A Better Sales Tax Is Non-Regressive
A progressive sales tax would would look much different. It would be tiny or zero for low priced items, but would grow higher as the cost increased. For example the tax on a 10.00 bucket might be zero, whereas a tax on a 200,000.00 boat might be 4%. And the tax on the sale of a 5,000.000 home might be 8%.
When a medium income person buys a home it us usually for less then 250,000. When a high income person buys a home, they usually pay less then 1,500,000. When a wealthy person buys a home they usually pay 3,000,000 or more. It makes sense that, when a wealthy person buys an expensive property, they are uniquely in a position to afford a higher sales tax.
One possible formula for such a non-regressive sales tax might look like this:
$0 - $9.99 %0
$10 - $99.99 %0.25 (1/4 percent)
$100 - $999.99 %0.50 (1/2 percent)
$1,000 - $9,999.99 %1
$10,000 - $99,999.99 %2
$100,000 - $999,999.99 %4
$1,000,000 - and above %8
If you were to buy a galvanized bucket for $9.99 you would owe no tax. If you were to buy $99.99 in groceries, you would pay three cents in tax ($100.02 total). If your were to pay 1,000.00 for a car repair, you would pay $10.00 in tax (1010.00 total). If you were to pay $10,000 to five trees removed and the stumps removed, you would pay $200.00 in tax ($10,200.00 total). If you were to pay $100,000.00 for a fully tricked out Range Rover Sport, you would pay $4,000.00 in tax ($104,000.00 total). If you were to pay $1,000,000 for a small studio condo in New York City, you would pay $80,000.00 in tax ($1,080,000.00 total).
Scaling up of the tax rate moves the bulk of the tax onto the rich. For such a non-regressive tax to work, there must be no exemptions. Although it is tempting to exempt groceries or prescription drugs, one should resist that temptation. For if groceries are exempted, then similar logic might lead to the exemption of real estate or car purchases. The choice must be to either scale the sales tax, or to apply the same tax to all and provide exemptions.
Policy will determine the rate that the tax increases. For example, instead of doubling the tax rate for each ten times the amount, perhaps triple the tax for each twenty times the amount.
Policy will also determine the amount below which no sales tax occurs. For example, you might want to benefit the poor and middle classes together. One way to do that might be to charge zero tax for all sales below one-thousand dollars.
One advantage of scaling by a formula is that formula, and starting and ending amounts, are all that are needed to find the tax. A later law might change the starting point or the ending point or the formula, but would likely change only one of the three at at time. This simplifies updates to cash registers.
The alternative is to chart the increments and rates in law. This has the disadvantage that the chart would look like a table and the entire table might have to be altered to change one amount or rate. Updates to cash registers would require a simultaneous update of them all with a new table.
Another requirement should be that sales tax never taxes a tax. For example, sales tax should only be applied to the untaxed portion of gasoline or to the untaxed portion of a hotel room.
This blog is not the end all or be all of a scaled sales tax. It is merely intended as a means to get others thinking about a non-regressive sales tax.