Tax Lot Sales

 

Here's how Bush's tax would work ...

There are two versions of the national sales tax: the plain old sales tax, and the VAT.

Those of us in plain old sales tax States know about that one. Every time you buy something, the sales tax is added on. Locally, that varies from 7.75% to 8.50% or more, depending on what Cities and Counties have piled onto the basic California Sales & Use tax. Oregon doesn't have a sales tax, because Oregonians have refused it, after politicians put it on the ballot about 26 times.

In California, food and medicine is exempt from the sales tax. but that tax can add up quick when buying anything else. This has driven a huge business on the Internet, which is sales tax exempt. Mom and pop retailers are furious about this, as is the State of California, which have persistently sued (and lost) to force Internet businesses to collect and pay the tax.

The plain old sales tax is effective in increasing retail costs, and creates an entire industry to support it. Cash registers and other transaction-recording systems have to be adjusted - usually on a city by city basis- to add on the sales tax to invoices. The tax has to be collected, and then set aside for payment to the State monthly or even weekly. This means there are employees somewhere writing computer software to implement the tax, installers who setup the hardware, cashiers who handle the money, bookkeepers, accountants and auditors who check that the correct tax was assessed and paid, and tax collectors who oversee all of the above. In California, the sales tax is a mainstay of government at all levels and employs a bureaucracy at least as entrenched and powerful as the Franchise Tax Board (which collects the income tax). So, the tax does create jobs while also increasing prices.

The VAT does not work in the same way. The consumer does not pay the tax. Instead, the tax is assessed by each business internally. The tax applies on "value added," meaning the price for which something is sold less the price for which it was bought. Only businesses pay the VAT. Most VAT proposals exclude wholesalers and OEMs from the tax, which means only retailers would pay it. In such implementations, there is little effective price difference between the VAT and the plain old sales tax., except that consumers do not "see" the VAT at the point of purchase. For that reason, the retailer-only VAT functions as an inventory tax, so encourages "just in time" systems.

Politicians prefer the retailer-VAT to the point-of-sale (POS) VAT because it is difficult for consumers (taxpayers) to determine how much tax they are really paying. On the other hand, the retailer-VAT creates fewer private industry jobs, but needs about the same amount of government bureaucracy to enforce. This means politicians have more empire under their control than is the case with the POS-VAT.

Taxing People

Now that we know how sales taxes work, in whatever form, I note again that Oregonians voted them down umpteen times. As a former Oregonian, I voted against one of those proposals, so I'm prejudiced. Now, like many other Californians, I buy as many things as possible on the tax-free Internet. I wouldn't mind the sales tax so much, were I rich.

Unlike Oregon's politicians, George W Bush and his conservative henchmen don't plan on letting you vote on a national sales tax. They're just going to stick it to you. In this, they have the advantage of not believing in democracy. [Aside: the Wall St Journal ran a Question of the Day this week, asking whether the Electoral College (EC) should be abolished? WSJ's conservative majority says 'no,' keep the EC, because most people are too ignorant to be entrusted with the vote. Many WSJ respondents favored ending popular election of Electors and Senators, preferring that Legislatures or Governors appoint those offices.]

All the foregoing brings us to the point of this article. The national sales tax is part of Bush's overall plan to reduce income taxes. Despite the conservative anti-government bent, even the most radical (except some Libertarians and Anarchists) recognize the Federal Government is a huge organization that requires an enormous tax income to continue operations. The Bush plan is, therefore, to shift the tax burden from income to sales taxes. The money has to come from somewhere, so where else but from the lowest classes (by income)?

Here we have to introduce yet another fact. [Facts are really boring; they don't encourage flights of fancy.] Wealthy families don't pay much in the way of income taxes. That's because most of their income comes from dividends and capital gains, the benefits of owning the means of production, which are taxed at lower rates than ordinary income. George W Bush has already lowered those taxes dramatically, for example, on dividends. Nonetheless, transferring the tax burden to sales taxes would have a major effect on the top 15-25% of incomes;: they will get a pay raise. That's because the same wealthy people would pay very little in sales taxes: even a rich person simply cannot buy that much more taxable stuff than the poor or middle class citizen.

If the rich, the poor and those in between need bicycles, how many will they buy? Why would a rich athletic nut buy more than 1 or 2 bicycles? Or maybe one for each day of the week? Isn't there a practical limit? The fact is that the personal accoutrements of the rich and poor are not very different. Thus, wealthy households don't pay that much more sales tax than poor ones. The proof of this is in California's sales tax records. Wal*Mart and Target bring in far more local tax revenues than a plethora of Lexus and Mercedes dealers.

This leads to the widely acknowledged fact that reducing income taxes and imposing sales taxes amounts to a massive transfer of the tax burden from the wealthy to the poor and middle classes. Of course, ARISTOCRATS have always believed that the low-born should kowtow to their betters, and pay their way. The Bush tax proposals will help this conception along greatly.

It's worth noting that proponents of the national sales tax believe the tax would encourage saving. That's because, they say, the higher prices would discourage consumption (buying), so people would leave their money in the bank. Not considered by the proponents is the Keynesian "multiplier effect," which means lots of low class people would lose their jobs when sales go down. Also ignored is the simple fact that lots of low class people don't have any money to save in the first place, so the higher prices will only squeeze them harder, resulting in even fewer purchases.

Many of the same proponents, George W Bush included, were quick enough to argue that tax reductions would stimulate the economy, because of the Keynesian "multiplier effect." It seemed odd that conservatives took that position, as the traditional conservative view was that Keynesian economics was bunk (or Communist propaganda). At least, in resuming their ignorance of Keynes, conservatives are going back to a certain consistency. But, then, conservatives are always going backwards ...

How far behind are some good-old ideas, such as Droit de Seigneur?