Tax discussion thread (U.S. focused)

[Final-Fan]

akuma587 said:

Final-Fan said:
cool down, akuma587. And you may be wrong about prices going up -- wages might go down by the amount of income tax there isn't and prices stay the same.

As for crippling the economy, I haven't studied enough to know and -- I strongly suspect -- neither have you.

I am not really sure where you are getting that I said prices would go up, the taxes would go up, but I didn't say prices would go up.  But the end price will go up however you look at it.  Otherwise producers would be absorbing some of the cost of the tax, which they would very likely not do if the tax was on everything as there is no incentive to absorb that cost.

Why would incomes drop if people are essentially being taxed the same amount in the long run (assuming the government collects the same amount of revenue from the sales tax)?  I see where you might think that would happen, but wouldn't that be an even worse thing for the economy as many employees (generally spend higher perecentages of their income than their employers) would be spending less.  Your point about wages going down doesn't really seem relevant.

As to the last point of it crippling the economy, yes, it is an obvious conclusion.  Putting an artificial price floor in place (which a 30-40% tax would do) disrupts natural supply and demand.  The higher the price floor, the more extreme the effect becomes.

This may work in one or two sectors of the market, but putting an artificial price floor on the entire market would really hurt everybody.  I could buy my goods online from Canada and avoid the tax.  Foreign countries could buy their goods from other places than America and avoid the tax.  U.S. manufacturers would shut down because U.S. companies would buy all their component parts abroad because that is cheaper.  Anytime I wanted to buy a car or get some kind of expensive service I could drive across the border to Mexico and do it a lot cheaper.  This may not have been as big of a deal before the internet was around, but if people can get around a ludicrously high tax without too much effort on their part, they will do it.

Front-end taxes influence people's monetary decisions much more than back-end taxes do.  While this is not true for everyone, the average person sees taxes they pay immediately before they see taxes they will pay a few years from now, like yearly property tax or income taxes.  When people see large front-end taxes (like a sales tax), they adjust their purchasing habits accordingly.

I meant the tax-inclusive price.  Sorry for not being clear.  Most places with a high sales tax include the tax in listed prices AFAIK. 

To further clarify what I said:  there are two or three ways that this plan could affect wages and prices: 

(1) Wages stay the same.  The removal of income/payroll tax is reflected by a huge jump in paychecks and the addition of the sales tax is reflected by an equally huge jump in (tax-inclusive) prices.  This is what you are talking about. 

(2) Wages are adjusted downward to the point that take-home pay is about the same, and prices are adjusted downward equally as much, resulting in (tax-inclusive) prices that are about the same.

(3) Something between (1) and (2).