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Originally Posted by aliali
If you have a comsumption tax, that will be on top of the sales tax, right? Will states then change their income tax to a consumption tax? 25% national, 8% sales, 6% states, 1% local--it starts to add up--of course we are all paying it already. With this system, how do you exempt a certain amount of income? Is it diff. for single, married, number of dependants, charitable giving?
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The "free" tax level is set at the poverty level, which is different for individuals and families and already set: I think for individuals it is around $9K.
Here is an example, based on the levels where I live:
Current Sales Tax: 7.1%
Proposed Consumption Tax: 16%
Total tax: 23%
Understand, however, that while this looks like an increase in spending on your part of 23%, it really isn't. First, costs will go down, followed by price. Second, real income will increase dramatically, instantly.
The "real" increase felt by most consumers will not be much more than is already being paid out--and nowhere near near the level we are being taxed at right now. This is actually a tax decrease, as roughly 50% of your income won't be spent on taxes as it is the case right now.
As the plan takes effect and begins to bring in more money, the rate would go down, probably to the 10-12% neighborhood.