May 28 2009

Regressive or progressive taxes: Which road to follow towards fiscal discipline?

Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look – washingtonpost.com

Here in Switzerland I enjoy the luxury of having to pay a relatively small federal income tax of 9.6%. In the US, at my current income level, I would be paying a 25% federal income tax. On the other hand, everything I buy here in Switzerland, from food to clothes to train tickets and bike parts, costs me an additional 7.6% of value added tax. If a product is imported, chances are there is also an additional 20% import tariff. In other words, what I save coming in (because of the low direct tax) I lose going out (through high indirect taxes).

The incentive, therefore, is to save as much of my income as possible. I shop much less than I would in the US where indirect taxes are much lower, but when I do shop prices are much higher. Much of Switzerland’s government revenue comes from the value added tax and other indirect taxes, which means households keep much more of their earned income.

In the United States, where the government has not seen a balanced budget since 2001, there has been much talk about creating a national sales tax to help raise revenue to pay for many of the social plans that the Obama administration wants to pursue, such as national health care. VATs and sales taxes are regressive, which means more of the tax burden is born by low income households compared with high a direct, income tax, which is progressive, meaning the higher a household’s income, the greater percentage it pays. But with budget shortfalls expected to reach $4 trillion over the next four years, new sources of tax revenue are needed.

“Everybody who understands our long-term budget problems understands we’re going to need a new source of revenue, and a VAT is an obvious candidate,” said Leonard Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, who testified on Capitol Hill this month about his own VAT plan. “It’s common to the rest of the world, and we don’t have it.”

The surge of interest in a VAT is testament to the extraordinary depth of the nation’s money troubles. While some conservatives have long argued that a consumption tax would provide a simpler and more efficient alternative to the byzantine U.S. income tax code, this time it’s all about the money.

To counter claims that a national sales tax is regressive, advocates point out that such a tax would allow the federal government to lower income tax rates for low income Americans, giving them more disposable income to spend on goods and services, which would be more expensive because of the VAT.

Another option the government should consider is a tax on greenhouse gas emissions. Currently, Obama is advocating a carbon permit market, which would be less effective at generating income for the government as permits, once they are issued or auctioned to industry, are bought and sold by firms, creating revenue for companies and not the government. A carbon tax, on the other hand, would create new tax revenue for the federal government and help reduce the negative externalities causing global warming and encourage development of alternative “green” methods of production.

In the short-term, it is unlikely that the US government will legislate any significant new taxes. Carbon taxes have been ignored by the Obama administration and Congress, under the argument that during a recession any new tax on industry might just break the nation’s manufacturing and energy sectors’ backs. A VAT is just as unpopular, for the reason that any policy raising consumer prices puts even greater burden on already strapped household incomes. Tradeable carbon permits are popular for the reason that they appear to be a “market based” approach to reducing greenhouse gas emissions; but Congress is talking about putting a price ceiling on carbon permits of $28 per ton, a price at which the incentives to reduce emissions among firms is minimal.

America’s long period of strong growth, low savings, and deficit financed government spending will necessitate belt-tightening in the near future as ultimately the government will have to start financing its budgets through tax revenues, not the issuing of new debt. Carbon taxes, higher marginal income taxes, or a national sales tax are all options the Obama administration can choose from. For now, it appears it’s choosing none of these, and instead selling more bonds to the public, foreigners, and the Fed, increasing the moneys supply in the hope that households and firms begin spending once more. The path towards fiscal discipline is a hard one to get started on, especially during a recession when no new taxes are politically viable.

Discussion Questions:

  1. What make’s a sales tax regressive if everyone has to pay, say, 10% on top of the regular sales price of a good or service?
  2. How does the US government finance its massive budgets when its revenue from taxes don’t even come close to equaling the amount of spending?
  3. Why is it important for a country, in the long-run, to achieve a balnced budget?
  4. What would you prefer to do: pay a higher income tax or a higher sales tax? What are the pros and cons of direct versus indirect taxes?

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

25 responses so far

25 Responses to “Regressive or progressive taxes: Which road to follow towards fiscal discipline?”

  1. Jakeb Stunzon 16 Aug 2010 at 11:45 am

    1. All classes have to pay this 10% on top of the income tax that they already have to pay, therefore hitting the lower class harder and proportionately.
    4. I would rather pay a higher sales tax so that I will consume less and not spend more than I think I need to because prices look cheap. Also I would feel better about myself if I paid lower income tax and felt like I had more to spend. Higher sales tax is better for a person who can control what they spend rather than spend whenever they want.

