Goods and Services and Taxation

[GGT]

As we move from a manufacturing society to a consumption and service-based society, how should we re-think our taxation?

Taxes are supposed to fund government services. We can't even agree on what should be a utility overseen by government officials, let alone what's a Right or a Commodity, privatized or publicized.

But "assuming" we want some cohesive mobility from state-to-state, and nation-to-nation, in this global economy....should we reconsider taxing goods and instead tax services?

We should begin by defining Services. Is the internet knowledge-based system a product or a service? Is health care a product or a service? Is banking a product or a service? What about education?

It's easy to say waitstaff services our food delivery in a restaurant. We might tax the booze or food itself, but not the server. We might tax the truckers or goods brokers who move the food, but not the chefs or caterers.

In healthcare, we might tax the durable goods manufacturers but not the surgeons who implant the devices, or the nurses who service the post-op patient. Hospital dietary pays taxes on foods but not necessarily on their service.

Hotels have a service tax, tourism has a service tax, taxis and restaurants have a service tax (they can call it a voluntary tip or mandate a 15% payment on certain parties). Some states have no tax on income and no tax on purchasing clothes or food, they only tax services.

If we're going to be a service provider-consumer based society, do we need to re-think our whole tax structure? If we outsource everything from IT to manufacturing to financial services, plus a large chunk of our food supply....then no wonder we can't figure out how to fund government services like education or health.

Personally, I don't want to pay more in property tax to pay for education, but I also don't want to give Pizza Hut or Pepsico free reign in schools just because they can fund lunchtime, since our federal and state lunch subsidy has grown and can't meet need.

This is in GC because it's a vague and open-question rant kind of thing. Loki doesn't like D & D topics showing up on the home page until they're fleshed out. If this gets fleshed out then it can be moved.

Until then, let me ask if we should be taxing services instead of goods? Have at it.

[Loki]

Why does everyone keep mentioning me when talking about where threads should go when I'm virtually never the one to complain about this issue? It's like I'm working behind the scenes with my fellow Elders of Zion to keep the site formal.

[EyeKhan]

Why does everyone keep mentioning me when talking about where threads should go when I'm virtually never the one to complain about this issue? It's like I'm working behind the scenes with my fellow Elders of Zion to keep the site formal kosher.

Fixed.

[LittleFuzzy]

Why does everyone keep mentioning me when talking about where threads should go when I'm virtually never the one to complain about this issue? It's like I'm working behind the scenes with my fellow Elders of Zion to keep the site formal.

Because a hefty part of the push for a more formal-looking section is because various people think it would be good for the blog, and the blog is still *and not incorrectly, IMHO* identified as your project.

[Loki]

Because a hefty part of the push for a more formal-looking section is because various people think it would be good for the blog, and the blog is still *and not incorrectly, IMHO* identified as your project.

Except my objection was to having topics that were not serious in the discussion sub-forum. I've never indicated a preference for a style of posting. Hell, I've only once taken a position about a thread posted here being inappropriate. And even if I did have a preference, I don't run this site. I don't unilaterally make the rules (on moderation issues, I have absolutely no input). The blog is the only part of the site where I have any influence, and even there, I don't make any decisions alone. I really don't want people to think that they have no act a certain way toward me just because I have this nonexistent power.

[littlelolligagged]

Because you're a snarling hissy feral cat, Icky.

[rumrunner]

So you admit you are an Elder of Zion Loki?

[Ominous Gamer]

Until we figure out a way to fairly tax out of state purchases (national sales tax purhaps?), our tax income for products is going to get crappier and crappier.

Florida has no income tax, and no tax on food. But larger tourist areas can see a tax as high 13% on products and services. Compared to Tampa's 7%.

[littlelolligagged]

Until we figure out a way to fairly tax out of state purchases (national sales tax purhaps?), our tax income for products is going to get crappier and crappier.

Florida has no income tax, and no tax on food. But larger tourist areas can see a tax as high 13% on products and services. Compared to Tampa's 7%.

Would this national sales tax be in addition to state and local sales taxes? Would it do away with special sales taxes at a local level that pay for locally needed things - like school improvements and repaving roads?

I'm not surprised that tourist areas (Orlando?) have higher taxes...

I'm curious, though. Does your no tax on food apply to restaurants as well? I think we pay 2% at the grocery store (I'd have to look at a receipt to be sure, but I know the tax on food is less than the regular tax), but the regular sales tax on food eaten at a restaurant. I'd imagine that Disney makes a fortune every day off the ice creams shaped like mouseheads, the tax revenue they must be able to collect in a day seems unreal.

