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GUEST COMMENTARY: 'Fair' mega-tax hurts those most in need

Wednesday, May 25, 2011 | 9:00 p.m. CDT

COLUMBIA — A recent guest commentary by Steve Spellman promoted the idea of replacing Missouri personal and corporate income taxes with a sales tax on goods and services, called a “consumption tax” or — by those who favor it — a “fair tax.” This sales mega-tax would not be an improvement and would certainly not be “fair.”

Instead of engaging in a philosophical argument, let’s look at the actual proposals on the table in Missouri. Several suggested laws and initiative petitions would levy a sales tax on all goods and services, except for business-to-business sales, private school tuition, used cars and a few other exemptions.

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What would be taxed? Everything that is currently taxed, plus food, rent, child care, doctor visits, prescription drugs, transportation, car-repair labor, legal assistance, financial and real estate services, nursing home care, — even funeral services — pretty much everything people pay for, cradle to grave, would be subject to such a law. Imagine the impact on our families — and our economy — if the cost of all these services increased. Our purchasing power would immediately shrink. No other state has tried this, for good reason.

This proposal would create several serious problems for individuals and businesses, including the following:

  • Taxes would go up for 95 percent of Missourians (view Missouri's budget online at www.mobudget.org). The elderly and the poor, whose income taxes are low now, would be hit the hardest.
  • Lower- and middle-class people would pay a larger portion of their earnings for taxes than wealthy people. This is true because we have to spend most of what we earn to buy basic goods and services, which would all be taxed.
  • The burden of collecting sales taxes would be placed on businesses that don’t have to do it now (landlords, child care providers, etc.).
  • Businesses near the borders would lose customers to other states. Missouri borders eight other states, none of which levy a tax on services.
  • Some of the proposals include a “prebate” system to lighten the burden on the poorest people. This would help protect them from the tax increase, but it would also require a costly, new government program to send out monthly checks.

How high would the sales mega- tax need to be? The Missouri Budget Project, a nonpartisan organization, estimates the tax would need to be more than 12 percent to break even — that is, to bring in the same total revenue for state services as the current tax system. A lower rate would lead to massive cuts in state services such as education, in-home services for the elderly, mental health services and the prison system.

The proposed sales mega-tax is not “fair” — it is even more regressive than the current system. Middle- and lower-income people, especially the elderly and families with children, would pay higher taxes. It would raise the cost of doing business in Missouri, and businesses on the borders would lose customers. If the tax rate were set too low, essential state services would be cut. So why in the world should Missouri try this radical experiment?

Mahree Skala lives in Columbia.

 


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Comments

david smith May 25, 2011 | 9:25 p.m.

No joke, this megatax would hit those pimps, prostitutes and drug dealers who don't report income and therefore currently don't pay taxes. We got to keep these people happy so they vote democrat in the next election. We need to exempt unions from current taxes as they also vote democrat and those lazy people play such an important role in society. Let's screw the rich, they should have a 95% surtax and then give that money to worthless people who don't work. Obama is in, working your way through life is out. Now give me your money!

(Report Comment)
don catlett May 26, 2011 | 8:42 a.m.

david smith...stop trolling!

(Report Comment)
Paul Allaire May 26, 2011 | 9:33 a.m.

David Smith has shown tremendous insight, possibly exceeding the capacity of his own intelligence. I believe he was known on the tribune as "libtard".

(Report Comment)
Paul Allaire May 26, 2011 | 9:42 a.m.

And you might want to remember that the said twelve percent would be on top of the approximate seven percent on the items you already buy.

I can't imagine paying a sales tax on rent, and yes that would fall entirely on those who don't own their homes.

I can't imagine paying a sales tax on a lawyer. I suppose that this would not apply to someone who was using a lawyer for a said business reason. Again, this would fall disproportionately on the poor.

I can't imagine paying a sales tax on medicine. This would fall disproportionately on the ill and the elderly who are often retired and living on a fixed income. There might as well not be a safety net of any kind.

(Report Comment)
Jimmy Dick May 26, 2011 | 10:22 a.m.

The so called fair tax is actually not a fair tax at all. It is just another attempt by the haves to pass the tax burden off to the have nots. Everyone is paying some form of tax so the argument over the sales tax versus an income tax is really pointless.

(Report Comment)
Paul Allaire May 26, 2011 | 10:36 a.m.

And if you want to read through some of the arguments for and against these types of proposals, you should follow the first link in the article, to the article the author was referencing, read it, and then scroll down to the comments. It looks like there are about a hundred. As an added reader bonus - NONE of them are MINE!!!

