I had a quick idea I wanted to get some feedback on.
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Goal:
- Fair: avoid situations where some pay taxes while other's don't (tax evasion schemes, loopholes, black market)
- Progressive: people making more pay more
- Simple: no accountant/lawyer needed
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Idea:
What if we only had sales tax (no income tax)?
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When I first heard of this, it was from Bill O'Reilly which I disagree with on most topics. I immediately discarded the idea as poor people spend all their disposable income, but rich people only spend a small part. In other words, poor people would pay a higher effective rate, which in my view is unfair (even though in absolute terms they'd still pay more tax).
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But it got me thinking, what if the sales tax applied not only to physical goods but also to virtual and financial products? It would be similar to the so called "Speculation tax" Bernie Sanders and others keep talking about. Rich people would effectively pay tax when they purchase bonds, stocks etc the same way they would if they bought a car.
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Side-effects (that i can think of, let me know if you see others):
- Recude the size of the IRS (cost reduction)
- No need for audits, accountants etc (productivity increase)
- No tax loopholes and no reason to store profits in a tax haven country
- People taking cash payment (tips, work for cash) are now taxed to proportionally to their income (assuming they need to buy things). This applies to organized crime too. (revenue increase)
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Potential problems:
- Company that both buys products from outside the country and has workforce outside of country. That company effectively does not pay taxes... but then again, is that company really using the country's resources such as roads?
- People stop charging sales tax. Right now i think people avoid charging sales taxes because they themselves want to avoid the income tax. If they no longer have to pay income tax, I think they'd be no reason for them to not charge the sales tax... other than to give the customer a discount.
- No income tax deductions. Harder to incentives behavior, like giving to charity (although giving to charity is often a tax loophole), green energy initiatives. Would need to give deduction at source.
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Curious to hear your thoughts, cheers!