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Hugo Papenfus

MAC911

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Tax Systems: Currently we have a mixture of paying tax as you earn and spend.... shouldn't we rather move to pay tax as you spend only?

We have different tax systems over the world, but they mostly tax people on what they earn??? Shouldn't we move to tax systems that tax people only on what they spend? In other words get rid of all other taxes and raise spending taxes like VAT sufficiently. This will have some positive and negative effects. Let's discuss them and see how it weighs up to current tax systems.

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  • Aug 15 2011: The problem with pay only taxes are they weigh very disproportionally on the low to mid income classes and this would hurt society as a whole. Not to mention how much more complicated and unfair the exempted items that would be lobbied for would advantage some to the disadvantage of others.

    Spending money is what makes the economy better, this would also discourage spending which ends up hurting everyone's earnings and thus would lower the amount of Gross income everyone receives in the end.. thus you end up with a similar or smaller amount of net income even without earnings taxes and then you are also taxed when you spend that smaller amount of money.

    Lets say that i can build a table in 8 hours, and with the current tax system i have to charge $200 to make a profit and live a sustainable life and that is roughly what people are willing to pay for the table. 20% of that (or $40) goes to taxes leaving me with $160 for supplies, labor, and profit.

    Now lets say the purchaser has to pay all that tax to buy the table, my $200 table just became $240 and people don't want to pay $240 for a table so i can no longer sell them at this price, Now i have to change my price to $160 before the tax to make the total price paid more appealing and the table to be purchasable. The taxes required on the transaction to support the government are still $40, and in order to get that $40 the tax rate on spending must be 25%

    Now everyone's taxes just went up by 25% simply by changing when and how they are paid, instead of paying 20% of income they are paying 25% of purchases, i'd certainly spend less money and that would definitely hurt the people i usually spend my money with, making them much worse off than they currently are.

    In summary, my opinion is that the end result of paying taxes as you spend has almost entirely negative consequences and little to no positive effects. There are a lot of variables i didn't factor but i tried to simply my intent for ease of understanding

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