    Sales tax, though means higher prices when you consume, especially in emergencies. If there are things you need, such as food and utilities that cost more, then it is completely inevitable that you will spend more.

  2. Asuka Shirakion 16 Aug 2010 at 5:44 pm

    1. A sales tax is regressive as the households with lower incomes will spend 100% of their income on goods and services, thus they pay a higher proportion of sales tax. On the other hand, the households with higher incomes spend a smaller portion of their income on goods and services. As a result sales tax imposes a greater burden on the households with lower incomes.

    2. I would rather pay a higher sales tax than a higher incomes tax, because in terms of proportion size, paying a higher incomes tax would seem like a greater loss. Thus paying a higher sales tax would have a less impact on my work incentives. Furthermore it gives us a choice, as we can avoid paying the tax by not buying the good or service. Moreover it helps us to avoid externalities, e.g. it will help smokers and alcoholics to quit as they may be unable to afford paying the sales tax.

    On the other hand, sales taxes are more regressive than incomes taxes, so it could be relatively unfair. Additionally, people cannot keep track of how much they are paying in indirect taxes, so eventually people may realize that they have debts. Lastly, bootlegging may be an issue when sales taxes are high as the society worry that these black markets may cause commotions that they might get caught up with.

  3. Christopher Holtskogon 17 Aug 2010 at 2:16 pm

    Chris Holtskog

    1. If low class earners have to pay 10% on top of the regular sales price of a good or service, that means they will be highly affected and have more impact than the class who are earning a better income. So higher the amount of income, the high-class earners paid as a percentage income falls. This eventually will affect the low class earners dramatically.

    4. I would rather pay higher sales tax so it will allow me to consume less and makes me motivated to save more so I can spend something luxuries in the future. In addition, having a low income tax will benefit me as my disposable income will increase rather than giving almost half of my starting income back through taxes, leaving me to a low disposable income. Also, having a higher sales tax will allow me to consume better and efficient and consume what I need rather than useless things. Although indirect taxes such as sales tax are seen as regressive taxes due to a higher percentage income fall for low class earners (this will lead to income inequality), I will still choose indirect taxes over direct taxes due to leaving me a better and higher disposable income, which will broaden my choices in consuming.

  4. Arthur Weion 17 Aug 2010 at 2:30 pm

    Q1: The sale tax is said to be regressive as the the household (A) with lower incomes pays greater potion of their income compared to the household (B) with higher income. For instance, if 10% of sale tax is on the top of good X, the portion of sale tax A pays is relatively higher than the portion of sale tax B pays compared to their incomes.

    Q2: I would rather pay higher direct tax than sale tax since the more money I spend on goods and services, the more sale tax I needed to pay. Hence, if I am in the group of household with lower income, I don’t have to worry about for paying high sale tax on buying necessity. As the article suggested, the VAT is just as unpopular, for the reason that any policy raising consumer prices puts even greater burden on already strapped household incomes.

  5. Ruixin Maon 17 Aug 2010 at 3:17 pm

    1.

    A sales tax would be regressive if everyone has to pay 10% on top of the regular sales price of a good or service. For example, a rich household spent 50% of their income on purchasing. The amount of taxes they pay would be increased by 50% of the income times 10% of tax, which is 5%. Where as in a low income household, they spend 90%, so the percentage of tax increased would be 9%.

    So In this case, the sales tax is regressive as the income rise, but the percentage of tax paid falls.

    2.

    I would prefer to pay a higher sales tax because income tax is unavoidable as it's a direct tax on income and it reduces the real disposable income. Where as i could reduced the amount of sales tax paid by reducing consumer spending. And it could also help in controlling the amount spending.

    However, the negative effects could be that higher sales tax could cause decrease in GDP due to the reduction in consumer spending. And it's relatively unfair for the poor since it's a regressive tax and they will be paying higher percentage of tax than the rich.

