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Comment by gnicholas | Hacker News Reader

Sales taxes are definitely regressive (as that word is used by policy makers) because low-income people spend closer to 100% of their income than high-income people. The definition of regressive is a tax that takes up a larger percentage of income for low-income than high income.

Source: I used to be a tax lawyer.

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It should be noted that VATs can be implemented in a progressive manner. Give everyone (or anyone under a certain income) an exemption that covers VAT for necessities, exempt items like rent/utilities from it, etc.

Giving an exemption for necessities turns VAT into a Pigovian tax on luxuries. In effect, this is an attempt to modify the behaviour of the poor and so it can be construed as a form of social engineering which exempts the rich. Given that some people view poverty as a moral failing, I think this is a bad thing.

In reality, it doesn’t even work. Poor people spend money on luxuries in order to gain status which they need to attract a partner. Rich people don’t need to do to spend their money to gain status since they already have it by virtue of being rich.

Sure, although there are implementation issues because of the incentive for straw man purchasing. Are you aware of any jurisdictions where low-income purchasers are given additional exemptions?

I would think it would be easier to use transfer payments (like SNAP) to ensure that the exemption is not used for the benefit of non-low-income individuals.

Alternatively, you can have a prepaid or postpaid refundable VAT, where individuals can get their VAT refunded (up to a limit) based on income.

It's better to give some rebate. Say the poverty line for an individual is $12,000 and sales tax is 10%. If you want to exempt 1.5x poverty spending from the tax, it is better to give everyone an $1800 sales tax rebate than trying to write exemptions.

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