[Ominous Gamer]

Would this national sales tax be in addition to state and local sales taxes? Would it do away with special sales taxes at a local level that pay for locally needed things - like school improvements and repaving roads?

I don't know. I guess something like FairTax, where some goes there, some goes here, etc.

I'm curious, though. Does your no tax on food apply to restaurants as well? I think we pay 2% at the grocery store (I'd have to look at a receipt to be sure, but I know the tax on food is less than the regular tax), but the regular sales tax on food eaten at a restaurant. I'd imagine that Disney makes a fortune every day off the ice creams shaped like mouseheads, the tax revenue they must be able to collect in a day seems unreal.

Restaurants and points of service have to charge tax.
In Georgia, Brandy shopped at a gorcery chain that charged 10% up top of the bill. It wasn't presented as a tax (every sign had that 10% warning), but I didn't understand the point of it.

[littlelolligagged]

In Georgia, Brandy shopped at a gorcery chain that charged 10% up top of the bill. It wasn't presented as a tax (every sign had that 10% warning), but I didn't understand the point of it.

I know the chain you are talking about, they claim they are selling to you at "cost" + 10%, and you save a shitload of money. I only went into one once, I didn't think you would actually wind up saving much - but I didn't do much of a comparison, I just grabbed what I needed in a hurry and left (we were spending the day at a little carnival, and we couldn't find any water, anywhere - and you know the kind of heat where water is the only thing you could even think about wanting that happens in the south in August).

[Dreadnaught]

This is clearly a Debate and Discussion thread in my opinion, moving there with the other donkeys.

But GGT, you read this idea in the NYT a few days ago, didn't you?

I don't have a huge problem with this except for two things...which are actually two problems:

1) It seems simple enough to expand a sales tax to services. Except every service under the sun would line up for some kind of exemption. The reason? Some services are very high margin, while others aren't. It's the same with selling goods retail, but because the delivery of some services can be more complicated, every professional lobby under the sun will figure out a theoretical way to push for an exemption. It's kind of like how Greek musicians could qualify for disability retirement at 55 because of "finger injuries" and "bacteria from microphones".

2) Simply put, this is a step towards a VAT and I think VATs have a nasty habit of always creeping higher and being way too regressive.

[GGT]

This is clearly a Debate and Discussion thread in my opinion, moving there with the other donkeys.

But GGT, you read this idea in the NYT a few days ago, didn't you?

I don't have a huge problem with this except for two things...which are actually two problems:

1) It seems simple enough to expand a sales tax to services. Except every service under the sun would line up for some kind of exemption. The reason? Some services are very high margin, while others aren't. It's the same with selling goods retail, but because the delivery of some services can be more complicated, every professional lobby under the sun will figure out a theoretical way to push for an exemption. It's kind of like how Greek musicians could qualify for disability retirement at 55 because of "finger injuries" and "bacteria from microphones".

2) Simply put, this is a step towards a VAT and I think VATs have a nasty habit of always creeping higher and being way too regressive.

Not sure where the idea came from, I read a lot. Might have been Sebelius talking about how we can't keep funding education with property taxes. Or Rendell (D-PA Gov) trying to close our budget gap. Or economists dissecting our changing economy. Or states cracking down on collecting interstate business taxes because they're broke (If you go from CT to NY for a business meeting, you have to pay a NY tax).....

Taxing goods made more sense when we had a huge manufacturing base. But now we have a service economy. Rendell and others are talking about "taxing the internet", reducing our sales tax from 6% to 4%, and getting rid of the exemptions only good lobbyists got.

We don't tax clothes or food, but lobbyists were able to wiggle in by getting favorable definitions. ie popcorn isn't food, but potato chips and candy are--guess who had the better lobbyist? Hershey and Utz. We get busloads of outlet mall shoppers coming from states that tax clothes. 'Good for tourism' they say.

But some move the other way, to the MD line to buy booze that isn't taxed like our State Liquor Board does. Then there's internet shopping, some states charge residents sales tax, others don't. Crazy confusing crap. I don't have a firm opinion yet, but something needs to change. It's like we have 50 little IRS rules all moving in opposite directions.


edit to Loki--sorry, just figured it was polite not to make your blog page look messy.

[Loki]

Don't you support the national sales tax? Is that really fundamentally different to the VAT?

[Dreadnaught]

I don't -- I think I once said that a simple national sales tax would possibly be a simpler substitute for our whole tax system. But I didn't really mean that it was a good idea.

[Dreadnaught]

If this is going to be a discussion, can it at least be in a separate thread to not derail this one?

[Hazir]

I really haven't thought a lot about this; but it does look like an idea that promotes VAT. I don't know if VAT is a better way of taxing or not; it does have the advantage though that evading it isn't a very attractive option for the links in the chain.

