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Sales taxes aren't a particularly balanced way of taxation.

Someone living paycheck to paycheck essentially spends all of their income, which means that they pay the full amount of sales tax possible for someone with that income. Compared to someone saving or investing who doesn't pay as much tax as they could.

A little simplified because sales taxes typically don't apply to things like rent, but the point still stands.

The best way to tax the "rich" is normally a wealth tax – taxing the retained wealth rather than income or outgoings (sales tax). This could be a direct wealth tax, a property tax, inheritance tax, all sorts of options but they all have similar effects, outsized on the rich, small on the poor.

Sales taxes aren't the most balanced, but they are very easy to enforce and don't distort the economy very much.

Standard wealth taxes are easy to avoid and have weird effects - but land value tax would probably be great. Unfortunately, people tend to vote against it.

VAT is much easier to enforce than sales taxes, and as much as I dislike VAT, one can use it to enforce sustainable living and environmental policies.

Think of 66% VAT applied to all products. Suddenly, repairing and extending lifetime of existing stuff becomes economically viable.

You would pay 66% VAT on repairs as well.

Only on the added value, e.g. a new smartphone glass. Work will be relatively cheaper.

One of the most reasonable proposals for UBI is to finance it through VAT. Some 15 years ago there was a party in Belgium that lobbied for UBI and they calculated that VAT should increase from 21% to 33% to finance UBI.

The work is added value. That is how VAT works.

Edit: I guess that if you're paying a salary to someone in your household staff who can repare the smartphone you only need to buy (and pay VAT on) the replacement glass. But I don't think this is what you meant. I think that you just don't understand how VAT works. If you bring your phone to a repair shop in Belgium the 21% VAT will be applied on the whole bill, parts and labour.

For the proverbial repair shop, supplies cost 50€ and the repair costs 100€. 50€ is left to the repair shop.

In a country with 21% VAT, the supplier will be paid 60,50€, and the end client will have to pay 121€ for the repair.

The repair shop now owes 21 - 10,50 = 10,50€ in VAT to the tax authorities.

But the repair shop still has 50€!

Assuming we are in Belgium and all of the benefit is used to pay the salary, we will deduce 22% social security tax, then the repairer will have to pay his 50% income tax, so at the end the repairer receives around 20€ in net pay.

I am simplifying to the extreme in the hope that you get the idea.

You may be tempted to say that the end client paid 121€ from his salary, and 21€ is actually the tax. But this is the whole point! He will be more likely to pay 21€ VAT on the repair rather than 120€ VAT on a new iPhone. And repair shops there will be.

I have no idea what are you trying to show.

If

a) the customer pays 100+tax for the repair (which includes in this very simplified model 50+tax for the supplies and 50+tax for the value added by the repair shop)

and

b) the tax goes from 21% to 66%

then

c) the customer will pay 166 for the repair instead of 121.

That's what I said in https://news.ycombinator.com/item?id=26967392

I don't see how "work will be relatively cheaper". The VAT applies to everything.

(It's also confusing that you say that the benefit is used to pay the salaries, by the way. And if what you call "benefit" is used entirely to pay the salary then no corporate tax will be paid because the company will be losing money.)

@kgwgk you are right wrt my use of the word "benefit", and indeed there is no corporate tax on these 50€. I updated the comment.

Still, work will be cheaper compared to the price of products.

In my example, the 50€ will be used to pay the salary, and the net salary will still be 20€ while the price of the phone will increase by 21%.

The price of the phone increases by 21% and the price of the repair also increases by 21%.

Of course if the price of the new phone before tax is higher than the price of the repair before tax the same will be true after tax.

And if the price of the phone is 200 and the price of the repair is half of that it will still be half of the price of the phone after tax. But if taxes are 0% it's either 200 or 100 for the repair and if taxes are 900% it's either 2000 or 1000 for the repair. The repair may be prefered if you cannot afford the difference but it will still be half the price of the new phone.

> Think of 66% VAT applied to all products.

That's 66% more on a massive chunk of lower and middle class spending. I can think of few things more hostile to the working class than some regressive tax like VAT.