(Report Comment)
Corey Parks May 26, 2011 | 11:00 a.m.

wow so much wrong information put out about the percentages and how they would work and what it would actually cost people. Fortunately there are people educated enough to see this and spend some time actually researching and seeing exactly how they would be effected.

For me it would not change that much due to the fact that I am not a large spender and do not go crazy for every new fad that comes along. I do not spend money I do not have.

You also do not take into account the fact that prices will be lower on most items do to the fact that the businesses will no longer be charged tax which increases the cost. Also depending how low you are in the income bracket determines how much your monthly check will be from the state.

(Report Comment)
Jimmy Bearfield May 26, 2011 | 11:13 a.m.

Krugman advocates a 5% federal VAT -- an amount he describes as "modest" -- on top of existing sales and income taxes. Would any of you support his proposal?

"I can't imagine paying a sales tax on rent, and yes that would fall entirely on those who don't own their homes."

Some governments are considering a tax based on imputed rent, which argues that people who have paid off their mortgage should be taxed based on the amount that they would be paying if they still had that debt or had to pay rent. Part of the logic is that their lack of debt gives them an unfair advantage. A local property tax is one way to collect imputed rent. Would any of you support a tax based on imputed rent?

(Report Comment)
Paul Allaire May 26, 2011 | 12:15 p.m.

The primary source of tax revenue should be income. The tax on property should be replaced by a tax on utilities and fuel. This would eliminate the arbitrary nature of the existing system and simplify the collection. There could be a standard exemption or allowance for each citizen or household so that it would barely affect most people. Possibly some kinds of business should also be allowed a rebate or exemption. I don't believe people should be forced to pay tax on that which they are said to "own", particularly when they paid taxes on the money they earned and used to buy it. Nor should they be forced to pay tax on the fact that they have managed to shelter themselves from the elements. Sales tax should be left for local governments to collect. TIF should be disallowed.

And for Jimmy, name one of those "several governments".

(Report Comment)
Jimmy Bearfield May 26, 2011 | 12:49 p.m.

"And for Jimmy, name one of those 'several governments'."

Australia is one that's considered it: www.brookesnews.com/102604rent.html. Canada has, too. As for those that actually do, according to the OECD (www.oecd.org/dataoecd/42/11/46917384.pdf... ), "a few countries tax imputed rents."

(Report Comment)
Paul Allaire May 26, 2011 | 1:21 p.m.

You're not a very careful reader Jimmy. I read your first link. It appears to be someone ripping on the suggestions of someone calling himself an AUSTRIAN economist. I could not tell from reading the article whether or not the AUSTRIAN government had taken this suggestion into any serious consideration.
I looked at the second link and found the part where someone in that think tank said something to that effect, but we still have no names.
However, I had interpreted your remark to mean local governments. Essentially, when we pay property tax we might as well be paying tax on imputed rent. If you consider the amount of the tax, what the home would rent for, and the tax bracket of the "owner", it comes out about the same.
On that note, what do you think of the suggestions I made in my last post?

(Report Comment)
Jimmy Bearfield May 26, 2011 | 1:41 p.m.

"You're not a very careful reader Jimmy. I read your first link. It appears to be someone ripping on the suggestions of someone calling himself an AUSTRIAN economist. I could not tell from reading the article whether or not the AUSTRIAN government had taken this suggestion into any serious consideration."

All you would have had to do is Google "Ken Henry" and "treasury" to learn that he was Australia's -- not AUSTRIA's -- treasury secretary from 2001 to 2011.

(Report Comment)
Paul Allaire May 26, 2011 | 2:12 p.m.

That makes two of us then. From the article you linked:
... "horribly inept in the field of Austrian capital theory — irrespective of any contrary impression he may try to convey — not even understanding that Austrian capital theory cannot be divorced from Austrian monetary theory. Truth be told, he is totally incompetent to discuss Austrian economics on any level. He is so bad he even called for Austrian economists to dump von Mises, a man rightly considered one of the greats of the Austrian school. Enough said — for now."

I stand corrected. But I guess then that you still don't know what government actually does tax imputed rent. The rest of my questions also remain unanswered.

(Report Comment)
Paul Allaire May 26, 2011 | 3:48 p.m.

And actually, the more I think about it the less difference I see. Explain how taxing your personal property on "fair market value" is ANY different than taxing it on "imputed rent".

