progressive real estate taxes, luxury taxes on vehicles, expensive types of clothing or jewelry, etc. wouldn't deter purchases much, but would raise money.
The most awesome tax I have ever seen is auctioning short license plates (done in the middle east and Hong Kong) -- pure profit for the state, and artificial scarcity created by the state. In fact, it's "better" for me to own the "1" license plate if everyone knows I spent $10mm on it than if they thought I got it by being lucky.
(In general, I'd like to see more VAT + poll + etc. taxes vs. income or investment taxes. And taxes on things we want to discourage, like pollution.)
>Given a system like that I'd be curious what the numbers might really look like. How high a tax would we need? What would the actual tax burden look like for different amounts of cash-back?
It seems like the math is fairly straightforward, but dependent on how much money you need to raise. The big question is to what extent you would want something like that to displace other taxes. If you wanted to displace all other federal, state and local taxes then a sensible rate would likely have to be in the nature of 20-30% (depending on the size of the exemption and how much money the government is to spend).
>Could we replicate something similar to the progressivity we have now?
It seems to me you could achieve an arbitrarily large degree of progressivity by playing with the size of the exemption. In the extreme case you pay everyone something like $50,000/year and then have an extraordinarily high tax rate, but then you get a different kind of distortion where people quit their jobs because they can live off the tax rebate.
On the other hand, having a substantial unconditional rebate (not that large, but say $5000-$10,000/year) would eliminate the call for many need-based programs, because those in need would then have that money with which to buy food and shared accommodations, etc. That would significantly reduce government expenditures for those programs and allow such a large rebate to be had without the need for a prohibitively high tax rate. (It would also eliminate several redundant government bureaucracies dedicated to administering now-redundant need-based programs.)
> Why are goods taxed but not services? I've never been clear on that.
I think it's jurisdiction dependent. But as to why, it's almost certainly only because that's what has been successfully lobbied for by someone. There isn't any sound economic rationale unless you want to encourage the purchase of services over goods for some reason, at the cost of exactly the sort of distortions you're talking about.
>I'd kind of dismissed the idea of a consumption/sales tax as terribly regressive, but it doesn't have to be, and lately I've been wondering what the distribution might look like.
In California the sales tax doesn't apply to clothing under a certain price or food staples. Since poor people spend a high percentage of their money on these things it's not a big burden for them.
If they want to buy booze or a big screen TV they can pay sales tax like the rest of us.
Given a system like that I'd be curious what the numbers might really look like. How high a tax would we need? What would the actual tax burden look like for different amounts of cash-back? Could we replicate something similar to the progressivity we have now?
But there's still distortions. Consider high Shipping & Handling fees – these are often done because S&H is considered a service, and so sales tax is not levied on that portion of the cost. But a $0.01 book with $7 S&H is clearly bullshit. But who is there to call the seller on that bullshit? Why are goods taxed but not services? I've never been clear on that.