So the lowest income people who can't afford to buy the more repairable or higher quality items have to keep re-buying at a 66% markup, while those with more money can buy higher quality.

This exacerbates the already existing "poor tax".

Agreed that land value tax is likely a good option.

I think sales taxes are also easy to get around. At least in the UK, businesses don't pay VAT, and many large purchases are made by companies. Happens in all sorts of ways, but even things like people who do a little bit of contracting work buying expensive laptops with their "business" and bypassing 20% tax. Technically ok, but often not in the spirit of the law when they're buying almost exclusively for personal use.

This VAT avoidance on laptop purchases is a drop in the sea, that's why none cares. VAT on a new construction or even a car purchase is much harder to avoid.

But VAT on buying a yacht or taxes on properties are easier to avoid.

Also the avoidance on things like laptops might be small, but they typically can't be done by the people at the bottom end of the income spectrum.

They are only easy to enforce because we have a huge bureaucratic apparatus in place. Imagine all the work that goes into correctly registering all the sales and spending in companies as well as the other side that checks these reports.

Sales taxes are among the most inefficient taxes in existence.

I am in favor of higher taxes but taxes should be evaluated based on there influence on the market and there efficiency. Sales tax scores poor in both categories. Im a fan of the MMT since they propose another thinking about taxes.

Taiwan does an excellent job of enforcing sales taxes with almost no enforcement cost: https://abovethelaw.com/2019/10/in-some-countries-your-recei...

I am not sure how sales taxes are less efficient than manually audited income taxes with itemized deductions. Sales taxes are largely automated.

Wealth tax, implemented properly without obvious loopholes (1) would be incredibly popular, as long as it shifts taxation from income to wealth. However, wealth taxes are unpopular when they're introduced as an additional tax burden.

It's a bit similar to how the car industry introduced gimped, ugly, overpriced electric vehicles to "prove" the public doesn't want them. The same principle - badly thought out wealth taxes in return for nothing - just to prove the public dislikes them. Malicious compliance on political level. Nothing unites mainstream political parties as much as the dislike for taxing wealth.

(1) proposals like radical markets wealth tax create an uncheatable system

What exactly is a wealth tax, as in what asset is taxed? Is that an estate tax?

> but land value tax would probably be great. Unfortunately, people tend to vote against it.

Which is a shame, since it's about as ideal of a tax as you can get:

- You can't move land to an offshore account

- LVT penalizes land speculation, which is one of the main drivers of suburban sprawl and rising housing costs

- It targets the rich, and marginally (if at all) impacts the lower and middle classes (replacing all taxes with LVT would almost certainly reduce middle class tax burdens and entirely eliminate lower class tax burdens)

- All economic activities ultimately depend on land in some way, so instead of taxing (and thus suppressing) those economic activities, it's ultimately more economically efficient to tax land itself

- The aforementioned economic activities can't readily price LVT into their own prices for goods and services, specifically because land value itself is a function of the goods and services that land enables, and because if those goods and services could actually fetch a higher price without reducing profitability (per supply v. demand), then they would almost certainly already be priced accordingly, regardless of LVT

And this is just from physical land in the commonly-understood sense (i.e. some chunk of the surface area of the oblate spheroid we call Earth). There are myriad other sorts of things with the same characteristics as land; everything from geostationary orbits to intellectual property to radio spectra to IP addresses (and just about anything else with an inelastic supply) represents economic rent waiting to be collected.

> - It targets the rich, and marginally (if at all) impacts the lower and middle classes (replacing all taxes with LVT would almost certainly reduce middle class tax burdens and entirely eliminate lower class tax burdens)

The lower class still live somewhere. If you go to a land tax, their landlord isn't going to just eat that. It will be passed on to the renters.

- All economic activities ultimately depend on land in some way, so instead of taxing (and thus suppressing) those economic activities, it's ultimately more economically efficient to tax land itself

Here's a software-only startup that works fully remote. How does that economic activity depend on land? It doesn't, except for the workers' living places. But they'd still have living places even if they were unemployed.

But I kind of agree with your last paragraph. If you are going to go with a "land use" tax, well, Google owns some buildings with servers in them, but the most valuable thing they own is google.com.

