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  1. #1
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    "Sales tax is a regressive tax"

    Do you agree with the statement that "sales tax is a regressive tax"? (e.g. a tax that essentially charges the poor more than high-income-earners as a percentage of income)

    Just curious to hear what others think.

    -mike
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  2. #2
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    Intuitively, yes, it does seem that way.

    Not only that, but around here rich people will often find ways to avoid paying VAT (the closest thing to a sales tax here), and proportionally they'll end up paying less than a poor employee. That's without taking into account the fact that a big part of their income goes on investments rather than consumption, so they can effectively postpone paying VAT, which puts the poorer people at a relative disadvantage, as they consume almost all their income by the time the month ends.

  3. #3
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    Quote Originally Posted by ldcdc View Post
    That's without taking into account the fact that a big part of their income goes on investments rather than consumption [...] which puts the poorer people at a relative disadvantage, as they consume almost all their income by the time the month ends.
    That is the core part of the sales tax = regressive tax belief, but yes, tax sheltering (as you also mentioned) is another part of the debate.

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  4. #4
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    Quote Originally Posted by Mike - Limestone View Post
    Do you agree with the statement that "sales tax is a regressive tax"? (e.g. a tax that essentially charges the poor more than high-income-earners as a percentage of income)

    Just curious to hear what others think.

    -mike
    No, I don't agree, but mostly due to the definition of "regressive tax." For a tax to be regressive the tax rate, afaik, declines as the dollar basis being taxed increases. With sales tax the tax rate is nearly always static, which makes it a proportional tax and not a regressive tax.

    I believe an argument can probably be made that sales tax is actually a progressive tax when you consider the increased rates on luxury items, being that the tax rate increases when the dollar basis being taxed is a larger amount. However, it's not exactly a progressive tax because of the way it's structured. Maybe proportional tax when considering just the luxury tax by itself but progressive when considering sales taxes overall.

    Bleh... forget all this tax stuff. I think the world and the people would be far better off if government was much smaller, if the politicians would stop being so wasteful with our tax dollars and if taxation on the people was at a minimum for everyone.
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  5. #5
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    Quote Originally Posted by john2k View Post
    . . . Bleh... forget all this tax stuff. I think the world and the people would be far better off if government was much smaller, if the politicians would stop being so wasteful with our tax dollars and if taxation on the people was at a minimum for everyone.
    Yes, totally agreed. But sadly we seem to be moving in the opposite direction, where the worker is being taxed more and more to fund a government that's getting bigger and bigger. You can only bleed so much tax from the worker.
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  6. #6
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    VAT (sales tax) is progressive in the sense that consumption and income have some correlation, but that correlation breaks down when considering low(er) incomes: as income reduces, there comes a point where costs such as such as rent/mortguage/food/energy/clothes hit a floor, and hence income vs. VAT does not pass 0,0). Shifting from a direct to indirect taxation system is therefore regarded as a regressive step, even tho VAT itself is not regressive.

    There is a simular argument with high-income people who are not extravegent spenders.

  7. #7
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    Quote Originally Posted by RemyHorton View Post
    VAT (sales tax) is progressive in the sense that consumption and income have some correlation, but that correlation breaks down when considering low(er) incomes: as income reduces, there comes a point where costs such as such as rent/mortguage/food/energy/clothes hit a floor, and hence income vs. VAT does not pass 0,0). Shifting from a direct to indirect taxation system is therefore regarded as a regressive step, even tho VAT itself is not regressive.
    I think I understand your argument, but can you explain it in more detail, RemyHorton?

    -mike
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  8. #8
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    I'm not an economist, but to my knowledge regressive taxation as a term is not applied in cases where amount of tax paid is fixed.

    If you are on a low income, you are only going to be buying what you really need, and how much is spent on these essentials is more or less independent of income. As a result the amount paid in VAT is also constant.

    Under a direct taxation system (eg income tax) the poor would pay nothing, but a switch to indirect taxation (eg VAT) is regressive as these people would have to start paying tax. Conversely it can be seen that well off people are then only taxed on the small proportion of income that they spend, rather than the whole lot as previously (assuming they don't blow all their spare cash on luxuries).

  9. #9
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    No, it is, in fact, the opposite. But the impact of tax is relative, meaning the poor notice it more than somebody more fortunate would.

  10. #10
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    Does US have sales tax?

    EDIT: Yes, it is taxed by the states

  11. #11
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    Dont forget to mention that states can lower sales tax for essential items, such as food(Cali has 0% and here is 2.25% for food). So if you are poor and most of your money is going on food and clothing, etc I would say no. I haven't looked any of this up so I could be completely wrong.

    Now of course, lets say though that the people smoke and drink, although its not specifically sales tax, it is taxed very high(we up to nearly 10 a pack in chicago) so in that case they really get screwed on tax
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  12. #12
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    Quote Originally Posted by davidb View Post
    Dont forget to mention that states can lower sales tax for essential items, such as food(Cali has 0% and here is 2.25% for food). So if you are poor and most of your money is going on food and clothing, etc I would say no. I haven't looked any of this up so I could be completely wrong.

    Now of course, lets say though that the people smoke and drink, although its not specifically sales tax, it is taxed very high(we up to nearly 10 a pack in chicago) so in that case they really get screwed on tax
    Good points. Sales tax on food is definitely one controversial area in some regards.

    -mike
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