  6. Daniel Moonon 17 Aug 2010 at 3:23 pm

    1. If the percentage of tax that one has to pay when he buys a good or service is fixed at 10%, the amount of tax he pays would depend on how much he spends. For a high income earner, the amount he spends would be proportionally lower than that of low income earner. Therefore, in the end, the amount of tax that high income earner would be proportionally lesser than that of low income earner, which is regressive tax.

    4. I would prefer to pay higher indirect tax.

    The higher indirect tax would affect to low income earners, as they would have to pay proportionally more money on indirect tax than high income earners would. Therefore, the indirect tax would be one kind of regressive tax, which greater inequality. However, it may stimulates high income earners to be able to spend their disposable income on investment or R&D.

    The higher direct tax would affect to high income earners, as they would pay proportionally much more amount of money on direct tax than low income earners would. This is progressive tax and would resolve inequality, one purpose of tax imposing. However it may disincentive for people work harder.

  7. Matias Paul Bieseon 17 Aug 2010 at 3:34 pm

    1. As taxes are determined as a portion of your income and lets say you earn $ 10 000 of which you spend $ 5 000 on Goods and Services, if the sales tax is 10 % you will pay $ 500 which is 5 % of your income. If you earn $ 100 000 and spend $ 10 000 as you have the ab4/.ility to also spend on luxuries. You will pay $ 1000 in sales taxes, which equals to 1 % of your income. This means that the more you earn the less tax as a percentage you will pay even though you might consume a bit more.

    4. I would rather pay a higher sales tax as then it would be easier for me to save up money as my real disposable income would be higher. Also by deciding what Goods and Services I will purchase and what I wont I could save up more money.

    The cons of indirect tax is of course that the price for Goods and Services becomes higher and this discourages consumers from purchasing Goods and Services which in turns might slow the economy down.

    The pros are that it gives government an extra source of revenue and they can control the aggregate demand as well.

    The cons of a high direct tax-rate is that it discourages people from working while the pros are that it creates revenue for the government, limits economic growth as people have less disposable income and it also reduces income equalities.

  8. Zenan Wuon 17 Aug 2010 at 3:48 pm

    1.A sale tax should be considered regressive if everyone has to pay, say, 10% on top of the regular sales price of a good or service. The a person pay 10% for the certain good or service who has lower income and the other person pay 10% for the same good who has higher income,as a result, the percentage of tax will be lower for the person who has higher income. So the sale tax is regressive.

    2.I agree on the higher income tax and lower sale tax because the sale tax will influence the people who have lower income more than income tax. If the income tax is high but low sale tax, those people have higher income will pay more for the tax than the other choice and those people have lower income will pay less. As a conclusion, the higher income tax and lower sale tax will be helpful to the income distribution.

  9. Andrew McCarthyon 18 Aug 2010 at 9:00 pm

    Well done these are some nice answers. Most of you have recognized the regressive nature of some indirect taxes. The arguments for and against the mixture of taxes is interesting. Many people prefer lower direct income taxes and therefore smaller government. This allows people to use their disposable money to purchase goods like education or healthcare as they desire. Many people however prefer the equity argument where progressive taxes aim to reduce income inequality. Equity (fairness) or Equality (equal shares) are the main concepts.

  10. Einar Lon 18 Aug 2010 at 11:10 pm

    1. The more money a person makes, the percent of that person's total income spent on sales taxes falls. So the low-class earners are more affected by a 10% tax on top of the normal sales price as a higher percent of their total income is spent on sales taxes than the percent of the total income spent by high-class earners.

    4. I think I would rather pay higher sales tax tan higher income tax as I then would have more disposable income because I would not have to give back a big part of my income through taxes. I could then be more selective in the goods and services I consume so that I would eventually save money.

    Income tax gives more money to the government which can be used for government spending and reduces the economic gap between earners in an economy, but at the same time it discourages people from working.

    Sales tax also gives more money to Government spending, but it also discourages people from purchasing goods as the price is higher.

  11. Hyejin Yangon 19 Aug 2010 at 11:12 pm

    1. What makes a sales tax regressive if everyone has to pay, say, 10% on top of the regular sales price of a good or service?

    • Although the percentage of sales tax out of income remains the same, the value that it holds differs according to different income groups. For instance, for low income groups, 10% of regular price, say $10 out of $100 as the sales tax, would mean a significant amount of spending if their income is $500 per month. However, for high income groups with the monthly income of $50000, $10 out of $100 would be the amount that can be easily spent without much consideration. Therefore, since the sales tax on goods remains fixed for everyone, people with different financial backgrounds have to pay the fixed price or fixed percentage of a sales tax. This makes a sales tax regressive.

