Higher and progressive taxes better for the economy

A NewsLanc visitor posed a question: “Is a tax system using VAT progressive or regressive compared to our system combining sales taxes and income taxes?” (‘Progressive’ means that the poor pay less tax on every additional dollar than do the well off; ‘Regressive’ means that the poor pay the same of more taxes for each additional dollar than those who are well off.)

The author of “Replace Sales Tax with Value Added Tax” responded:

“There’s a proposal being bandied about for what they call the FAIR tax. It’s a sales tax, ratherthan a VAT tax, and thus it doesn’t quite have the features that would improve our competitiveness to the same degree (although it’s better than our current system.) They address the regressive problem by giving everybody in the country an annual stipend. Instead of a per diem, would you call it a per annum?

“The reason we want a progressive income tax rather than a regressive tax is that people with higher incomes benefit more from government. The Walton family benefits from the Navy making it safe to ship goods from China to WalMart. Someone who works at Armstrong may take a vacation at Yellowstone. The guy who supports his family working at Turkey Hill can’t even afford to take a stay-cation – he needs to keep collecting that paycheck.

“My thought is that if we have a really vigorous economy, there will be a lot of demand for
labor, which will drive wages up for the working poor relative to the rest of the population.
We’ve been going in the opposite direction for the last few decades. Additionally, an economy that is robust can afford to do things to help the sick and disabled, etc. the widow with six preschoolers, etc., and can afford to give our kids the kind of education they need to do well in competition with the rest of the world.

“Our current tax policies are a combination mouth-wash and floor wax. We really ought to
separate revenue collection from ‘managing’ our economy. If you want to subsidize
churches, then give them money right out in the open instead of giving them a tax break.

“I’d want NO exemptions from the VAT for milk and baby food or newspapers, like we have
with the sales tax, and no complicated tax forms like we have for income tax. Just ‘How
much did you sell in goods and services, how much did you pay for goods and services that
went into what you sold, calculate the difference on line 3, multiply line 3 by 0.28 and put
enter that number on line 4, and enclose a check for line 4.’

“And no, I don’t know that 28% is the right number for the total of Federal, state and local
VATs. That’s the VAT rate in Denmark (which has a much higher standard of living than
ours.) The the rate in the UK is 17.5% which has a slightly lower standard of living, but they
also have an income tax which tops out at 50% Sweden’s VAT is 25%, but most Common
Market countries have a VAT of about 20%.”