Tax on Skittles
One of the perspectives that is often lost in the analysis of tax bases, rates, economic growth and the details of this study or that study is the cultural effect that taxation has on a population.
While I have no interest in using government as a tool for social engineering, the fact is that funding a government, regardless of its size, will have an influence on a culture’s behavior. And it seems reasonable to say that the level of that influence will be proportional to the size of the government.
And since our federal government has grown from around 3% of our combined productivity at the beginning of the last century to around 20% at the beginning of this century, it probably makes sense to spend some time considering the manner in which we compel people to commit so much of their personal effort for the collective.
Representative Steve King from Iowa provides an excellent anecdote about the cultural effects of taxation and the contrast in paridigm that causes people to focus on what they want others to pay for under an income tax model as opposed to what they personally want to pay for in a consumption model:
I’d like to say thank you to Rep. King. This is one of the most odd and best arguments for the FairTax.
An excellent analysis of the societal effects instead of simply a change in the financial aspect.
One of the fears of a consumption tax is that people will avoid consuming, which is probably true. People will avoid whatever is taxed. But consider this argument’s parallel for income taxation: people will avoid working. From that perspective, I’m not so sure that avoiding consumption is the worse of the two.
Also, I tend to think that any contraction in consumption will eventually turn into confrontation with the government. While a person might initially hesitate to buy that new car because of the high tax - they will only do that for so long. Eventually they will start weighing the value of the new car against the value of that new government program.
In a consumption model, I don’t think the economy has nearly as much to fear as the government does. The economy will be fine - the government’s the one we will have to worry about.
Excellent points Mark
Okay. Seriously. What planet are you living on?
Mark: “One of the fears of a consumption tax is that people will avoid consuming, which is probably true. People will avoid whatever is taxed. But consider this argument’s parallel for income taxation: people will avoid working. From that perspective, I’m not so sure that avoiding consumption is the worse of the two.”
People will avoid working? How, pray tell, will they survive?
I enjoy my job, but I’ll be the first to admit there are days when dragging myself off to work instead of heading for Daytona Beach is a pain. But I go to work. Partly because I enjoy it, but mostly because I would rather live in my house and eat stuff I can get at the grocery store rather than living in the woods behind my house and trying to catch a squirrel for dinner.
As for paying a sales tax making kids (and by extension, adults) more conscious of what they’re paying for government, it won’t happen. All it will do is make them grumble even more about how much more expensive everything is getting.
That’s because the only time you’re conscious of a sales tax is when, like the little kid with the Skittles in Rep. King’s example, you have enough for the marked price of the item, but not the tax on it. That’s because most of the time, we don’t go to the store to buy one item and take with us the exact amount of that item. Today, most people go to the store, they buy a bunch of items, they take them to the register, the cashier tells them the total, and they run their credit or debit card through a card reader. A lot of people don’t even take the receipt, much less look at it.
Trust me. I’m actually making a conscious effort this month to keep track of what I pay in Florida sales tax, and even at that, some receipts have slipped through my fingers because I was in a hurry when I made the purchase and forgot to set aside the receipt when I got home.
Granted, under the FairTax, you’ll be constantly hit over the head with the tax because it will raise the price of everything you buy (best case by 1%, worst case by at least 30%), but even then, most people will be no more conscious of what it’s actually costing them than they are of income tax now.
Why would a kid notice the FairTax on Skittles? I thought prices were not supposed to rise under the FairTax and that the tax was included in the price at the register?
If the Skittles cost a $1.00 today, Neal Boortz says they will cost a dollar under the FairTax. Rep. King is making the point that that is a farce. Of course, prices will rise, and everyone will be pissed everytime they but something and need to pay the tax.
Now, philosophically, there might be some merit. At least until the father tells his son, “I’m sorry we had to sell the house. But that was the only way we could come up with the money to pay the FairTax for your leukemia treatment. Now have some more Skittles and shut up.”
Hayden,
Unfortunately, I haven’t had time to watch this video, but this sounds a lot like my nephew story. It doesn’t matter if prices stay the same. The little kid will see $0.77 and then be forced to pay a $1. That should make him mad.
Bill,
People make decisions not to work all the time. My wife is currently considering going back to work, but because of the tax situation (and needing to pay for someone to watch our daughter) it may not be worth it.
Cute but I half expected the Dad to point out to the eight-year old what his tax contribution paid for - maybe his public school, his teacher, the roads they had just travelled on, the fire crew who would save his life in a fire, the policeman who protects him - and ask him of all that was worth seven cents.
A Fairtax would be imposed on every purchase, like the value added tax in my country. Once everything is taxed, it becomes part of the price. If I buy a beer or hire a taxi, unless I look at the receipt I do not think about the tax, Even when I do look at the receipt, the tax is small - maybe not seven cents but I am not aware of how much tax I pay in this way because I make a hundred purchases a month.
I do know - just about to the dollar -what tax is taken out of my salary and it is a much bigger figure than the tax recorded on any of my hundred cash receipts. And I always look at my payslip. because I only get two a month.
If you want a sneaky tax, a consumption tax is far better than a tax on income.