10-01-2008, 05:42 PM
Quote:It's an undisputed fact that sales taxes, VAT's, and whatever the hell else people want to call them disporportionately affect lower income folks. Let's say that the total sales tax on necessities for the year comes in at $1,000 (may even be higher in states that also tax food:P). If you're making $20,000 per year that's 5% of your income. If you're making $100,000 per year, that's 1% of your income. If you're Bill Gates you don't give a flying "f" about it. Which probably explains why sales taxes are so popular here.
Sales taxes in isolation are bitterly regressive. Almost every serious proposal mitigates this by slapping a pretty high ground floor on them, so that the tax is negative for the extremely poor, zero for the poor, and low as you start into the middle classes. Where the schemes seem to fall down, in my view, is in keeping a balance between the upper middle classes through to the fabulously, ludicrously rich. People who can spend their money abroad (the very rich) are at a very large advantage. Unless you have one hell of an auditor, it's going to be pretty tough to catch what someone consumes in Dubai.
On a personal anecdote, the Uruguayans (who have a sales tax model) book bus trips, one of which I was on, up to the Ciudad del Este in Paraguay (a notorious free trade zone) to buy luxury goods and evade taxes. This innocuous behaviour is harmless, but it indicates the basic issue: people will stretch their boundaries to evade taxes no matter how they're put in practise, sales, income, capital gains, estate, whatever.
-Jester