I live in Canada and we do the same thing here. I think it’s a good thing to remind everyone of sales taxes at checkout time. Sales taxes are regressive taxes. We should get rid of them in favour of a more progressive tax, such as land value tax.
Laws that mandate hiding sales tax by including it in the advertised price only serve to entrench a tax that should be repealed.
Edit: I just wanted to note that the vast majority of people I see defending sales taxes (i.e. VAT) are Europeans and the people opposed are North Americans. Putting aside the argument over whether it’s a good idea or not, I think this is good (albeit anecdotal) evidence that hiding/showing the tax in the purchase price at checkout affects people’s opinion of the tax.
In probably all European places I've seen, final consumer price is most prominently displayed (what I most care about). That doesn't mean VAT is hidden. It is clearly displayed, often in shop labels, but also required on receipts with each item (VAT rate, total), and a summary of individual VAT rates (rate, base, VAT).
People I know are well aware of the taxes here, both VAT, income taxes and mandatory health/benefits payments.
I think I would be quite annoyed if the taxes were omitted from the price until the cashier calculates it (or if I'm supposed to do mental gymnastics). Do you mentally calculate total price if the taxes are different? Or just apply a constant factor?
I for one either mentally multiply by 1.1 for an upper bound or don’t bother at all, mostly the latter, because (a) different items can be taxed differently; (b) different states (sometimes even different cities) have different tax rates.
For the record I hate it because I only care about the out-of-pocket costs. Same goes for tips.
If you would be annoyed, then VAT is hidden in the most important sense. It's like a mosquito that can bite without making you itchy so that you don't notice it. Yes, everyone may be aware that mosquitos exist but without the annoying reminder they can do a much better job spreading malaria to unwitting people.
VAT, being a sales tax, is a wealth transfer from the poor to the rich. The fact that you don't have to calculate it at checkout is a point against it, not in favour of it.
VAT is only regressive if you assume that everybody have a constant spending regardless of their income. In practice I think people with a higher income also spend more, however, probably not linear to their extra income.
In practice, sales tax is probably progressive, but not to the same extend as, eg. income tax.
Furthermore, we should probably consider increasing the sales tax as it limits the consumption. This is highly necessary given our current ecological situation (In Denmark, where i live, the sales tax is 25%).
Sales taxes are definitely regressive (as that word is used by policy makers) because low-income people spend closer to 100% of their income than high-income people. The definition of regressive is a tax that takes up a larger percentage of income for low-income than high income.
It should be noted that VATs can be implemented in a progressive manner. Give everyone (or anyone under a certain income) an exemption that covers VAT for necessities, exempt items like rent/utilities from it, etc.
Giving an exemption for necessities turns VAT into a Pigovian tax on luxuries. In effect, this is an attempt to modify the behaviour of the poor and so it can be construed as a form of social engineering which exempts the rich. Given that some people view poverty as a moral failing, I think this is a bad thing.
In reality, it doesn’t even work. Poor people spend money on luxuries in order to gain status which they need to attract a partner. Rich people don’t need to do to spend their money to gain status since they already have it by virtue of being rich.
Sure, although there are implementation issues because of the incentive for straw man purchasing. Are you aware of any jurisdictions where low-income purchasers are given additional exemptions?
I would think it would be easier to use transfer payments (like SNAP) to ensure that the exemption is not used for the benefit of non-low-income individuals.
Alternatively, you can have a prepaid or postpaid refundable VAT, where individuals can get their VAT refunded (up to a limit) based on income.
It's better to give some rebate. Say the poverty line for an individual is $12,000 and sales tax is 10%. If you want to exempt 1.5x poverty spending from the tax, it is better to give everyone an $1800 sales tax rebate than trying to write exemptions.
VAT specifically zero rates or reduces rate on many of the necessities. Which makes it far less regressive than an across the board sales tax. To name just a very few: Children's clothes, food, books, and public transport are all zero rated and in the UK at least there's a lower rate on utilities.
Many sales taxes also exempt necessities, like grocery items and clothes under certain cost ($100 per item). I was surprised that when I bought clothes at a not-inexpensive retailer in NYC recently there was no sales tax.
I'd be interested to hear your reasoning for why you think sales tax is so bad. Personally I see it as one of the more reasonable ways of taxing people, as for every product sold the government/society had a part in making the sale of the product possible.
