On this National Sales tax thing? What happens if you spend more than you make? Is that like going on margin?
Joe 25Something goes hog wild on his new promotion and $30,000 salary. He is single and uses the $5000 exemption up on groceries, Walmart trips, beer, more beer, cheap dates, and general living expenses. In fact he exceeds the $5000 exemption by $5000 more cause he still has a buck or two left over and the energy to spend it.
Then he buys a $30,000 SUV.
Finds out his computer needs replacing for about $2500.
Meets the girl of his dreams over a beer on a cheap date and springs for a $10,000 ring.
Buys a new couch for $1000.
Drops another $1500 on new business suits to match the promotion image.
Now Joe has spent $50,000 this year. His entire $30,000 salary plus $20,000 more.
Does Joe get taxed on the $30,000 of income? Or the $50,000 of consumption based National Sales Tax?
$50,000 x 18% = 9,000 tax
9,000/30,000 Income = 30% effective tax rate as opposed to where he would have been in the 15% tax bracket under the current tax code.
Is Joe better off? Or did a quirk of the rules nab him and double his tax due?
Beware the risk of a consumption tax to both your effective tax rate, and the damage it would do to an economy powered by consumers on credit. |