    4. What would you prefer to do: pay a higher income tax or a higher sales tax? What are the pros and cons of direct versus indirect taxes?

    • Higher income tax would usually take higher percentage of money out of one’s income, and leave less opportunities for the individual to consider and choose among the options of saving in banks, investing capitals (funds, shares, etc.), saving for insurance or education, etc. This is directly associated with the psychological effects like pressure, instability and anxiety, being imposed on the individuals and thus limiting their choices of actions.

    • However, higher income tax can be beneficial for the ones who are not interested in saving capitals and preserving their property. The individuals who have the tendency to spend as they earn, would benefit from having their incomes taxed rather than from the large sales they make. Also, often as a progressive tax, this would not require the low income group to sacrifice a large proportion of their holdings which affect their living. Moreover, by paying constant rates of tax, households will be able to evaluate their holdings effectively without random changes in their spending.

    • Higher sales tax could be beneficial in general, for it takes only the small proportion of the money that the individuals hold. Also, this means one is responsible for his own spending and the sales tax that he has to pay, and thus he can control his own consumption or spending with flexibility.

    • However, sales tax often entails the effect of regressive tax. Low income groups may have to sacrifice a large proportion of their income into their daily spending compared to the high income groups.

  12. Sanguk Kimon 19 Aug 2010 at 11:17 pm

    1. If everyone has to pay 10% on top of the regular sales price of a good or service, this regulation strongly affects the people in the lower income. For example, for person who earns $10,000 in a month, when he/she purchases a good that costs $100 dollars, he needs to pay $ 10 dollars. Thus, it seems that $10 isn’t a much matter for him/her. However, for person who earns below $1,000 in a month, $10 is still very valuable and need for them. Accordingly, low income people become to pay a higher percentage of total income compared to high income, therefore making a sales tax regressive.

    2. I would prefer to pay higher sales tax rather than a higher income tax. The reason is that paying higher sales tax allows me to consume less and save more through my own scheme. However, contrary to indirect tax higher income tax doesn’t encourage us in saving as direct taxes are unavoidable, because households and firms are obliged to declare their full income to governments. Thus, indirect taxes such as GST and VAT allow people to have the choice whether they buy necessity and valued goods or spend more in higher luxuries to ensure them to have better standard of living.

    However, sales tax contains significant disadvantages to lower income class people. As it is a form of regressive tax, it makes low income people pay a higher percentage of total income compared to high income; thus, makes low income person more poorer.

  13. Amirul "Rully&qon 20 Aug 2010 at 12:44 pm

    1. What make’s a sales tax regressive if everyone has to pay, say, 10% on top of the regular sales price of a good or service?

    If the government charge 10% of the original value, it is still a regressive tax because it still put up a burden on families with low income coming in.

    A richer family with an income of say around 100,000 or more will find sales tax not such a burden, especially that this amount is not exactly a lot for them to pay. However, for low income families, who earns 10,000 a month or less, the sales tax is an added financial burden as it will spend more of their money and save less. The difference of an amount of income may affect the level of burden for each family. Family with high income may fell that 10% on services and goods is low, but for low income family, it is a heavy burden for them.

    4.What would you prefer to do: pay a higher income tax or a higher sales tax? What are the pros and cons of direct versus indirect taxes?

    I would pay higher sales tax as I would be able to spend less of my money on taxes. The cons of paying higher income taxes is that I would send most of my money paying taxes, and less incentives of saving my money.

  14. Vic Chenon 20 Aug 2010 at 1:52 pm

    What make’s a sales tax regressive if everyone has to pay, say, 10% on top of the regular sales price of a good or service?

    It depends on the income of one, if one’s income is, let’s say 10000, when he/she purchases a good of $100, he has to pay $10 tax. However, if one’s income is 1000, $10 can be very valuable to he/her.

    4.What would you prefer to do: pay a higher income tax or a higher sales tax? What are the pros and cons of direct versus indirect taxes?

    I would prefer higher sales tax, because it would be easier to control my own purchase power, but it is hard to control my income.