[Dreadnaught]

How is not attractive to evade?

[Hazir]

How is not attractive to evade?

Because by allowing you to evade the other party also loses VAT that can be written off against his own dues. Only for stricly personal services this doesn't apply. But for example; a taxi-driver let's you off without collecting the VAT. That means he will be paying full price for the car and the gas he's using (rather than the ex-VAT price he could be paying). Effectively that means he's paying your tax-evasion.

[Dreadnaught]

Don't really care what end product (service or good) is taxed as long as income is not. Sadly any attempt to move toward a Fair Tax like system will simply be an added tax. Then we will have a VAT AND an income tax.

Taxing consumption encourages saving and investment. Taxing income encourages spending sprees and bubbles. In the short term everyone wants people to spend spend spend because that gives a lift to the economy. But in the long term we would do better as a nation who practices delayed gratification.

It's also very regressive, as people with lower incomes necessarily spend more of their income on goods and services. But of course the whole idea becomes more interesting in theory if the tradeoff is no/low income tax.

Because by allowing you to evade the other party also loses VAT that can be written off against his own dues. Only for stricly personal services this doesn't apply. But for example; a taxi-driver let's you off without collecting the VAT. That means he will be paying full price for the car and the gas he's using (rather than the ex-VAT price he could be paying). Effectively that means he's paying your tax-evasion.

Gotcha. But does that mean that VAT is basically stuck on top of any income from any sort of business?

[Hazir]

It's also very regressive, as people with lower incomes necessarily spend more of their income on goods and services. But of course the whole idea becomes more interesting in theory if the tradeoff is no/low income tax.



Gotcha. But does that mean that VAT is basically stuck on top of any income from any sort of business?

Pretty much. Most EU countries have got some services and goods in a zero tariff, then you have a low tariff and a high tariff. Every country sets its own rates. In Holland we've got zero on prescription drugs, medical care, education, and some bank services (I presume this means retail services). The low tariff is for basic goods is 6% and the high tariff for luxury goods is 19%. Most services are in the 19% tariff, though occasionally they'll move certain services (temporarily) to the low tariff as a stimulus.

Sometimes this leads to real funny things; food for rabbits is in the low tariff group, because rabbits are eaten and such feeding and raising them is considered to be covering a basic need. If you have a guinea pig on the other hand; its food will be charged as a luxury because holding a pet as such is a luxury and guinea pigs as a rule aren't eaten. (Which makes me wonder how many people will feed their guinea pigs rabbit food )

As for your 'underground economy', yes that risk exists, but somebody somewhere is going to feel the pinch. And then of course you have the fact that exactly in those high risk places like Italy the penalties for VAT evasion can be rather draconian. Italy by the way doesn't have the highest VAT tariffs. Scandinavian countries and Hungary do with high tariffs over 20% all the way up to 25%.

[Lewkowski]

Don't really care what end product (service or good) is taxed as long as income is not. Sadly any attempt to move toward a Fair Tax like system will simply be an added tax. Then we will have a VAT AND an income tax.

Taxing consumption encourages saving and investment. Taxing income encourages spending sprees and bubbles. In the short term everyone wants people to spend spend spend because that gives a lift to the economy. But in the long term we would do better as a nation who practices delayed gratification.

[EyeKhan]

Lewk - Flat tax is only fair if you also have flat income. Are you a communist?

[Lewkowski]

It's also very regressive, as people with lower incomes necessarily spend more of their income on goods and services. But of course the whole idea becomes more interesting in theory if the tradeoff is no/low income tax.

Until money is spent it has caused no tangible service/good to be taken in by the person who has the money. You can easily get rid of some basic food stuffs that would be exempt and possibly certain medicinal items. Since the poor pay more of their income in food then the rich its now progressive...

[Dreadnaught]

Are you joking? That's not really sound logic at all.

Our current social contract is that income is taxed because the government provides the laws/structure that allows you to earn income. So they get a cut. If you hear a lot, they get more. If you earn a little, they get less.

A service tax means that you pay more for the "privilege" of getting something like a haircut, no matter what you earn. And adding exceptions begets more exceptions until nothing substantive is taxed. Leaving food off doesn't make it "now progressive" -- people spend more money on "basics" beyond just food.

Hazir- Just to follow-up on my last question, doesn't this promote an underground economy in places where the VAT is extremely high? Like Italy?

[Lewkowski]

Our current social contract is that income is taxed because the government provides the laws/structure that allows you to earn income. So they get a cut. If you hear a lot, they get more. If you earn a little, they get less.

Bull. That is nonsense pushed by liberals trying to justify higher taxes. The logic behind a higher tax on those who make more is based on the idea that they have the ability to pay, not that they gain an additional value simply because they make more money.

