Also, remember Mr. Moneybags is not paying any taxes on his principal amount. Where as Mr. Poorman is living hand to mouth or in most cases paycheck to paycheck. This is why sales taxes and flat taxes of all types are regressive.
Sincerely, Tom Lehman
Phil Gasper wrote:
> Max Sawicky writes:
>
> >The investment income might or might not exceed
> >the initial tax liability, depending on rates
> >of return and the time involved, but this income
> >itself is taxed if it is spent, so under a
> >consumption tax there is no payoff to deferring
> >taxable spending.
>
> This is getting a little tedious, but for anybody still tuned in, here's
> the story so far. The present discussion began after I quoted a 1996
> Citizens for Tax Justice study which reached the following conclusions:
>
> "State and local income taxes are typically progressive. On average, poor
> families pay only a fourth the effective income tax rate that the richest
> families pay, and middle-income families pay about three-fifths the
> effective rate on the well-to-do.
>
> "Property taxes, including both taxes on individuals and business taxes,
> are usually somewhat regressive.
>
> "Sales and excise taxes are very regressive. On average, poor families pay
> more than six times as high a share of their income in these consumption
> taxes as do the best-off families, and middle-income families pay at four
> times the rate of the wealthy."
>
> In particular, I cited the figures for Pennsylvania, one of the ten most
> regressive tax states in the country. (The full report, including an
> account of it methodology, is at http://www.ctj.org/html/whopay.htm.)
>
> Max Sawicky objected to the reports conclusions on the grounds that "The
> use of annual incidence exaggerates the progressivity of income taxes and
> the regressivity of sales taxes. Income varies more than the sales tax base
> from year to year, so the variance of tax liability is higher, hence an
> appearance of greater inequality. Income not spent on consumption, and thus
> subject to sales tax, in the year it is saved will be subject to tax later,
> along with accrued interest, when it is spent (as most of it will be)."
>
> But as I explained in my last post on this topic, the fact that income will
> be taxed in future years when it is finally spent, doesn't even things out,
> because in the meantime the wealthy accrue investment income on the
> deferred taxes (not to mention investment returns on their other income).
>
> Suppose that Moneybags has an annual income of $1m and that, as a result of
> being able to defer spending, he pays only 6% of this in state and local
> taxes for the current year. Meanwhile, the poor (most of whom are compelled
> to spend their entire income) pay 11% of their income in state and local
> taxes. Let's assume that if Moneybags had spent his entire income, he would
> have paid tax at the same rate as the poor (it doesn't matter if he would
> have paid a higher rate--you can do the numbers for yourself). So as a
> result of deferring spending, Moneybags has deferred $50,000 in taxes.
> Let's assume he is a cautious investor, and gets only a modest return of
> 10% per year on this. After 10 years, he will have made about $80,000. Take
> off say 20% in capital gains tax and he still has $64,000 left--money he
> never would have had if he had paid tax at the same rate as the poor in the
> first place. Now he spends the original income, pays the deferred $50,000
> in tax out of the investment income (thus effectively paying nothing) and
> still has an extra $14,000 in the bank.
>
> Of course the specific numbers here aren't important. The key point is
> simply that by being able to defer taxes the wealthy get a big advantage.
> That's why it's not misleading for CTJ to cite the annual figures. Yes,
> Max, all the spending will be taxed, but as a result of deferring the taxes
> the wealthy have a greater income which will nullify some, most, all, or
> more than all of the taxes. It's one more way in which they siphon off more
> of the nation's wealth from the rest of us.
>
> I wrote:
>
> >>> ... it still remains true that income taxes are substantially
> >more progressive (or at least less regressive) than sales taxes. And its
> >much easier to institute a progressive income tax than a progressive sales
> >tax. . . .>>
>
> Max responds:
>
> >"Easier" how? Politically?
>
> I actually meant technically. It's easy to set up an income tax structure
> that is progressive, just eliminate all or most deductions. On the other
> hand, to figure out the effects of a sales tax, you have to know something
> about consumption patterns. I'd actually be interested to know if anyone
> has heard of a broad-based sales tax that is progressive (setting aside
> specific taxes on luxury goods, which bring in little revenue).
>
> As for the political question, I didn't address it. Of course one is not
> likely to hear much about progressive taxation from the Republicrats, but
> for anyone who wants to rebuild a working-class movement in this country,
> the slogan "tax the rich" may well be a useful one. Did I say
> "working-class movement"? I'm sorry, that's beyond the bounds of what Max's
> realpolitik tells him is possible. Better put up with existing inequalities
> then.
>
> Max:
> >I'm not trying to be your friend.
> >I've got other things to do.
>
> I don't want to be Max's friend either (God forbid). My comment referred to
> his views on tax policy, which are friendly only to the wealthy parasites
> who benefit from existing tax policy.
>
> I'm leaving town for a few days, and when I get back my summer vacation
> will, alas, be over, so I have to bid this list adieu, at least for the
> present. If anyone has an answer to my question about sales taxes, they can
> send it to me off-list.
>
> It's been fun.
>
> Phil Gasper
> ptrg at sirius.com
> 415-522-1895