  15. Jacob Edwardson 20 Aug 2010 at 3:29 pm

    1. Everyone has to pay 10% on top of the income tax, therefore hitting the lower class harder because of the difference of importance that that proportion of money have on their lives.

    4. I would much prefer pay higher sales tax rather than high income tax as I then would have more leftover money because I wouldn't have to contribute a large part of my income through taxation. I would then be more selective about the goods and services I consume so that I may have the possibility of saving more money aside.

    Income tax gives more money to the government which can be used for government spending and reduces the economic gap between earners in an economy, but at the same time it discourages people from working.

    Sales tax also gives more money to Government spending, but it also discourages people from purchasing goods as the price is higher.

  16. Jacob Edwardson 20 Aug 2010 at 3:32 pm

    1. Everyone has to pay 10% on top of the income tax, therefore hitting the lower class harder because of the difference of importance that that proportion of money have on their lives.

    4. I would much prefer pay higher sales tax rather than high income tax as I then would have more leftover money because I wouldn't have to contribute a large part of my income through taxation. I would then be more selective about the goods and services I consume so that I may have the possibility of saving more money aside.

    Income tax gives a higher percentage of money to the government which will be used for Government spendings, reducing the economic gap between rich and poor, but will make the working labor less willing to work.

    Sales tax also add money to state's spending, but it also discourages the population from purchasing the more expensive goods.

  17. Richard Tantyo Putraon 21 Aug 2010 at 12:09 am

    1. What make’s a sales tax regressive if everyone has to pay, say, 10% on top of the regular sales price of a good or service?

    If everyone has to pay 10% on top of the regular sales price of a good or service, therefore it will affects the lower class or people with low income strongly. For example, for person who has income $50,000 in a month, when the person buy a good that costs $100 dollars, the person needs to pay $ 10 dollars for the tax. And, it seems that $10 is not very valuable to them. However, for a person who earns $1,000 in a month, $10 is very valuable for them. Therefore, a sales tax regressive because people with the low income have to pay higher percentage of their total income than people with high income.

    4. What would you prefer to do: pay a higher income tax or a higher sales tax? What are the pros and cons of direct versus indirect taxes?

    I would prefer to pay higher sales tax rather than a higher income tax. I prefer to do that because it will me think to buy the necessary things first and not spending too much on the other things that i don't need, so i will spend and consume less and save more money because of the low taxation on income.

    Income tax will give big income to government, so the government could spend the money on trying to reduce the gap between the poor and rich. But this might make the labors become lazy and less willing to go work.

    Sales tax is a regressive tax because it gives big disadvantages to people with low income. It makes people with low income have to pay bigger/higher percentage of their total income compare to people with high income. And this could make people become poorer.

  18. Bai Hangon 22 Aug 2010 at 6:45 pm

    1. It depends on the the proportion of income paid in tax (the average rate of tax), let's say, purchasing a table need $200(within 10% tax rate, $20) For a person earns $2,000 per month, it will take 1% income, but for a person earns $100,000 per month, it will take 0.02% of income. Thus,the tax is regressive because a higher proportion of income is paid at lower levels of income.

    4. I would like to pay a higher sales tax. Since I do not to pay a higher income tax, I would like to work harder and earn more money to pay the high sales tax. And this will encourage people to find work and lower unemployment. A indirect tax, such as sales tax may good be a good resource of government revenue and they might not encourage the consumption of demerit goods, but they can worsen income inequality.

  19. Elviraon 22 Aug 2010 at 9:46 pm

    1.What make’s a sales tax regressive if everyone has to pay, say, 10% on the top of the regular sales price of a good or service?

    The regressive sales tax refers to higher proportion of income is paid at lower levels of income. That is to say, low-income people have to pay higher proportion of income compared with high-income people. For example, if everyone has to pay 10% on the top of the regular sales price of a good or service, low-income people who spend 70% of their income on purchasing goods per month have to pay 7%. However, high-income people who spend 20% of their income on purchasing goods per month only need to pay 2%, which is vastly lower than 7%. Therefore, low-income suffer from heavy tax burden.

    4. What would you prefer to do: pay a higher income tax or a higher sales tax?

    Personally, I prefer to pay a higher income tax. To embark on, paying income tax is unavoidable, nobody is exception. Sales tax could be avoidable, as long as I choose to shop less to save more money. But a higher income may generate negative impact on low-income people, who gain low income, are probably under much pressure of living.