In fact the poor gain the MOST from government not the least. Under the paradigm of "well society gives you more so you need to pay more" then the poor should be paying the most taxes since they use the most social services.

A service tax means that you pay more for the "privilege" of getting something like a haircut, no matter what you earn. And adding exceptions begets more exceptions until nothing substantive is taxed. Leaving food off doesn't make it "now progressive" -- people spend more money on "basics" beyond just food.

Most of the FAIR tax type plans out there provide for prebates for low income or exclude food. But yeah I can see politicians carving out special interest garbage exceptions on this too. Not that we have to worry about the FAIR tax ever being implemented. Sigh.

[Dreadnaught]

Pretty much. Most EU countries have got some services and goods in a zero tariff, then you have a low tariff and a high tariff. Every country sets its own rates. In Holland we've got zero on prescription drugs, medical care, education, and some bank services (I presume this means retail services). The low tariff is for basic goods is 6% and the high tariff for luxury goods is 19%. Most services are in the 19% tariff, though occasionally they'll move certain services (temporarily) to the low tariff as a stimulus.

Sometimes this leads to real funny things; food for rabbits is in the low tariff group, because rabbits are eaten and such feeding and raising them is considered to be covering a basic need. If you have a guinea pig on the other hand; its food will be charged as a luxury because holding a pet as such is a luxury and guinea pigs as a rule aren't eaten. (Which makes me wonder how many people will feed their guinea pigs rabbit food )

As for your 'underground economy', yes that risk exists, but somebody somewhere is going to feel the pinch. And then of course you have the fact that exactly in those high risk places like Italy the penalties for VAT evasion can be rather draconian. Italy by the way doesn't have the highest VAT tariffs. Scandinavian countries and Hungary do with high tariffs over 20% all the way up to 25%.

Interesting. It still strikes me as a very complicated system that will just make everyone line up for exceptions...I mean, the fact that the tax policy views Rabbits and Guinea Pigs differently seems like a great product of bureaucrats and policymakers with too much time -- or lobbyists-- on their hands.

Bull. That is nonsense pushed by liberals trying to justify higher taxes. The logic behind a higher tax on those who make more is based on the idea that they have the ability to pay, not that they gain an additional value simply because they make more money.

In fact the poor gain the MOST from government not the least. Under the paradigm of "well society gives you more so you need to pay more" then the poor should be paying the most taxes since they use the most social services.

Most of the FAIR tax type plans out there provide for prebates for low income or exclude food. But yeah I can see politicians carving out special interest garbage exceptions on this too. Not that we have to worry about the FAIR tax ever being implemented. Sigh.

But they can usually pay more without compromising a healthy margin of living income. I agree, the policy rationale is that wealthier people can pay slightly more. But I think it's reasonable up until the point where we are now, with the wealthy paying overwhelming portions of our tax base

But calling it a fair tax is pretty much as useless as calling health care legislation "reform". It's just a buzzword.

Also, it's pretty poor logic to assume that the poor gain the most from the government. this country isn't some kind of wasteland with fabulously wealthy people living in towers with private police forces, and poor people living on the dole waiting in lines for bread and toilet paper.

[Hazir]

Interesting. It still strikes me as a very complicated system that will just make everyone line up for exceptions...I mean, the fact that the tax policy views Rabbits and Guinea Pigs differently seems like a great product of bureaucrats and policymakers with too much time -- or lobbyists-- on their hands. .

Actually there is fairly little political playing around with VAT. It's also not a very controversial tax because it is not as visible as the payroll taxes. Unlike what you have in the US in the EU it is illegal to price your products with the pre-tax price. It's only on the sales slip where you see how much taxes you have paid. and very often it's merely a mentioning of the VAT percentage charged.

As for the example; actually that was a logical implementation of the main rule.

[Lewkowski]

Also, it's pretty poor logic to assume that the poor gain the most from the government. this country isn't some kind of wasteland with fabulously wealthy people living in towers with private police forces, and poor people living on the dole waiting in lines for bread and toilet paper.

They pay the fewest taxes and they take more services. It does not have to be some kind of extreme anarchy for it to be true the poor benefit the most from government.

[Nessus]

They pay the fewest taxes and they take more services. It does not have to be some kind of extreme anarchy for it to be true the poor benefit the most from government.

I'd like to see your beloved CEOs run their industries without government-supplied police, courts, jails, military protection, firemen, road infrastructure, public education, and so on, and so forth. Your money-centric myopic world-view seems utterly incapable of realizing that there are benefits that do not translate directly into dollar bills and from that crack pipes for the poor.