Hacker News Reader

Comment by dkyc | Hacker News Reader

Because the capital that you invest has been taxed before, when it was earned. Kind of harsh to tax 40% on your income, and when you save it, tax again the same amount on your returns.

View on HN

So is Sales tax which regressively Hits the poor the hardestas they spend 100% of income. This is a non argument. Tax what least inhibits growth or like alcohol and cigarette taxes things that you would like to be used less.

If savers eventually consume whatever they saved, they too will be hit by the sales tax. Their tax rate will be 1-(1-Income tax)(1-savings tax)(1-sales tax), compared to the consumer who will pay only 1-(1-Income tax)(1-sales tax).

If they never consume what they saved, they have effectively given it to society anyway.

The idea that a sales tax is regressive (w.r.t income) is simply an artifact of your measurement period. It's strictly speaking a flat tax over the long term, but it becomes regressive for a single individual if you break his lifetime up into year-long chunks and if his income or consumption isn't stable.

tl;dr; do the math, the "sales tax is regressive" meme is silly. Any true regressivity is solely an artifact of progressive income taxes and vanishes when you measure progressivity w.r.t. after-tax income.

You don't pay sales tax on services. Weathly people spend more of there income on ex maids than poor people. At the extreme a bum might pay sales tax on all of there income.

Also of note 'charitable' giving is just another form of spending and avoids both sales and income taxes. Feel like Promoting Scientology to dogs? Feel free to avoid paying taxes.

I agree that taxing different forms of consumption at different rates may have a non-zero effect. That's orthogonal to the point I was making and applies to taxes on saving and production as well.

You don't pay sales tax on services. Weathly people spend more of there income on ex maids than poor people.

Poor people spend a larger fraction of their income on doctors than rich people. If you have numbers present them, but singling out a single stereotypically rich category of spending is silly.

Depends on what you mean by poor and rich. Plenty of people avoid seeking medical attention because they really can't afford it.

Statistically, those in the bottom 20% of income earners spend significantly more of there income on sales tax than the top 50% or top 1% or top 0.1%.

In terms of what the phrase "regressive tax" colloquially means it is clear that sales tax is a regressive tax. The percent of wealth poor person pays in sales tax is greater than the percent of wealth a rich person pays in sales tax. Of course if the poor person wins a billion dollar lottery the next day then for that person it is no longer true. Thus, this is why when talking about this issue it generally is the case that we are talking about the here and now and don't factor in lifetime earnings and whatnot.

Colloquially, "progressive" usually means "w.r.t. income". I.e., dMarginalTaxRate/dIncome is positive.

By definition, a sales tax is not regressive w.r.t wealth - dMarginalSalesTaxRate/dWealth = 0. The fact that consumption / wealth goes down up as money is shifted from savings to consumption is simply a mathematical identity and not very interesting. I.e.:

    (consumption + 1) / (wealth - 1) > consumption / wealth

The percent of income (let's include capital gains for the year since this is where really rich people derive the increase in their 'money') paid in sales tax by a rich person is far less than that of a poor person for a given year. Thus, in the minds of the general populace, sales tax is considered regressive. This is what people mean when they say this. The effect of a sales tax on food for a poor person is far more detrimental to them than a sales tax on food for a rich person. Thus many people find this to be regressive.

As I said, the idea that a sales tax is regressive is simply an artifact of your measurement period. The "rich person" you describe is simply a saver - at some future point he will become a consumer.

Literally the only reason the tax appears regressive in year A is because the act of saving has shifted the taxes to year B > A. This is an artifact of your measurement period and vanishes in the long term.

the idea that a sales tax is regressive is simply an artifact of your measurement period

But people have finite lifespans. When all is said and done, who do you think will have paid more sales tax (and VAT) as a proportion of their total income:

A) Bill Gates

B) Me

Before you answer, please also imagine an alternate world in which Bill Gates isn't so generous, and in which there are no estate taxes.

There are two possibilities. One is that Bill Gates and his descendents spend everything. In that case, the sales tax paid is the same.

The other possibility is that some of Bill Gates' money is never consumed. In this case it's effectively a tax of 100% - Gates produced wealth for the world and was never compensated for it.

If the rich escape sales taxes, it's only because they provide benefits to the world without being compensated for it. Complaining about that is pretty silly, as is focusing on sales taxes while ignoring this.

Yes, but now you're bringing Bill's descendants into the discussion. I agree with your extension of the term regressive to include an arbitrarily long time frame, but I don't buy the inclusion of an abitrarily long line of descendants.

On your other point, I'm not complaining. I was just stating the fact that I will pay more sales tax (as a proportion of my lifetime income) than a richer person like Bill Gates. So, by the common definition of 'regressive tax', sales tax is a regressive tax.

I'm not saying this is good or bad or neutral. Just that it is so, by definition. (BTW I don't like the term regressive tax, because the term 'regressive' sounds intuitively negative.)

How so? The $100 you invest that turns into $120 isn't taxed again. Only the gain of $20 is taxed.