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best system for whom?

January 30, 2012

So, the Atlantic published an article today by Marty Nemko, who suggests that simply dropping federal, state, and local income tax in favour of a national sales tax in conjunction with existing state and local sales taxes would not only generate enough revenue to fund the government, but “ensure the poor pay relatively little,” as well.

In general, I think Nemko presents some OK arguments for having a national sales tax instead of an income tax. And while I like the idea that consumer spending could be shifted from taxable products to not-sales-taxed services such as new mom aide, homework helper, elder companion, etc. as a result, which would potentially help improve our national quality of life overall, I have my doubts as to his assurance the poor wouldn’t be punished in the place of the so-called ‘innovators and job creators’ he seems to really be more concerned about. For example, according to a study done in 2009 by the Institute on Taxation and Economic Policy, data suggests that sales taxes are ultimately regressive because “they fall more heavily on poor people, who typically spend nearly all their money on everyday necessities”—something even Thomas Paine understood back in 1791:

Men of small or moderate estates are more injured by the taxes being thrown on articles of consumption, than they are eased by warding it from landed property, for the following reasons: First, They consume more of the productive taxable articles, in proportion to their property, than those of large estates. Secondly, Their residence is chiefly in towns, and their property in houses; and the increase of the poor-rates, occasioned by taxes on consumption, is in much greater proportion than the land-tax has been favoured. (Rights of Man)

The study also suggests that exempting food and medicine doesn’t eliminate the problem of sales taxes falling more heavily on poor people. So exempting ‘basic items’ like ‘non-luxury’ food, clothing, and cars (which is most likely doublespeak for cheap, shitty, and used consumable and durable goods, anyway) can ease the burden, but it certainly doesn’t fix the inherent regressiveness of consumption-based taxation. Poorer people still tend to spend all of their income, living paycheck to paycheck, and are unable to save very much, if anything at all.

In fact, the study concluded that even though Washington, which lacks a personal income tax and relies highly on sales taxes for revenue, exempts things like food and medicine from sales taxes, it still has the most regressive tax system in the country, mainly because of its heavy reliance on sales taxes. Just to for comparison, the study found that people earning less than $20,000 a year In Washington paid 13.1% of their income toward sales and excise taxes, and 17.3% including property taxes. People making between $99,000 and $198,000, on the other hand, paid just 5.1% of their income toward sales and excise taxes, and only 7.6% including property taxes. And the top 1% (those making $537, 000 or more) paid an unbelievably low 1.8% in sales and excise taxes, and just 2.9% including property taxes.

Another issue that’s not addressed in the article is other forms of consumption, particularly consumption on the part of the all-too-often idealized “innovators and job creators.” For example, if you’re going to tax consumption, what about employers who consume their workers’ labor-power, which is a pretty unique and, in a capitalist economy, necessary commodity? While people rarely think about that aspect of production, it shouldn’t be ignored, especially when doing so would essential exempt employers who consume the time, energy, and productivity of their fellow citizens.

Nemko concludes that replacing the income tax with sales tax would be the best fix for our tax system; but after reading the article, I find myself asking, Who’d truly benefit the most by such a ‘fix’? Because it certainly wouldn’t be average, working-class citizens, let alone the poor. If anything, it’d only succeed in shifting the burden more towards the people who can afford it the least.


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