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Should Our Income Tax Be Replaced by a Graduated Consumpion Tax?

A flat tax penalizes the poor; a graduated consumption tax taxes the rich. Here is how it works. First of all an "item" is clearly defined. Second, what constitutes a "sale" is defined rigorously. Third, what constitutes a "home" sale is defined rigorously.

In practice: No item sold for under $100 is taxed. Since the poor spend most of their income on the basics, they don't get taxed. From $100-$500 = 2% tax. From $500-$1000 = 4% tax from $1000-$10,000 tax = 6% tax. $10,000-$100,000 = 8 % tax $100,000-$500,000 = 10% tax, $500,000-$1,000,000 = $12% tax

All sales over $1,000,000 = 14%

Home sales = 1% for $1-$100,000 2% for $100,000- $200,000 = 3% $200,000-$500,000 = 4% $500,000 - $1,000,000 = 5% Every home sale over $1,000,000 = 6%.

Mergers and acquisions = 2% Derivative sales = .1% on all transactions Every stock sale = .1% of sales price---this is to drive out the "quants" the parasites on the stock market.

Finally, juggle the numbers to balance the budget.

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    Jul 1 2011: indeed, it's interesting. However I'm a little bit afraid that wealth disproportion in the society would seriously undermined state's budget. What do I mean by that? Wealth distribution in the world has very specific construction. The most wealthy stand for small per cent of the society. Although they would pay more taxes, when spending more money, I'm afraid that it wouldn't cover the loss deriving from releasing the poorest from the tax obligation. Unfortunately, financially we cannot let ourselves to lower taxes on the commodities.

    Although your idea sounds beautiful and idyllic, it would seriously harass financial stability. Not mentioning that such tax structure would be penalizing the wealthiest part of the society for being successful.
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      Jul 1 2011: Considering that in the US 20% of the population hold 80% of the wealth I think you probably could do to do something like this.

      Althought it is the wealthy that control taxes so this wont ever happen :)
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        Jul 1 2011: the fact that 20% hold 80% of wealth doesn't mean that they will run more transactions that would be burdened with higher taxes. I'm afraid that income from Richard's proposition wouldn't balanced what is paid by the poorest.
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      Jul 1 2011: "Not mentioning that such tax structure would be penalizing the wealthiest part of the society for being successful."

      I find this statement indicative of the problem we are having worldwide. Why do the wealthy feel they have the right keep more of the money they make than the poorer? Breaking down the statement into the four words “penalizing...for being successful" gives me no other choice to see this as a statement privilege and entitlement.
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        Jul 1 2011: Dain, it is not a case that wealthy people feel they have the right to keep more of the money they make than the poorer. We cannot penalize people for that they produce more goods and as such - earn more money. Productivity (ideas, industrial back-up, ability to invest in projects, etc) shouldn't be limited by higher tax rates. High costs of maintaining workers would effectively repel potential investors to develop their businesses. I would rather argue that what we need is a flat rate tax so the burden would be equal for all parts of the society. I just believe that we shouldn't put different tax rate on people having different salaries or general wealth. This is the wealthiest part of the society that creates new jobs and generally improves the economic condition of the lower classes.
        Furthermore, as I've mentioned above, I doubt if such tax transition - proposed by Richard - could counterweight current state income. Unfortunately, the income of tax from basic commodities (so goods costing less than 100$) plays too important role to be easily crossed off from the budget.

        I come from the country where for almost 50year we had socialist system that, at least in its ideological framework, was about to improve condition of the poorest part of the society by putting greater burden on the wealthiest. As probably you know, that haven't ended well.

        @Mark Meyer - by referring to 'wealthiest' I mean upper-middle and upper class of the society what stands for small, as well as big, companies. There is one more thing that needs to be set up for a framework of our discussion - namely to what kind of the society are we referring? My opinion is based on a structure of societies living within the EU.
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          Jul 1 2011: Marek, could you offer a neutral source that supports the claim that it's the wealthiest part of the society that creates new jobs and generally improves the economic condition of the lower classes?
    • Jul 2 2011: Richard---One of the most radical ideas ever offered was one by arch conservative Bill Buckley about 30 + years ago. he advocated making 4 basic food groups available to every American for free. As I recall he suggested 1) Beans of some kind, 2) Rice, & I think maybe 3) milk (?) products & some kind of 4) Corn oil (?) The jist is the same---boring diet, but no one starves.

      On a different note---a recurring theory seems to be that the noble rich create jobs. How does being given billions of dollars from the Federal Reserve at 0% interest, investing in currencies with the free money, raking in huge profits create jobs? How does trading in derivatives or securitizing mortgages, selling exotic financial instruments create jobs? How does kicking people when they are down with legalized usury from credit cards, pay day loans and other devices create jobs? How does bailing out Wall Street because companies are "too big to fail" where we bastardize the free market system i.e. we privatize profit and publicly subsidize losses? Is this how the free market system creates jobs? Now we have even bigger institutions that again are too big to fail---absolutely guaranteeing risky behavior. We have learned nothing from the past---anemic regulation with no teeth and excess risk with no penalty for losses.

      The ultimately obscene act by Wall Street was when one individual lost some $9 billion in one day and walked away with a "golden parachute".

      Small businesses create jobs. Wall Street designs the rules to enrich the very rich. There are some 5 lobbyists from Wall Street for every Congressman. Is this how jobs are created?