I'm not saying the new goods market goes away, I'm just saying by attracting people to a used market reduces the number of new good consumers, which will reduce the amount of new goods produced. For large business, the labor intensive nature of repurchasing items, repairing them and reselling (at presumable a significant discount to new goods) would make it difficult (assuming no new major innovations of course) in the short to medium-term. A point that you address below. Whether this actually occurs or not depends on the real discount people would get from buying new goods. I have no idea what type of sales tax would be required, but let's say it is 15%. That provides a 15% savings as compared with new goods. But the question is how expensive will "repair" parts be? And how much labor would be required to fix them. If I'm a big corporation, I make it as difficult and expensive as possible for Mom&Pop shops to fix my stuff, because I want people buying new things. Again, not saying it's impossible, but there are some major obstacles to putting that theory into practice. Absolutely agree. I wasn't dismissing your point, just pointing out that none of these things are as easy as we make them out to be on internet message boards. Your response on the progressive/regressive makes sense. I'm also assuming that goods such as non-prepared food and clothing under certain price limits and services like education would be exempt. I'd love a consumption tax, though. At least in this stage of my life, without a kid, I'm a saver, not a spender.
Andymoon Would this recycle program hamper innovation? It would be a disincentive for progress, innovation and introducing new product into the market? I like the Ideas but this No taxes on used products maybe one too many exemptions. Is Coke in a Recycled bottle exempt? Perhaps a Half Tax on them. The government needs money to run. Are we sure a comsumer tax would equal or surpass the money being taken in now? I times of need. . . how would the Government raise money quickly? How much should the consumer tax be in order to reach the levels of governmental income that exist now? Maybe surpass it because we have a deficet. Rocket River
The problem with "simplifying" the tax code to a consumption/sales or flat tax is what would you end up with? A. What is income for a flat tax? How do you handle capital gains, social security, sale of a rental property, sale of a residence, etc and other sources of income not from wages. This in itself takes up alot of the current tax code describing what is income. B. What social programs should be included? Do you want to entice people to buy houses (make interest deductible in todays current code), give credits for saving for retirment, or make the first $10,000 of income not taxable. All of these have purposes in today's code, do you want to continue them? if so add a few more pages to descibe the credits and who is eligible? Don't forget you have to account for social security and medicare somewhere to. In the end you could end up with as many pages and as many complications despite going to this system. And a system could be radically different when finally implemented. A flat tax may be set up to be 25% (covers federal taxes, SS, and medicare) but once all the social programs and other exclusions are added you may have a flat tax of 40%. 25% doesn't sound bad but 40%? But I will tell you changes in the tax code would make me ahappy camper. Being a CPA it would mean more clients who can't decifer the new regulations, so if you want to overhaul it go right ahead, but there are alot of issues to get through.
Actually, it should have the opposite effect, as companies would need to constantly innovate and improve their products in order to add enough value for the consumer to desire a new product enough to pay tax or use their exemption. Coke is a food product and I would exempt all food below a certain price. As far as half taxes on used goods, the reason it is called a consumption tax is because it is a tax on goods consumed, or used, for the first time. I would allow used good business to thrive in the absence of taxes, increasing the amount of money flowing to small businesses, and giving people a choice of what to pay taxes on. I would set the tax rate to the point that we would have a modest surplus every year, half of which would go directly to paying the principal on the national debt, and the other half would be used to give a tax holiday much like we have in Texas. In times of need, the government does what it does not, borrow money until the crisis is over. Once the national debt is paid off (and we aren't paying nearly $200 billion per year in interest payments), those times of need will be less severe, we will be able ot cut the tax rate, and we could even set up a contingency fund for future emergencies. I don't have the actual numbers here, but I have seen numbers from 18%-23%. That is to raise the money we are spending now and a bit more to service the debt.
But one of the biggest discounts the consumer would receive would be the lack of tax, cutting 15-25% off the cost of the good. This should leave plenty of room for the company (who has already made profit from selling the product when it was new) to refurbish the unit and sell it again, for more profit. But the corporation has already made the initial profit from selling the product the first time and will only have to cover the cost of replacement parts, labor, and profit. Add that to the tax savings and you will see corporations with a major new form of income. Mom and pop shops will always be able to do the work on these products. It would not be in the corporations best interest in this type of system to make the products difficult to repair since they will be doing repairs as well. Yeah, groceries, medicines, and lower priced clothes would be exempt if I created the system.
Not unless those of us who actually think about and come up with common sense solutions band together and demand change.
A consumption tax is not a flat tax, of course, but a regressive one. Those making less money spend a higher percentage of their earnings than those who make more, so the tax burden would shift to the lower class and lower middle class. Because of this, national spending would drop, as those making less would have less money to spend. The economy turns on spending, reinvesting American dollars in (hopefully) American goods and services. Further, a consumption tax would by its very nature have a chilling effect on purchases of goods and services, by people hoping to avoid the tax to the extent possible. I can see how a tax like this might "seem" to be logical and beneficial, but imo it would have a negative effect on the economy as a whole.