Everybody makes purchases. Including the wealthy charities and endowments specified in the article. Get them all in a way they cannot hide. This is the most fair approach. The moment you invent a bunch of nonsense special cases to target the rich is where they can use special cases to hide.

If you want to talk about how sales taxes disadvantage the poor what are some examples? School supplies, clothes, and backpacks? These are all generally low cost items. I am aware of how that works financially having once been poor myself.

They are low cost items, but poor people also have less money to spend so that cancels out.

Here's an example: Sales tax of 10%, poor person has an income of $1000 per month and spends it all. 10%/$100 of income goes to tax.

Rich person has an income of $10000 per month. They spends $5000 and save $5000. 5%/$500 of income goes to tax. That's like a reverse progressive income, arguably very disadvantageous for the poor.

I already mentioned I have once been poor myself and know how this works. Your simplified arithmetic is not a comprehensive financial scenario.

When I was poor we were dependent upon hand-me downs and school assistance programs to cover many of the essentials.

How does that change anything? You're just moving the burden to the nearly-poor who can't rely on those things.

edit: don't forget that for your scheme to work we would need to increase sale tax. Unless you had zero income when being poor it would still negatively effect you.

There are ways around this.

You could minimize the accounting by setting a rebate level, then issuing a check to everyone (yes, even the rich people) for that amount.

To use your numbers, if you issued a rebate check for $100/month to everyone, the poor person would pay an effective rate of zero, while the rich person would still pay an effective rate of $400/month.

That just means you're moving the problem up a bit. The poor pay nothing, the rich pay relatively nothing and the middle class carries the highest burden.

> If people really want anted to tax the rich the majority of taxes would come from sales taxes and minority from property taxes.

No, if people really wanted to tax the rich, it wouldn’t be by consumption taxes, as the rich have a lower marginal propensity to consume. That makes as much sense as taxing the rich via progressive income taxes, but making capital gains taxed at a lower top marginal rate with a less-progressive structure and labor income subject to special additional taxes. Both are tax-the-rich theater.

If you want to tax the rich, use a progressive income tax and also:

(1) treat capital income as normal income, not some specially favored category.

(2) treat gifts and inheritances received as normal income, not some special category with exemptions that no non-rich person will ever exhaust.

(3) treat labor income as normal income, not some special disfavored category with additional taxes on both the recipient and the provider of the income.

> If you want to tax the rich, use a progressive income tax and also:

That sounds good in theory but it never works in practice, historically speaking. In practice there are exceptions, deductions, and compromises. It always disadvantages the non wealthy who are not in a position to argue for their special cases.

> That sounds good in theory but it never works in practice, historically speaking.

That’s because people in practice don’t do the “and also” part, but instead do something like the tax-the-rich theater of “‘taxing the rich’ via progressive income taxes, but making capital gains taxed at a lower top marginal rate with a less-progressive structure and labor income subject to special additional taxes.”

Because, in practice, the wealthy write the laws, and use control of the mechanisms of mass communication to focus attention on the parts that sound good favorable to the common man (progressive structure) and then distract from the impact of the bits that let the rich off and soak the working and middle class (preferential treatment of capital, gifts, and inheritances and anti-preferential treatment of labor income.)

Hence my focus and the “and also” bits that need to be part of a progressive income tax system for it to work properly.

> If people really wanted to tax the rich the majority of taxes would come from sales taxes and minority from property taxes

Why not the other way around? If you can't sell but can hold - people will hold and rent to others. We all played monopoly and know what the endgame is, right?

If you want to tax the rich simply tax the rich - let's say 5% tax on any property over 1 000 000 USD.

Home ownership is living. Property rental is a business with risks not present in just ownership and is not always profitable. Property taxes effect home owners and landlords just the same, except landlords have to pass those expenses into rental prices if they wish to be in the green.

> If you want to tax the rich simply tax the rich - let's say 5% tax on any property over 1 000 000 USD.

You must be in California where the taxes are weird. Everybody already pays much more than 5% where I live.

I'm in Poland :)

I meant cumulatively. If you own 200 things worth 10 000 usd each you should still pay 5% for 100 of them.