It's regressive because poor people spend a greater proportion of their income (like, all of it) on retail purchases, so they pay the rate (13% currently) on all their income. Where middle and upper class people who sit on money, invest it, whatever pay a much lower effective rate.
But they won't. Spend it, I mean. At least not on things where VAT is relevant.
Most people, when money comes in, they spend it on things, so it immediately has to also pay VAT. If they're lucky, they may have some savings, but it's going to be on the order of 2-3 months' worth of income.
Rich people make orders of magnitude more money, and mostly need to spend the same order of magnitude to live as the rest of us. The money beyond that, they mostly don't spend on the same kinds of things. After all, what would you do with a million dollars' worth of soap?
There's no VAT on lobbying, on buying a house in the Caymans, on hiring six people to clean the mansion.
VAT, like all consumption taxes that aren't highly targeted, is hugely regressive.
> But they won't. Spend it, I mean. At least not on things where VAT is relevant.
If we can agree that the VAT is levied because the government has added some value to each product sold (value added tax..) then I don't see why spending money on VAT-exempt items makes VAT a bad tax.
If you spend it on labor, housing, there are taxes associated with that other than VAT. Lobbying and charities might be tax-deductible or exempt, that is another discussion.
I think your point is that regressive taxes are bad, is that a fair analysis? I don't agree with that.
> If we can agree that the VAT is levied because the government has added some value to each product sold (value added tax..
What value has the government added to consumer products I purchase in the store, particularly in the USA where tax rates vary from state to state, county to county, or even city to city? There is no national sales tax here, but consumer regulation is still a thing, and factors into the base price of goods.
I’m still genuinely interested in what value you see the government adding, but I think this might be why Americans and Europeans are disagreeing here.
Roads, sidewalks, bridges, public transport, education (+ buildings), public libraries, emergency services, hospitals, ( ... the list goes on) are all heavily subsidized by the government here. You could design taxes such that these are all funded by the users but it is much easier to have a VAT that funds them all (at least partially). It's not like you can point to a piece of plastic on your chair and say the government made it, but the whole chair ending up inside your house was made possible, partially, by the government. I think it's fair to pay a bit for that.
Roads, sidewalks, bridges, public transport, education
So why not levy taxes against the land value of those who own the property adjacent to those structures? They are the ones who see the most benefit when the value of their land increases, causing their wealth to increase dramatically. For example, the shop owner derives vastly more benefit from the sidewalk in front of his shop than do the pedestrians who occasionally walk by.
Sales tax is a toll that gets charged to everyone, equally, when the benefits of the spending are distributed unequally.
The government adds value to all our lives, not merely to our consumer goods.
So perhaps a more effective and fair means of paying for it is to recognize that those with higher incomes are the most financially able to support the cost, and develop a progressive income tax that ensures that the highest burdens are put on those with the greatest ability to bear them.
People with high income are more able to pay such a tax, if it’s structured progressively. People with real estate holdings benefit most from emergency services.
It's called that because the effect of the way the tax is implemented is to tax the _addition_ of value to the product by those being taxed on its way to a consumer.
Suppose I buy a vacuum cleaner from a big store nearby for $100 plus $25 VAT. I don't need to care about this, but presumably the big store bought it from a vacuum cleaner manufacturing company. Maybe they want $50. Two things could happen, the manufacturer could charge $62.50 (adding VAT) which the big store then needs to claim back because they only bought it to then sell it to me - or more likely - the two firms exchange details and both create paperwork showing that the vacuum cleaner cost $50 and no VAT was charged. We can see that either way only $12.50 of the VAT is attributable to the big store, the rest is in some sense someone else's fault, either the manufacturer or their suppliers in turn.
That assumes that rich people eventually spend all of their money. They don’t. They let their children inherit the accumulated wealth.
Poor people who spend all of their money every month pay more in sales taxes, as a percentage of their income, than rich people who invest and save most of their income.
But if the rich people and their kids never spend their money, than it might as well not exist, right? Once they spend it they pay the tax otherwise it's just a number that grows with investments and doesn't give them anything else.
Investments aren't just a number on your trading account, they're property. Rich people also invest in property through real estate investment trusts (REITs) which profit when people pay rent in those buildings. By not taxing rich people as effectively as we tax the poor (via sales taxes), we enable rich people to own more of the society we live in and levy rents on poor people.
