But red, wouldn't they pay when they bought "non necessary" items? For example, "poor people" buy used cars compared to "rich people" who buy them new. Are luxury items not taxed? I'm really not familiar with his proposal and what/how we would be affected, exactly.
He drawing a comparison between people whose income is largely salary or business profits that get taxed at full income rates, while the very rich, whose income is mostly from investments and gets taxed at 15%.
Rich people do buy luxury items that get taxed. But they rarely spend all of their income or even most of their income. They have the luxury of investing most of their income, which would grow tax-free. The middle class could not do this without slashing normal living expenses.
The rich would pay more sales tax no question, but think of it this way. Family A makes 40k per year and has 0 federal tax liability. They are a family of four and spend virtually all of their money on food, gas, clothing etc. They own a very modest home with a 600/month note. All told, they spend about 30k/year on items that have a sales tax on them. At 7%, that's 2,100 or 5.25% of their total income. Family B makes 500k per year and has a federal tax liability of $125k. They contribute 30k to retirement and tax defferred college savings. They have a $2,500 per month house note. They are saving another 65k/year for investments and spending the rest. So on $250k, they are paying 7% or $17,500. That is 3.5% of their total income. Family B is paying a lower effective state tax rate than Family A even though they make way more. Some will argue that they are still paying $15k more but this is the deinition of a regressive tax. Very few, if any, economists feel this is good policy. That has always been the problem with national sales tax in place of income tax. That an the fact that it promotes saving and not spending.
I agree that sales taxes tend to be regressive however I am not sure I agree with your example. Grocery purchases are currently exempt from state sales tax. Barfield and Jindal said this exemption is not on the table. I would assume that groceries are the biggest line item in Family A's budget. They probably spend $700 a month on that which is a bit below average. This would drive the down the effective rate to 3.78%. Still regressive, but closer to even.
Good point. I didn't realize that although I noticed I pay much less tax on groceries. Wasn't sure why. I would argue they don't spend $700/month on groceries (probably closer to $500) but your premise is accurate.
