I've always thought it would be better to replace the income tax with a national sales tax. Then, for those who earn less and have to spend a greater proportion of their income on essential expenses, the government would credit them through their employer's paycheck (essentially the opposite of what federal withholding is now). For those who earn more, they would receive less credit or won't receive any credit.
Wouldn't that make the lower class the only ones that had to file anything at all (for the tax credit), put temporary financial strain in place when waiting for credit for purchases and actually make the IRS more complicated and onerous for most Americans?
I get the attempt to sidestep the regressive counterarguments normally in play with sales tax replacement systems, but I think this system would be equally regressive.
> Wouldn't that make the lower class the only ones that had to file anything at all (for the tax credit
They shouldn't have to do anything more than file a W4 whenever they start a new job or their income statutes changes. That's certainly less burdensome than even just the 1040 form now.
> put temporary financial strain in place when waiting for credit for purchases
What I proposed would be a credit that would be applied to every paycheck, much like the withholding we currently have applied to every paycheck. So the wait for credit wouldn't be ant longer than it currently is before the next payday (assuming they're living from paycheck to paycheck).
> and actually make the IRS more complicated and onerous for most Americans?
Having this credit calculated based on the reported earnings on the W-2 form and filing a W4 is certainly less complex than just filing the 1040 form. Plus, most people wouldn't have to worry come later this month if they haven't had enough withheld from their paychecks in the last year.
> but I think this system would be equally regressive.
If people with less income are getting a credit on every paycheck and they spend less overall compared to people who earn more and get less or no credit on their paychecks, then why do you believe that the proposed system would be equally regressive?
> They shouldn't have to do anything more than file a W4 whenever they start a new job or their income statutes changes.
This works if everyone has a exactly one job at all times that is their sole source of income, but fails otherwise. Of course, if the conditions it works were always true, irreducible complexity (that is, excluding the complexity that is maintained simply because both conservative politicians and tax-prep businesses have an interest in making tax prep onerous unless you pay for an additional service) for taxpayers of the current to tax system would be significantly less.
It doesn't, even in the case it works, address the problem that a regressive tax with a flat credit is...still a regressive tax.
> This works if everyone has a exactly one job at all times that is their sole source of income, but fails otherwise.
The current W4 form takes dual income/second jobs into account and adjusts the withholding based on that. Changing that withholding to a credit based on income, number of jobs, dependents, etc wouldn't be any worse than it is now, but eliminating the 1040 and other associated forms would definitely be a big benefit.
> even in the case it works, address the problem that a regressive tax with a flat credit is...still a regressive tax.
We have tax brackets now based on income level. Would basing a credit on similar income brackets be any different? Or are you claiming that out current tax system is regressive and my proposal wouldn't fix the underlying issue?
> Wouldn't that be Wouldn't that be regressive, in the sense that richer people spend a lower proportion of their income?
The paycheck credit I proposed should address that. Plus rich p
eople definitely spend a lot more compared to others.
> Plus they have the means to spend their earnings abroad
While that's true, they certainly could be taxes on major purchases. For example, I could buy souvenirs abroad without passing tax on them, but I wouldn't be able to buy a car and not pay the tax before titling it here.
There's a couple of big problems here:
1) Rich people spend a lot of their money on real estate, so unless you're going to come up with a good way of taxing that (which we don't do now; property taxes are local), rich people aren't going to be paying much in taxes, and
2) Rich people spend a lot on foreign vacations and travel, which is untaxable domestically for obvious reasons. Sure, they still have to pay titling tax on cars, but when they're spending tons of money on foreign hotels and such, cars are a drop in the bucket.
In short, there's a reason that no other developed nation taxes this way, and they all have income taxes. And all those other nations manage to have relatively simple taxes for most taxpayers that don't require paying H&R Block to file for them.
> Rich people spend a lot of their money on real estate, so unless you're going to come up with a good way of taxing that
The same thing can apply to real estate as it does for cars. That is, a sales tax you pay when you purchase the home. And the sales tax doesn't have to be a flat amount. It could be a greater percentage of the value of the home for homes that are valued at several million dollars as opposed to those that are worth only several hundred thousand dollars.
> rich people aren't going to be paying much in taxes
Isn't that the case currently (compared to what they could be paying due to all the loopholes in the current tax code)? If we focused on taxing transactions as opposed to possessions and income, then the rich could be taxed far more. Invest in stocks? Then you can be taxed when you buy them. Invest in real estate? Then you can be taxed when you buy property, etc.
> Rich people spend a lot on foreign vacations and travel, which is untaxable domestically for obvious reasons.
That is true, but it seems that the US is one of the few nations in the world that states that you have to pay taxes on income you earn outside the country (assuming you don't pay taxes on it in the other country). That said, I think that we should focus on the majority of tax payers in terms of making how they pay taxes easier and hopefully more fair.
> there's a reason that no other developed nation taxes this way, and they all have income taxes. And all those other nations manage to have relatively simple taxes for most taxpayers that don't require paying H&R Block to file for them.
I don't pay anyone for filing taxes, but it takes days to read through all the instructions for the 1040 form and other associated forms to see what applies to me and what doesn't. Personally, if I was able to take care of my tax obligation by just buying various things throughout the year and getting my full paycheck, then I would certainly be happier and not have to essentially waste several days every year figuring my taxes.
Basically, we wouldn't have to go through the process of filing taxes every year, and we wouldn't have to worry about the potential bill and penalties if we didn't have enough money withheld from our paychecks in the last year.
The W4 form should be sufficient (since it's used to determine the credit, if any, you receive per paycheck). You shouldn't need to file a 1040. Your employer would file the W-2 form which would allow the government to determine your income for the purposes of the amount of credit you receive per paycheck.
Isn't that income also reported to the government via 1099 forms or similar? Do those who make less money typically also have income from sources such as collecting rent or capital gains?
I suppose that reporting does happen or at least could be made to happen under the new system.
I used to make $80k per year in salary(which is far less than most of the top decile in the USA) and in one of those years had over $10k in capital gains. In the same year I thought about buying a house to rent out. I ultimately didn't do it, but if I had, then I would have had to declare the income as part of my tax return filing process.
Just as one data point.