Isn't it kind of a tautology that rich people own more of society? I mean they're rich, by definition they own more than most people. If they didn't they wouldn't be rich. And why can't poor people invest? Unless they are being banned from investing because they are poor shouldn't we be working to make the poor wealthier so they can invest instead of dragging down the rich?
On the chance it isn't: Because they are poor. You know, spending all their income on housing, food, clothing and getting to and from work. A simple car repair, or broken cooker could tip a poor family into crisis. There's nothing left in the pot for investing.
I know, my point was that since the reason they can't invest is because they don't have enough money why don't we work towards making it so that the poor have enough money to be able to invest instead of dragging down rich people to the level of the poor which is the impression I get from some of the comments here.
Absolutely not. If they don't spend it, they're almost certainly going to invest it, and most of the time (broadly speaking) they will get some amount of positive return on it. That's quite a long way from it "not existing".
I'm not arguing that there's anything wrong with incentivizing investment this way, or that there are not risks to such investments, but I do think it's worth pointing out that effectively this is a case of "being paid for being rich", and the richer one is the more one gets paid.
My point was that at some point the money needs to leave the investment cycle in order to mean anything at which point it will be subject to taxes on whatever is purchased. The only way to avoid ever paying the tax is to never spend your money and at that point it may as well not exist for the rich person. The rich person will have more money left over than the poor person but they still spend more in sales taxes or whatever the equivalent is for what they purchase.
I guess I just don't see the problem with rich people having more left over after paying the sales tax than poor people do.
Money doesn’t need to be spent in order to provide utility.
Example: I recently needed to switch both jobs and housing urgently. When I learned this, I had about £13,000 in liquid savings and $7,000 in almost-as-liquid savings. I didn’t end up needing to really touch more than £3,000 of those savings pots. So was my £10,000 of extra savings giving me any utility?
Absolutely yes. I was much less worried.
Contrast this with someone who has no savings and whose tire blows. How do they acquire $250 in order to be able to keep their job?
The difference is that the rich person doesn't have to work. Their income is just the return on their investments. Meanwhile the poor person has to work 16 hour days to achieve an equivalent lifestyle. Okay, so they're paying the same amount of taxes, but is this a just way to organize society? What opportunity does the wage slave have to decrease their workload?
It's fine to have haves and have-nots, but the burden of supporting society should be equally borne, financially by those with financial means and laboriously by those putting in the labor. Regressive taxes force those without capital to pay twice.
I guess I just don't see the problem with rich people having more left over after paying the sales tax than poor people do.
The problem is that they can spend it on capital which then lets them earn more and more wealth. Maybe you also disagree with the claim that inequality is itself a problem? That would put you in the minority in most places.
If not, then consider this: sales taxes, due to their regressive nature, increase inequality and funnel more wealth to the top. Taxes on unearned economic rents (such as land value taxes) are progressive, decreasing inequality and spreading wealth more evenly throughout society.
To a certain extent, this is true. And thus, the rich are (by their nature, not by intent) siphoning money out of the system, reducing the amount in circulation and preventing the rest of us from having any access to it, no matter how hard we work.
Wouldn't this only be true if money can't be created? Although you may not be able to get access to a certain person's wealth you can make your own wealth by say starting a business or working hard at your job (assuming that the markets are actually working properly)
You and I can create value, but we can't (legally) create money. The government does that. If the very wealthy are able to take money out of the system faster than the government puts it in, we end up with the pool of money the rest of us have access to shrinking.
And to be clear, when I say "access to," I don't mean that we should have the ability to just spend someone else's money. I mean that while they hold that money, and do not spend it, as far as the entire rest of the country/society/system is concerned, it does not exist. The effective pool of dollars is smaller.
But doesn't that just make the value of the dollars left higher? If there is more value being created but less dollars to pay for it worth the value of a dollar should go up until the out of circulation dollars come back.
Yes, without outside influence. That's called deflation, which many consider bad because it incentivizes saving over using money, slowing the economy. We would have seen that after the crash in 07/08, but the federal government stepped in to inject cash into the economy. Should we have done that? Sure, we saw during the Great Depression what happens when you don't. But the way we did it was obviously regressive: instead of forcing some of the existing money supply, the out-of-play portion we've been talking about, back into the economy via a wealth tax, we did a bunch of things that essentially routed "new" money through the major banks (so they wouldn't fail).