(Report Comment)
Jimmy Bearfield May 26, 2011 | 4:31 p.m.

"But I guess then that you still don't know what government actually does tax imputed rent."

No, I don't know which ones do. All I know is that some do, according to the OECD.

"Explain how taxing your personal property on 'fair market value' is ANY different than taxing it on 'imputed rent'."

My point is that like Krugman's VAT suggestion, imputed rent would be in addition to, not in lieu of, existing taxes. Many of these proposals are about increasing the overall tax burden. At least with income taxes, I can choose to work less. With sales taxes, I'd have to use bartering or some other means to reduce my tax burden. And with property taxes and/or imputed rent, I'd have to adjust my living conditions.

(Report Comment)
Paul Allaire May 26, 2011 | 5:09 p.m.

So if your government was to obtain X revenue and you got to pick one of the three ways that you mentioned, which would it be?

(Report Comment)
Jimmy Bearfield May 26, 2011 | 9:21 p.m.

I would prefer a sales tax. That said, I doubt that it will ever come down to eliminating one tax in favor of another. More likely it will be a new tax, probably a VAT, on top of the ones that some of us already pay.

In another thread, I mentioned how California is considering allowing school districts to tax income, so residents' income would be taxed thrice: by the feds, the state and by their school district. This is yet another example of how new taxes often (usually?) are in addition to, rather than in lieu of, existing ones.

(Report Comment)
Paul Allaire May 26, 2011 | 10:59 p.m.

If your entire government financed it's existence on sales tax people would quit spending a lot of money on a lot of things and there would be a tremendous amount of unemployment as a result of that. It would probably spread even to sectors of the market that you would think are invulnerable. Also, as you previously stated, many people would be inclined to barter and otherwise improvise rather than pay a hefty surcharge on some items. Eventually the economy might adjust, but I believe that there would be less innovation in the marketplace. The reason you favor sales tax is because you probably already try to consume little and invest a lot. You figure that there will never be a sales tax on your investments. You also see that a person who cannot afford to invest or save will end up paying a tax on his or her entire income while you will only pay a tax on a small portion of yours. You favor a tax that is as regressive as possible. If your government implemented such a tax you would then be on here complaining about any standard rebate that was given, asking people to pay their "fair share".

(Report Comment)
Jimmy Bearfield May 27, 2011 | 7:12 a.m.

"If your entire government financed it's existence on sales tax people would quit spending a lot of money on a lot of things"

Because like those of us who pay estimated taxes, they would quickly realize how much it costs to have governments do so many things that people can and should be doing for themselves. They would quickly be screaming for governments to focus on just the basics, such as infrastructure and defense.

"The reason you favor sales tax is because you probably already try to consume little and invest a lot. You figure that there will never be a sales tax on your investments."

But there is a tax on my investments: When I cash them out, such as at retirement. By that time, even Roth IRA disbursements will be taxed. Some people already have to pay taxes on their Social Security benefits.

"If your government implemented such a tax you would then be on here complaining about any standard rebate that was given, asking people to pay their 'fair share'."

Rebate programs mean that every special interest group under the sun will be lobbying for a waiver, undermining the system.

(Report Comment)
Paul Allaire May 27, 2011 | 9:02 a.m.

Your IRA is a perfect example. The income you invest is exempt from taxes, in effect lowering your tax bracket on the remainder of your income. The dividends are not taxed and when they are reinvested they are not taxed. The only time you pay any tax is when you cash them in, which is probably fair considering you wrote the taxes off when you invested the money in the first place. Imagine a system that would require you to pay a sales tax every time you bought a share and then each time you reinvested a dividend in more shares. You can't and neither can I. That is why you favor sales tax. You wouldn't favor a sales tax if you thought it applied to you.

(Report Comment)
Corey Parks May 27, 2011 | 9:57 a.m.
This comment has been removed.
Paul Allaire May 27, 2011 | 10:19 a.m.

Ah Corey, with so much love for his fellow man and his most admiral method of measuring success. What would this debate be without him?
We can count on the "trickle down" coming from him and others like him just as soon as his tax burden is eased a little further. Because we know this has worked in the past. Right?

http://www.youtube.com/watch?v=IWO4JxM3n...

But WAIT!!!

What in the hell is there to make me think that ANYONE who chimed into this is even a mover or "shaper"? I think I'm debating the want to be cheer leading squad. Some people are just sure that one day they will be "successful" and "important" just as soon as they can get another $1.58 back on their next tax return.