> Home ownership is living.

If you really need to live in a million dollar house you should be able to pay for it. It's not living it's luxury.

I completely agree. Property taxes determine who can live where in my area more than any other factor including property price. There are pros and cons to that. For example if you want to turn a poor area into an incredibly wealthy area, cough cough Southlake, you raise the property taxes every year until poor people can no longer afford to live there and are forced to sell.

> except landlords have to pass those expenses into rental prices if they wish to be in the green.

Except they can't, because (barring artificial price ceilings like rent control) they're almost certainly already charging the optimal rent for maximum profit; if they could actually charge higher without losing money as a result, they already would have, property tax or no.

The actual reason property tax increases rental prices is because it penalizes development, meaning developers are less likely to build denser housing, meaning less housing supply, meaning higher housing prices. That is what is happening when landlords hike up prices in response to property tax increases; they are responding to the shifting intersection of supply and demand.

Replacing property tax (and every other tax, for that matter, but that's a good starting point) with a land value tax would alleviate this problem, since it inverts the penalties - namely, by penalizing those who don't develop, meaning developers are more likely to build denser housing, meaning more housing supply, meaning lower housing prices. In this case, landlords are locked in; they still have to respond to the shifting intersection of supply and demand in order to maximize profit, and in this case that intersection results in a lower optimal price point. Literally zero opportunity to price LVT into apartment rentals this way; any attempt to do so results in the landlord losing profit.

> if they could actually charge higher without losing money as a result, they already would have

That’s not numerically correct. There are different market pressures on renters versus owners. A landlord can only charge what a renter is capable of paying regardless of taxes or value on the property. If a property ends up in the red because either the landlord cannot charge high enough rents or cannot find tenants they can always not renew the lease and sell the property where they may still earn a profit.

Also, high property taxes do not penalize development. I live in an area with high property taxes and it’s one of the fastest growing areas in the country for the last 20 years.

> A landlord can only charge what a renter is capable of paying regardless of taxes or value on the property.

If there are no/insufficient renters able or willing to pay rent above some point, then that strongly implies what the actual value of that rental might be. So I'm failing to see where what I wrote would be "not numerically correct"; if anything, that only serves to demonstrate my point, no?

> Also, high property taxes do not penalize development. I live in an area with high property taxes and it’s one of the fastest growing areas in the country for the last 20 years.

Seems more likely that the growth is in spite of the high property taxes, and that converting those property taxes into land value taxes would improve things further. Numerically-speaking, a general property tax does penalize development, since more development = more overall property value = more property tax; the rental demand might be sufficient to make it worthwhile to develop anyway (because the increased rental income exceeds the increased property tax), but it's still a hindrance in that equation.

Contrast with LVT, where the tax is an active driver of development rather than being some minimum bar that not everyone will be see as worthwhile/profitable to hurdle.

I think that property and land taxes + VAT should be sufficient. Also some easier way to short stocks would be good for economy.

The only problem is how to avoid capital outflow from country if you really decide to tax the rich?

I wonder how this proposed 40% investment income tax above $1M will impact US (if it passes)

EDIT: The best way to tax the rich is rising minimum wage actually (but also tricky due to global economy)

> The only problem is how to avoid capital outflow from country if you really decide to tax the rich?

Is it doing anything useful while it's there? This trickle-down bullshit is at this point completely debunked, right?

What about downsides of the capital being there (like lobbying politics to introduce economic policies that harm majority of citizens)?

If the balance effect of it leaving is positive (and I think there's a good chance it is) - I say good riddance :)

Are you sure that you are thinking on a system that is fair to everyone and not just what is best for you? The core idea of taxes is that, to try and devise a system fair to everyone. The current system is not.

Depends a lot on the definition of fair.

Sales tax are a terrible, regressive, way of raising money.

Kind of like democracy is the worst form of government except for all the others. The issue here is fairness and ensuring the wealthy pay their share.

Except in this case quite literally every tax other than maybe sin taxes are leaps and bounds better than a sales tax. Even terrible taxes like income and payroll taxes are vastly preferable to sales tax when it comes to not disproportionately hurting low-income households. If you want to ensure the wealthy pay their fair share, a sales tax is about as counterproductive as it gets.