It is called opportunity. Poor people in America are not forced to remain poor. They can (and do) improve their lot in life, and take advantage of being not poor like the other not poor people.
I am not going to downvote you, but that's just not always correct.
Plenty of people have come from nothing to become billionaires. (Oprah!) But plenty of people are trapped in a situation and can't just remove themselves from those traps.
Not everyone can learn Python and make $65 per hour by next week. Let's have empathy for people who really want to do better but can't, and see if we as a society can help them.
I think it’s an ugly undercurrent lately where everybody has to be super exceptional/motivated/passionate/etc or they’re worthless and deserve to be discarded by society.
Every member of an animal population can’t be exceptional. Are we just doing eugenics rube-goldberg style?
Probably intentionally misunderstanding but bear with me:
Sales tax is bad because it is not on the sticker. Guess my and every europeans surprise when we realize that what we have to pay not the sum of the prices on the goods we buy, but that sum plus some more.
VAT is a whole lot more reasonable as the price on the sticker is the price you pay is the sum of the prices on the stickers ;-)
That said:
VAT seems kind of reasonable to me but I will be happy to hear why ut isn't.
It’s regressive because rich people pay a smaller total percentage of their income in VAT, compared to poor people. That’s the definition of a regressive tax. Progressive taxes flip that trend. A land value tax is progressive because rich people tend to own more land and thus end up paying more tax, percentage-wise, than poor people.
The progressive / regressive terminology takes it for granted that income is the right denominator to measure against, rather than consumption, which is not obvious in my opinion.
Are you implying that consumption is a bad thing and we should discourage it? That would put consumption taxes in the category of Pigovian taxes [1] in your eyes. If that is the case, and other sales tax supporters agree with you, then it's not obvious from this discussion.
In my experience, it's generally been the case that rich people are anti-consumption, at least on a personal level. Poor people often splurge on luxuries to relieve some of the pressure of grinding poverty. They buy things to signal status in order to attract a partner. A sales tax on luxuries like this is effectively a wealth transfer from the poor to the rich, not altogether dissimilar to government-run lotteries which fund scholarships.
Not really, landlord will pass costs through to renter. So the Land Value Tax isn't really paid the the land owner but by the tenant of the land, through the land owner, to the Gov.
And the Gov sees the rich land owner as the source, not the renter. And it makes the land-owmer seem like their taxes are high - when the burden is not theirs
> Not really, landlord will pass costs through to renter.
This argument, followed to its logical conclusion, would tell us to abandon all taxes, all monetary penalties short of total seizure, and any form of finance-based incentive on companies and landlords.
So, what would you propose instead?
Edit: ....Also, this ignores the fact that not all land owned by the wealthy is being rented. Indeed, there are landlords that deliberately keep units empty, in part to reduce supply and keep the price of the units they rent higher. Taxing them even when they're inactive would prevent this kind of perverse incentive and help (at least in some small way) to alleviate the housing shortages in some areas.
Land Value Tax is not the same thing as property tax. LVT is a tax on the unimproved value of the land. That means when the owner builds something on the land, it does not affect the tax. Instead, the tax increases when the value of the land increases due to external factors, such as a new light rail transit line is built.
This means that a wealthy person owning an empty lot in an expensive part of the city pays just as much tax as the condominium owner next door. This encourages the empty lot owner to build and collect some rents in order to offset the tax. This ultimately increases the supply of real estate and puts downward pressure on rent.
I live in Canada and we do the same thing here. I think it’s a good thing to remind everyone of sales taxes at checkout time. Sales taxes are regressive taxes. We should get rid of them in favour of a more progressive tax, such as land value tax.
Laws that mandate hiding sales tax by including it in the advertised price only serve to entrench a tax that should be repealed.
Edit: I just wanted to note that the vast majority of people I see defending sales taxes (i.e. VAT) are Europeans and the people opposed are North Americans. Putting aside the argument over whether it’s a good idea or not, I think this is good (albeit anecdotal) evidence that hiding/showing the tax in the purchase price at checkout affects people’s opinion of the tax.