(Report Comment)
Paul Allaire May 27, 2011 | 10:21 a.m.

Excuse me. His most ADMIRABLE method of measuring "success".

(Report Comment)
Paul Allaire May 27, 2011 | 10:26 a.m.

And you can tell someone's level of honesty when they say that this will raise more money for the government while lowering their burden and also lowering the burden for the poor. Aren't you glad to have people like this thinking for you?

Of COURSE it will. And then Santa Clause and the Easter Bunny will go on tour and sprinkle pixie dust from the magic land of Atlantis!

(Report Comment)
Paul Allaire May 27, 2011 | 10:32 a.m.

Here's a clue about where the cheerleader for the wealthy ACTUALLY stands.

"Kind of depressing when one things about it. Sometimes it makes you wonder who the fool is. The person paying 600 a month in rent or the person paying 800 a month in mortgage."

Gee Corey. If only you were a little more "successful".

Look at the cover of the paper. Even Natalie thinks your pretty funny.

(Report Comment)
Jimmy Bearfield May 27, 2011 | 12:15 p.m.

"Your IRA is a perfect example. The income you invest is exempt from taxes, in effect lowering your tax bracket on the remainder of your income. The dividends are not taxed and when they are reinvested they are not taxed. The only time you pay any tax is when you cash them in, which is probably fair considering you wrote the taxes off when you invested the money in the first place."

Roth IRA contributions aren't tax deductible.

"Imagine a system that would require you to pay a sales tax every time you bought a share"

I don't have to imagine it. I already pay mutual fund shareholder fees, etc. when I buy and sell shares. I am happy to pay this "tax" because it funds a private service that I value. I don't value or even use many of the government services that my taxes fund, and I have no interest in paying more than what I already do. In fact, I wouldn't have to if many of the nearly 50% of taxpayers with no federal liability would start paying for the services they use.

(Report Comment)
Brian Wallstin May 27, 2011 | 2:35 p.m.

@jimmy says, "In fact, I wouldn't have to if many of the nearly 50% of taxpayers with no federal liability would start paying for the services they use."

Wrong again ...

http://www.cbpp.org/cms/index.cfm?fa=vie...

(Report Comment)
Jimmy Bearfield May 27, 2011 | 3:02 p.m.

"Wrong again ... http://www.cbpp.org/cms/index.cfm?fa=vie...

We've already dispensed with that red herring on this site. For example, I think it was Christopher Foote who posted that payroll taxes fund only about 30% of the federal budget.

Plus, the vast majority of those with no federal tax liability are in the sub-$50K brackets. But these also are the brackets that receive the most government spending: www.taxfoundation.org/news/show/25195.ht.... Isn't it time for them to start paying their fair share?

In another thread, I pointed out that there are big gaps at the local level, too. A prime example is a household with one child and a $300K house. Assuming that $2,500 of this household's property taxes go to the school district, which spends an average of about $9,300 to educate each student, that household is getting an annual free ride of about $6,800.

Sure, that household pays taxes to the state, which then sends some of that money back to CPS. But unless their income is far bigger than what their home value suggests, they're probably not paying enough in state income taxes to cover that $6,800 shortfall.

Instead, CPS should cap taxes at their current rate and then have parents pay the difference between the school portion of their property tax and the annual cost of educating their child(ren). Parents who complain should reminded that, for example, they already receive federal tax breaks for their children and that non-parents are already paying a significant amount toward schools.

(Report Comment)
Brian Wallstin May 27, 2011 | 9:54 p.m.

@jimmy - you said almost 50 percent have no "federal liability." You're wrong.

(Report Comment)
Corey Parks May 27, 2011 | 10:09 p.m.

I can not believe I am even responding to you but where did I measure any success? The fact that people bust there butt every day to earn a living and buy a home and pay it off only to realize you still do not actually own it because it can be taken from you at any given time if you are late or short on your "rent/property tax". How did you get trickle down or success or cheer leading for the rich?
My guess is you are once again confused or simply taking things out of context again or honestly do not know how to use reading comprehension. Based on your last post to me I am guessing all of the above.

Here I will break it down for you. The fool would be those paying 800 dollars a month for something they can never truly have.

(Report Comment)
Jimmy Bearfield May 27, 2011 | 10:45 p.m.

"@jimmy - you said almost 50 percent have no 'federal liability.' You're wrong."

What part of no income tax do you not grasp? For the 2010 tax year, 45% of households owed no federal income tax. Worse, one-third of this group received so many refundable credits that it offset what they paid in payroll taxes.

