Random idea on taxes: eliminating income tax for poor, introducing national VAT

[Jacobtm]

Sales taxes are generally regarded by economists to be more efficient than income taxes. There's no way to avoid paying a sales tax when buying something, and there's much less bureaucracy needed collecting that money.

So, why not eliminate income tax alltogether for the people in the lowest tax bracket, those of whom currently pay 10%, and institute a 10% national sales tax, while lowering the income tax rate by 10% for all income and corporate tax brackets.

Decreasing bureaucracy while keeping about the same amount of income, freeing up money so that the government might not run quite so high a defecit...

What're the downsides? I'd think that online purchases, where sales taxes are avoidable, would probably shoot up alot on anything of significant value. Would the bureaucracy necessary to enforce an online sales tax be greater than the amount of bureacracy that could be eliminated by dealing with smaller income taxes?

[True Federalist (진정한 연방 주의자)]

There's the inconvenient fact that in order to raise the same amount of revenue a VAT would have to be at least 20% and probably higher, tho since you aren't calling for a complete abolition it wouldn't need to be that high.  However, that doesn't negate the fact that due to the EITC, the working poor actually pay a negative income tax, i.e. they receive money from the government for having wages.

Regardless of whether or not the sales tax is more efficient, this plan will raise taxes on the poor and lower them on the rich.  And sales taxes as you pointed out yourself, are susceptible to avoidance and cheating, just in different ways.  What we need is not to scrap the income tax itself, just 90 to 95% of the complications, loopholes, and other gobbledygook that have made the Internal Revenue Code the second largest portion of the United State Code after Title 42, The Public Health and Welfare which includes the behemoth known as Social Security.

[○∙◄☻¥tπ[╪AV┼cVê└]

There's the inconvenient fact that in order to raise the same amount of revenue a VAT would have to be at least 20% and probably higher, tho since you aren't calling for a complete abolition it wouldn't need to be that high.  However, that doesn't negate the fact that due to the EITC, the working poor actually pay a negative income tax, i.e. they receive money from the government for having wages.

Most childless working poor don't get the EITC.

[True Federalist (진정한 연방 주의자)]

Most childless working poor don't get the EITC.

Considering that many childless working "poor" are actually students who aren't yet in their main career, I'm not too choked up about that.  It would be nice to have a tax system that handled the distinction between the real poors and the faux poors better, than using child dependents as the means of determining it, but any system to make it "fairer" would also make it more complicated, subject to abuse and all too likely, less fair than what it replaced.

[CultureKing]

also the sales tax affects the poor more than it does the rich, a poor person will pay a much larger portion of their income in sales tax (because they have to spend alot of their income on basic necessities like food) versus those of the higher classes.

[Verily]

also the sales tax affects the poor more than it does the rich, a poor person will pay a much larger portion of their income in sales tax (because they have to spend alot of their income on basic necessities like food) versus those of the higher classes.

The point is that income tax would be eliminated for the poor to balance out the sales tax. It would need to be carefully done not to drive the poor into worse poverty, however, since the sales tax would have to be low enough to still not draw a larger percentage of the poor's income than the current income tax (minus the refund).

Perhaps a better solution would be sales taxes on more tightly defined luxury items (rather than the current "not foodstuffs" definition) to bypass the poor altogether.

[bullmoose88]

also the sales tax affects the poor more than it does the rich, a poor person will pay a much larger portion of their income in sales tax (because they have to spend alot of their income on basic necessities like food) versus those of the higher classes.

The point is that income tax would be eliminated for the poor to balance out the sales tax. It would need to be carefully done not to drive the poor into worse poverty, however, since the sales tax would have to be low enough to still not draw a larger percentage of the poor's income than the current income tax (minus the refund).

Perhaps a better solution would be sales taxes on more tightly defined luxury items (rather than the current "not foodstuffs" definition) to bypass the poor altogether.

Question is, what would you define as a "luxury" item (and that can raise a bunch of issues too)?

[memphis]

What we need to do is exempt the first $50,000 or so from income tax and restore the original intent of the tax, which was to tax superfluous income. Most income tax (although not most Social Security tax) is paid by high-income people anyway.

[nlm]

In my mind the US tax code is broken. We tolerate a system that is vastly too complex and filled with loop holes. The basic concept presented here is one I think is worthy of exploration. A VAT can create a great deal of revenue and, if put in place correctly, should be able to offset a great deal of the income tax (I'd like to see how much, because for this to work it needs to offer relief, or at least a break even, to the middle class as well as the poor). I'd also like to see if it could be used to offset our countries use of property tax that sticks it to so many older people on fixed incomes.

Tax accounting should not require one of this nations larger industries!