Monday, July 27, 2020

Tax Big Spenders

The US federal tax system is terrible. It is inefficient, complicated and unfair.

How about we replace it all with something simple and fair, like this:

Impose a national luxury tax on all goods and services that cost more than $100. Define "luxury" as "costs more than the median sales price of similar goods or services," and calculate the tax based on the difference in the sales price and that median price.

For example, according to Google the median new car price in the US is $37,876. Let say the national luxury tax was 20% and you buy a new car that cost $35,000. You'd owe nothing.

Your rich cousin Betty buys a loaded Range Rover for $137,876? she'd owe $20,000 in luxury taxes (twenty percent of $100,000).

Want to avoid paying taxes? Easy, don't spend your money on expensive stuff. Drive a reliable car, don't spend money on fancy jewelry or 80-year-old scotch or extravagant vacations.

Taxing higher-than-normal spending seems to me to be the least offensive form of taxation. We would be encouraging people to live more frugally, and discouraging them from playing expensive, wasteful status-seeking games. I'm not naive-- rich people would still buy vacation houses and million-dollar supercars to show off their wealth, and plenty of middle-class people would occasionally buy their spouses a fancy diamond necklace for Christmas. They'd just have to pay extra.

Businesses would have to calculate and collect the tax, but that shouldn't be terribly difficult. State sales taxes already require that businesses figure out if what they are selling is taxable or not; asking them to report on what they're selling, for how much (to establish the list of median prices and make sure they're collecting the right amount of tax) isn't much of a stretch. And we already have extensive lists of product categories that are used to assess tariffs when products are imported.

It seems to me both people on the left and people on the right might go for this kind of tax. Lefties should like that it is progressive-- poor people don't buy fancy stuff, so they should end up paying no taxes. Righties should like that it is simple and transparent; the amount you pay will be right there in plain sight when you buy something. No sneaky payroll tax deductions, filling out forms on April 15th or huge IRS bureaucracy interpreting thousands of pages of tax law.

Maybe handle death taxes the same way; if you leave more than the median inheritance to your children, tax the amount over the median. Yes, I know that could be double taxation (the kids might pay again if they spend the money on expensive crap), but it seems fair to me. I'm not a fan of spoiled rich kids who never have to work because their great-grandfather was a brilliant businessman.


Brun said...

Brilliant idea. There's no reason this shouldn't be implemented, we're sick of hearing the argument "then billionaires will go spend their money elsewhere" we all know that's nonsense, they'll play by the rules because that's how they stay on top.

Also really just commenting to thank you on your contributions to crypto =)

El_Hoy said...

The only issue I found with this scheme is that cheap stuff is not always better for the environment or for health, most environmental friendly products cost higher than the median, but are better (products with recyclable parts, repairable products, natural food).

The other issue, that cannot be solved, is that the state does not focus on having a better world, they are ruled by billionaires that can block this kind of changes.

Alirto said...

Really interesting view about taxation, but in my view, it only solves the problem about inequiality at the indivual level. Surely that´s a big problem, but it doesn´t solve the biggest part of taxation inequality. That is the bussines level, the big corporations as we know are the real benefactors of the taxations system, the game has lots of loopholes and they go for it. That´s not their fault, but it need to be solve.
That been said, your post talks about the taxations on the sells, but the starter problem could be in the very beginning of the process, the buys. For example, the prices where the companies buys the items they sell (taiwanese, chinese...) are really low compare with were the individual people buy their stuff (USA...). In that case you will have very different median prices between the people and the companies. Of course you could adjust the prices to the CPI in the respective country but, in this case, you will have to change the taxation for the companies at least, every month.
In conclusion it could be a very good start, but only that, a start. It wont solve any real problem unless it touch at least every player of the game.