We all need the government to maintain our roads, inspect our food and the quality of our medicines and hospitals, purify our drinking water, educate our children and the children of the people who work in our markets and factories, pay our police and our fire departments and much, much more. Industry would be impossible without the government. We all benefit from the government but who should pay the tax required to support it? Various methods have been tried to get the funds that make government possible.
Today we use three different methods of taxation; a land tax, a sales tax and an income tax. In the 18th and 19th centuries England, Scotland and Great Britain taxed households on the number of windows in their houses. Some houses from the period can be seen to have bricked-up window-spaces as a result of the tax. Many more methods have been used and are still being used!Contrary to popular opinion wealth is not found lying in the street waiting to be claimed by the first person who finds it. It is produced by the hard work of laborers, documented and undocumented who invest their sweat in its production and by people who have accumulated a certain amount of wealth by their past labors who choose to invest it in the production of new wealth.
Every discussion of sales tax versus income tax always ends with the assertion that the sales tax is regressive – that is that low income families would have to pay a greater percentage of their disposable income to purchase the necessities of life, food, clothing, rent and medical care.
On the other hand it is argued that people who consume our wealth should bear the lion’s share of the cost of the government that makes it all possible. Taxing income puts the entire burden on labor and investment which are the sources of wealth production. Doesn’t it make more sense to tax consumption rather than production.
But there is a way to make sales tax progressive. I call it Sales Tax with Rebates.
I prefer a Sales Tax to an income the income tax discourages production.
People should not be penalized for working (investing their labor) or investing their money.
On the other hand\, consumption uses up the produced goods. It should be taxed.
But a taxation system that makes low income households pay a greater share of their income than wealthier households is intolerable.
Here are some examples of how it might work:
Joe is retired and trying to get by on his Social Security. He spends $10,000 a year for his furnished room and board.
The Sales Tax is $3,000.
He gets a rebate of $3,000.
Tax rate: Zero.
Amy is a single mom. She has two daughters and spends $60,000 a year supporting them all.
The Sales Tax on $60,000 at 30% is $18,000,
Each member of her family is entitled to a $3,000 rebate.
So she ends up paying a tax of $9,000 which is %15 of $6,000.
Mike spent $1,000,000 last year, on which the 30% sales tax is $300,000, He has a rebate of $3,000 so he has paid $297,000 in taxes -- a rate of 29.7%.