Did you read my points above regarding exemptions to reduce the regressive nature of a sales tax??? Truly low income people would end up spending very little in tax as they do not buy nearly the same amount on luxuries than the rich do. If food, medicine, and reasonable clothing are exempted along with an additional $15,000 for a family of four, very few people making $30k or under would pay any tax at all. For people hoping to avoid the tax, they can purchase used goods, avoid the tax, and still contribute to the economy. In addition, a consumption tax would have the net effect of causing people to want to save instead of spending, which would raise capital going into investments, further spurring the economy. The economy would change somewhat, but would not slow appreciably in response to a national sales tax. Heck, just people being able to keep all of their paychecks will cause them to go out and spend more, but a consumption tax would also spur people to save more, which could also have the effect of making Social Security obsolete (though that kind of systemic change will take a couple of generations).
Are you talking just goods, or services as well? If I go to a restaurant, am I tax exempt, or just if I buy groceries? Medicine, does that include over the counter medication for their kids or just the prescription stuff? Are hospital costs exempt? Why are you preferring used goods to newly manufactured ones? Also, aren't you shifting a burden to retired people they never expected, in that they've already paid taxes on their income, have saved it, and now they're paying a consumption tax on the goods they buy that they never figured into their plans when they retired? How will they afford the added expenses? Do you think that anything that's not food, medicine, or "reasonable clothing" (wherever you draw that particular line) is a "luxury"? What about rent, tuition, books, school supplies, car payments, insurance, gas, electricity, water, hospital bills, braces for the kids, etc.? What about charitable donations, which currently result in a tax break but under your system would be treated the same as sticking the money in your pocket? It's been awhile since I took an economics course, but I'm pretty sure that spending one's earned wages has a positive multiplier effect on the economy while saving does not. As an individual, I want to save, but from an economics perspective spending creates jobs. I don't know why you'd want to creates a system that punishes spending.
The problem is that savings rates are very, very low in the United States. What this means is that much of the consumption is carried out by borrowing at high interest rates. This means that a higher amount of funds in the future will not be spent on goods, but to pay back high rates of interest, which is a net loss to society. Large amounts of debt also increase interest rates which stimulate business and growth. It also can cause inflation, lessening the impact of our dollars. Those reasons are also why I am concerned about the federal deficit. Though consumption is a positive, sustainable spending and consumption is more beneficial in the long run. Increased spending based on high interest borrowing eventually is a large negative.
Services would also be taxable. Restaurants sell you the service of preparation and presentation of the food and as such, they would be taxed. Groceries would not be taxed as they are necessities, not luxuries. I would exempt all medical costs, hospital costs, and both prescription and over the counter medicines. A consumption tax is just that, a tax on consumed goods. Used goods have already been "consumed" and if they are not recycled will simply be thrown away. I believe it is preferable to reuse goods throughout their usable lifetime and exempting used goods would be a perfect way to encourage recycling. In addition, this kind of tax structure would encourage new industries to spring up with regards to used and remanufactured goods. Currently, there is very little incentive to refurbish goods (I was told that this weekend it would simply be better to buy a new XBOX and throw my old one away rather than having it repaired) and resell them, and this could be a HUGE market. For the most part, those retirees have also pretty much finished acquiring their big ticket items (cars, house, electronics, etc.) and most of their incomes go to food and medicine, items that will not be taxed in the first place. They will also have a $5000 exemption for each adult so they can buy roughly $20,000 worth of "luxuries" before they even begin to pay tax in the first place. I would probably draw that line at about $100 per item for clothing (just like the line is drawn during the sales tax holidays in Texas). Yes, most things that are not absolutely necessary (food, medicine, clothing, etc.) is a luxury. If you can live your life without it, it is by definition a luxury. Personally, I would exempt rent. Again, shelter is necessary, not a luxury. I would exempt the first $100k or so of houses purchased as well. I would exempt educational expenses. If you buy a new car, it would be subject to tax. If you buy a used car, it would not. Taxable. I would exempt utilities. Medical expenses, see above. I wouldn't be opposed to giving tax credits for charitable donations, to a point. There is a multiplier effect from spending, but there is also one for savings. For every extra dollar in the bank, that bank has more assets that it can loan out, making more capital available to businesses and entrepreneurs. Spending stimulates one side of the economic circle while saving stimulates the other side. The big, nasty lie that the GOP has told over and over again is that high income taxes create a disincentive to earn. As in, I might not work to make as much money if it will get me in a higher tax bracket. The logic falls flat since most families need two incomes just to make ends meet and really don't have a choice when it comes to earning money. If you have an opportunity to make more money, you will take that opportunity even if that takes you into a higher tax bracket because even in a higher tax bracket, if you earn more, you will take more home. Same thing with a consumption tax. I don't see it as "punishing" spending. It will change the way that people do things, IMO for the better. I think we should recycle more, but there is no incentive in our system to do that. People (particularly wealthy people) will not stop spending, particularly when their paychecks go up as dramatically as they would once we 86 the income tax. The lower and middle classes would have exemptions to assure that they are not taxed too heavily and people who simply don't want to pay taxes can avoid it almost entirely by purchasing used goods. But Americans are consumers and, especially once the paychecks inflate in the absence of the income tax, that will not change with a consumption tax.
Very good points. We could encourage savings with a consumption tax, since interest earnings and capital gains wouldn't be taxed at all. This would also create a disincentive to high-interest credit card spending, which ends up being a HUGE drain on our economy.
The way I understand it, a VAT (Value Added Tax) is similar to a consumption tax in that it is basically a sales tax. IIRC, the VAT taxes any "added value" that a firm puts into a product (a carpenter adds value to wood by making a cabinet) which, IMO, would make refurbished goods taxable. I like the term "consumption tax" since that (consumption) is what we need to tax, again IMO.
