Sales Tax or Income tax?

[Thirdshifter]

Which one would you prefer? Sales tax or Income tax?

By JEANNINE AVERSA
WASHINGTON (AP) - Federal Reserve Chairman Alan Greenspan on Thursday said some form of a consumption tax - such as a national sales tax - could spur greater economic growth, but he cautioned that the government would face significant problems making the transition to such a system.

Switching from an income tax to a consumption tax would generate huge opposition from Democrats, who argue that taxing food and other goods would fall hardest on the poor.

Acknowledging those concerns, Greenspan told the President's Advisory Panel on Federal Tax Reform that policy-makers might want to consider a combination of an income tax and a consumption tax.

``I would suspect that probably that may be the best route to go. In other words, don't try for purity,'' Greenspan said in response to a question from a panelist. ``I would suspect that the opposition that would arise would probably make such a structure (a pure consumption tax) infeasible.''

I will coment later.

[The_forgotten]

the goal of shifting to sales tax is to encourage savings and consequently increase investments. however, as the opponents of sales tax have said, the replacement of income tax with sales tax will cause the poors being taxed more than the riches (afterall, the riches do not spend that much of their income (in percentage) if compare to the poors. hence, i think unless the fed has figure out some way to impose a fair sales tax, it's better to stick to the good old income tax..(although it's kinda complicated and needed to be revamped) anyway, there are certainly better ways in encouraging savings..

I agree with Greenspan's idea of having both a sales and income tax. The general approach to this idea would be to tax only people earning above a certain income, say $100,000 -- around 5% of Americans earn more than that about, so 95% would not need to file an income tax return, reducing headaches and the billions of dollars wasted to prepare & process such returns.

And sales tax would not necessarily would have a heavy burden on the poor. We can have lower taxes on essential items (like milk, eggs etc.) and higher taxes on luxury items.

Plus, you're right that sales tax would encourage savings (badly needed in America where the national savings average is just about 1%).

[Thirdshifter]

Taxing consumption is much more effective, and even though I don't like the progressive income tax I would prefer a progressive (luxury) consumption tax.

The problem is in enforcement.

It is a lot easier to cheat on sales tax. There would be a large incentive to expand the black market, and no way to stop it.

The second problem is in defining luxury goods. How can you develop rules that objectively call 1 item a necessity and another item a luxury? How can you exempt "food and clothing" for the poor, but continue to tax filet mignon and Louis Vuitton?

Imagine the ideological battles and lobbyist battles over classifications within a progressive tax code. Imagine vegetarians trying to get meat classified as a luxury. Imagine manufacturers trying to lobby to get a more favorable classification for their goods or a worse one for their competitors goods. The list goes on and on.

I like the idea in principle, but I am very skeptical that it could work.

My only idea would be to set actual price ranges based on current goods, then index those prices so they change every year to keep pace over time, But even this brings countless headaches. The only way to make it work like the current system is to make it far more complicated.

[__earth]

My only idea would be to set actual price ranges based on current goods, then index those prices so they change every year to keep pace over time, But even this brings countless headaches. The only way to make it work like the current system is to make it far more complicated.

This has already been done. It's called the consumer price index, the CPI. Basically, it tracks inflation. And in fact, this is how the real GDP is calculated from the nominal GDP.

But I still dont understand your idea of relating progressive luxury tax with the CPI. How does it connect actually?

Anyway, do you have a link to that article?

And Malaysia does have sales tax right?

[Thirdshifter]

Forgot to add.. Wasn't the income tax supposed to be a "temporary" thing? Also, I could see this being pulled: "We'll have both while we phase out the income tax." Then the income tax wouldn't be phased out and we'd be screwed x2.

And that doesn't even begin to address taxes at the state level (which in the aggregrate are more orneous anyway). If a national sales tax is implemented, do the state sales taxes go away? If a flat federal income tax is implemented, do the state income taxes go away? Hogs are hogs, pork is pork, and trust me, the above scenario will absolutely be played out at the state level...