(Report Comment)
Mark Foecking May 28, 2011 | 2:41 a.m.

Corey Parks wrote:

"The fool would be those paying 800 dollars a month for something they can never truly have."

In many cases I'd agree with you, but some people are better off renting. Someone who can't afford to save or have home insurance is better off renting. An expensive piece of home maintenance (a roof or furnace) could put them into debt to the point they would lose their house.

DK

(Report Comment)
Corey Parks May 28, 2011 | 8:08 a.m.

DK: I am saying the exact same thing. Renting seems to be the better deal in the long run for the majority of the people.

Paul had pulled a one liner from another article and posted it out of context for people reading this story.

http://www.columbiamissourian.com/storie...

(Report Comment)
Paul Allaire May 28, 2011 | 9:40 a.m.

Corey, you are going to be surprised to learn that I truly agree with you regarding property taxes. This is a rare moment for you. Cherish it before I spoil your pleasure.

You probably don't believe me, but the proof is right in this thread. Unless, of course, you believe I hacked in here to change what I said.

I was not disagreeing with your stance on "property" taxes. I was merely pointing out that you are not the rich. The one thing I have to admire about the rich is the way that they continuously find hundreds of suckers to do their bidding for them. I wish I could have that kind of influence. In the future it would be a good idea to read the debate before jumping in. However, even I could benefit by following that advice. Here is what I said in this thread, in order of when I said it.

"I don't believe people should be forced to pay tax on that which they are said to "own", particularly when they paid taxes on the money they earned and used to buy it. Nor should they be forced to pay tax on the fact that they have managed to shelter themselves from the elements."

"Essentially, when we pay property tax we might as well be paying tax on imputed rent. If you consider the amount of the tax, what the home would rent for, and the tax bracket of the "owner", it comes out about the same."

"And actually, the more I think about it the less difference I see. Explain how taxing your personal property on "fair market value" is ANY different than taxing it on "imputed rent"."

And I haven't got an answer for the last.

(Report Comment)
david smith May 28, 2011 | 3:40 p.m.

Allaire, you are brilliant, how did you know?

(Report Comment)
Paul Allaire May 28, 2011 | 4:22 p.m.

Oh, please.

(Report Comment)
Paul Allaire May 28, 2011 | 4:36 p.m.

"I can not believe I am even responding to you but where did I measure any success?"

Well Corey, I'd show you exactly where you did that but it looks like they pulled that hateful post you made, the one that was just before the four I made right in a row about you. And for the record, I didn't tell anyone to pull it. I wish they would have left it up. I suppose the next time you make a complete ass of yourself I'll have to quote you on it so that you'll be able to remember what I'm talking about.

"How did you get trickle down or success or cheer leading for the rich?"

If you still can't see it, well, nice talking to you.

(Report Comment)
Corey Parks May 28, 2011 | 9:28 p.m.

Paul there was no post other then the one about Fair tax and how much tax would be added and how much people would be getting back. Everything you see here is what I said. Nothing was deleted.

And once again you and your trickle down nonsense keeps coming up. Never once have I ever grandstanded for that theory or for that matter even mentioned it until now. It is not something I believe in or follow. What others do with there money does not effect how I get by. I create my own life and wants and needs.

(Report Comment)
Paul Allaire May 29, 2011 | 4:45 p.m.

Oh, right. I just imagined that post about those cradle to grave dead beat burdens who don't carry their weight because the federal government doesn't lump them into the same tax bracket as you. Why would I expect you to remember what you said?

(Report Comment)
Paul Allaire May 29, 2011 | 4:57 p.m.

Here. I've got an idea. We can pretend you didn't make the post that got removed and then we can pretend I didn't make all those posts that didn't get removed. There. Isn't that much better?

(Report Comment)
david smith May 29, 2011 | 7:14 p.m.

Hey Paul, if I goto work for 14 hrs a day, you think I could pay the same tax as someone who sits on their butt most of the day, maybe works an hour? I call that fair don't you? Or does that go against your bible, the communist manifesto? Also Paul, you claim that people who may not be rich don't have the money to put into investments.....what about those losers you see at the lake of the ozarks who live in a trailer but have a 50ft scarab speedboat on a trailer in their front yard.....brilliant. I guess I should have my investments taxed greatly so that tax money can goto those losers. I make a lot of money, but not stupid enough to buy a scarab. Why should I pay for that guys scarab Paul? Maybe a mega tax would curb the spending of those losers?

(Report Comment)

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