Tax things with inelastic supply that rich people and large corporations are more likely to hoard. Land in particular is about ideal for this.

Judging from all the comments here people don’t know what they want. They claim to want fair but then they make a bunch of unfair exceptions for poor people. They claim to want to tax the wealthy but not unless it’s full of exceptions that ultimately benefit the wealthy.

> are leaps and bounds better than a sales tax.

Define better. What should be the goal of taxation in only a numerical and objective way? From most of these comments the answer is something about land and wealth but void of any mention of taxable assets or specifically how to unfairly punish only certain persons.

> What should be the goal of taxation in only a numerical and objective way?

To force the internalization of otherwise-externalized opportunity costs.

> From most of these comments the answer is something about land and wealth but void of any mention of taxable assets or specifically how to unfairly punish only certain persons.

From my comments in particular, the taxable assets would be things with inelastic supply, land being the most notable and prevalent and universally-understood example. Land ownership inherently externalizes opportunity costs onto every other individual member of society, so a tax on land ownership proportional to the rental value of that land (i.e. the value which can be derived from that land, and which others who would use that land are missing out on by being excluded from it - a.k.a. the opportunity cost thereof) would internalize those externalized costs, to everyone's benefit.

As for the "unfairly punish" part, none of what's proposed here is unfair at all. If you're going to claim an area of land for your own exclusive use, then it's only fair that you pay the rest of society your due rent.

That is, to distill the point here a bit: the idea is to penalize behaviors, not persons. For example, the behavior of hoarding land as an investment and speculating upon it is arguably one of the main drivers of skyrocketing housing costs, said costs being especially high for lower and middle class households relative to their income. Taxing the value of land penalizes hoarding land as an investment (indeed, it instead becomes a liability), thus resolving that particular housing cost driver and improving things considerably for the lower and middle classes.

This is very backwards. As percentage of income poor people pay more than rich. If you want to tax über wealthy just tax wealth directly (let’s say 3% on all US citizens and residents on all things values above $10mil).

Wealth taxes basically guarantee that within a decade most wealth will be held in hard-to-value assets. It then becomes an arms race between lawyers and accountants. Given history, adding complexity to the tax system will benefit the rich at the expense of e.g. those of us with cash and stock and real estate. It would be a levy on the middle class.

Wealth taxes basically guarantee that within a decade most wealth will be held in hard-to-value assets.

Why isn't this a problem in countries that already tax wealth, like France or Norway?

> Why isn't this a problem in countries that already tax wealth, like France or Norway?

The literature I’ve seen shows it is [1]. Anecdotally, France’s wealthy have more illiquid holdings and bespoke financial exposures than their American counterparts.(Counterfactual: There are many jurisdictions with wealth taxes [2].)

[1] https://faktasiden.com/dokumenter/SSRN-id1268381.pdf

[2] http://qed.econ.queensu.ca/pub/cpp/Sept1991/Bird.pdf

That first paper doesn't talk about about changes in asset allocation due to the ISF. It's main argument is losses due to capital flight.

If the exception is 10mil (as my OP suggests) then it will have no burden on middle class at all. People with nw>10mil are just not middle class.

In terms of asset changes, I don’t think this is true, hard to value assets generally have poor returns and definitionally have poor liquidity (which is why they are hard to value!). I’d rather have stock market returns and pay 3% of assets then have something exotic that I can’t sell.

That's not true. The poorest 50% pay 3% of all taxes and make 13% of all income

Look at sales tax only, since that’s what’s being discussed.

> just tax wealth directly

Wealth comes in many forms. Your comment is void of any such specifics that transform this from fantasy into something that can be taxed. The best case for taxing wealth is an estate tax.

There are lots of existing wealth tax proposal, including annual taxes on all things above some exception. Realistically vast majority of wealth is held in stocks (or other ownership interest instruments), bonds (or other debt instruments), and real estate. These things have common valuation methods (and a wealth tax on real estate is already a thing — property taxes).

At the same time, I do support progressive (and at the high end very high) estate tax.