  20. Eujin Jungon 23 Aug 2010 at 11:42 am

    1. Sales tax is regressive tax because lower income people would spend all of their income on goods and services, thus they pay a higher proportion of sales tax. However, the people who have a higher income only spend small part of their income on goods and services.

    2. I would prefer to pay a higher sales taxes than a higher income taxes, because if I earn higher income, the amount of the income tax I pay would be greater, and I might get disincentives to work if the portion of the income taxes are too high. Also, I might be able to reduce the amount of sales tax by not spending too much money on goods and services. However, income taxes are compulsory that I could not reduce.

  21. Oh Sang hoonon 23 Aug 2010 at 1:24 pm

    1. What make’s a sales tax regressive if everyone has to pay, say, 10% on top of the regular sales price of a good or service?

    Sales tax should be considered as regressive tax if everyone has to pay, say, 10% on top of the regular sales price of a good or service. This is because if a person earns $100000 and buys $100 good with 10% of good, the tax will not be valuable. However, if a person earns around $1000, the 10% of tax will be very valuable to him.

    4. What would you prefer to do: pay a higher income tax or a higher sales tax? What are the pros and cons of direct versus indirect taxes?

    In my opinion, I would prefer paying higher sales tax to paying higher income tax. This is because I can save my money more efficiently and do not have to give the money to government. So, I can select goods or services in various ways. However, for higher income tax, I have to pay tax to government for government spending, and I can't control my money efficiently. That's why i think paying higher sales is better than higher income tax

  22. Hoang Duyon 23 Aug 2010 at 1:34 pm

    1. 1. If everyone has to pay 10% of the sale tax of goods and services, It is very unfair for people who has a lower income because 10% of the tax may not be a big amount for rich people but it is very expensive for the poor. So this sales tax should be considered as regressive tax.

    3. In a long run, it is important for a country to have balanced budget because the country will not be in so much debt with other country. However, this is really impossible to do

  23. Choi Jong inon 23 Aug 2010 at 1:42 pm

    Discussion Questions:

    1. What make’s a sales tax regressive if everyone has to pay, say, 10% on top of the regular sales price of a good or service?

    If everyone has to pay 10% on top of the regular sales price of a good or service, it will affects to the low income people. For instance, there is a person whose income is $10,000 and when he want to purchase a product which is $100, then he need to pay total $110 with including $10 tax.

    It is very valuable to the people whose income is $10,000, however, it is not valuable to the people whose has high incomes.

    4. What would you prefer to do: pay a higher income tax or a higher sales tax? What are the pros and cons of direct versus indirect taxes?

    I would prefer to pay a higher sales tax than a higher income tax, because I will not waste my money spend on not necessary products, and can purchase necessary things first. Sales tax is a regressive tax because it has large disadvantages to the people with low income. And it makes them people with low income make poorer.

  24. Da Som Kimon 23 Aug 2010 at 1:45 pm

    1. It depends on how much income does the person earn. If everyone has to pay 10% on top of the regular sales price of a good or service, it would affect the people who earned low income seriously. For instance, there are two people whose income is $15000 and $1000 purchased the good which costs $200. A sales tax of this good is $20 so it doesn't affect the person who earns higher income. However, the person who earns $1000 might be affected by this sales tax seriously.

    4. I would prefer to pay higher sales tax. It is because if I pay higher income tax, I have to spend huge proportion of my income for the tax so it feels like I am spending more money. Moreover, if there is a higher income tax, it is compulsory to pay for the tax but I can control myself not to purchase goods that are imposed higher sales tax.

  25. sungmoon 23 Aug 2010 at 1:47 pm

    The higher income earners spent less sales tax. So the lower income earners are affected by 10% tax on top from usual sale price, because 10% of lower income people will pay more money to compare to higher income earners. For example if A earns $100 and pay 10% than he needs to pay 10$, however in case of B who earns 10000, he needs to pay 1000 but he got 9000 to live. Therefore it will affect lower income people more than that of higher income people.

    I would pay higher sales tax than that of higher income tax, because I could spend more money if I do not pay big part of my income by tax. Then I could spend more goods what I want. Income tax gives much money to government for their spending; also it discourages people from working, because more works to earn high income need to pay high income tax.