How much of this mess would go away if we didn't have income tax and increased sales tax?
Which is to say, that's a terribly obtuse way to deal with the problem, and does nothing to keep this kind of abuse from surfacing in other domains.
It's not a unique idea. In fact, I first heard it from IRS employees themselves.
It does not make it a better tax, it does not make necesarily make it cheaper to manage, and it has the gravest of dangers of misaligning the incentives between the net tax payer and the net tax consumer.
One argument in favor of filing taxes yourself is that you can transfer the stocks to a different broker. No single broker knows what you have been doing with your stocks. However, the government already exists as a central entity and it can simply receive a full record of all taxable events from all brokers.
Where do you see this misaligning the incentives between the net tax payer and the net tax consumer?
If anything, it would make cryptocurrency based credit cards viable as a means of payment because the taxation problem is no longer intractable for the individual tax payer.
You switch it to the store. Now the store charges you 11 dollars for the bottle of wine. It looks like you paid no taxes, but you did. Now you dont know your tax rate, you dont see it, and they can be raised without your approval as it is hidden from you.
VAT taxes work like that and have reached sometimes 30%+.
Furthermore, it doesnt make taxes simpler, the business still has to do tax handling for you, which means you also pay that company accountant.
The actual root problem here is Grover Norquist + friends (comprising a large part of the republican party), who are opposed to all taxes, under basically all circumstances. Norquist is on record saying that it's GOOD that taxes are overly complicated, because it makes people dislike them more, and trust government less. There's an obvious marriage of convenience between the anti-taxxers and TurboTax, which is why TurboTax is able to hold the whole American tax infrastructure in stasis with seemingly miniscule amounts of contributions.
https://en.wikipedia.org/wiki/Grover_Norquist
https://www.npr.org/sections/money/2019/04/03/709656642/epis...
Remember, loads of other countries do this easily. Income is easy to track on the government side: they have all of the employment information, and can fill in the blanks easily. Tax day should really just be a chance for you to double check the calculation. It's a political problem, not a technical problem.
(Also, what the others have said about regressive taxes is 100% correct.)
It’s actually a great idea.
In any case in practice this is obviously not done, as cigarettes, alcohol, food, basic online purchases etc have sale taxes.
And yes it is done. Food, clothes, toiletries aren’t tax in most states in the US or Canada.
Of course alcohol and tobacco aren’t exempted. You’re trying to discourage use not encourage it.
If you exempt the necessities of living (food, etc) I’d suggest the rich would be tax on a far bigger percentage of income than the poor.
And even if they didn’t spend it, any capital gains or interest income would still be taxed too.
And you’re ignoring the fact that a consumption tax would capture spending from black market income as well. Expanding the pool of income taxes.
The post you are responding to is talking about getting rid of income taxes. Those are income taxes.
It is also a pretty distortive tax, and it creates smuggling, robbery, and disproportionally punishes those that consume those products and are also on the poorer spectrum.
Zucman and Saez have a decent figure for this, which this article in the Atlantic includes as a high resolution version [1] or a non paywall one at [2]. People quibble with the details here (particularly post taxes and transfers like social security), but much of the income and much of the wealth is in the top 10%. The bottom 90% basically saves nothing, and while many at the true bottom decile / quintile spend it only on the goods you would exclude, you still end up with “we can’t tax wealthier people, without being regressive” for most of the middle.
For example, car payments, home sales, electronics. These are all “normal” things for most people, so unless you want to raise taxes on the bottom 50% or so (who currently do not pay much in income taxes), you have to exempt a much wider variety of goods.
What does that leave you with? Yachts? Cars over a certain amount? Houses over a certain amount? It’s not impossible to figure out how to do it, but you then get to pile on import taxes (“Fine. I’ll buy my yacht in the Bahamas and sail it here rather than pay 10x in taxes”) and so on.
Fundamentally, in designing a taxation system, you’re deciding how to fund the government and redistribute wealth. It turns out that spending, even of non basic goods, isn’t a good proxy of what an individual can afford to contribute without noticing. Income isn’t perfect, but spending is actually pretty bad.
1] https://www.google.com/amp/s/amp.theatlantic.com/amp/article...
[2] https://www.financialsamurai.com/the-average-savings-rates-b...
Add on top capital gains and you're collecting the same or more than you are now.
P.S. I don’t think when people call for “just sales tax” they also mean “oh and sure plus capital gains” (besides, this would just shift back towards dividends).