improve economic growth, and the pros and cons of the various proposed tax systems. Combined with an advertising campaign to make the plastic bag unacceptable, use has fallen between 90-94%. For example, let's assume a tax rate of 10%. Types and benefits. How do people pay their fair share? A VAT tax, or Value Added Tax, is a taxing method that has been used throughout the world since the 1950s. A VAT would also solve the problem of lost online sales taxes since the imposition of a VAT … For example, a sheep farmer sells wool obtained from sheep to a company which fabricates yarn. This is because sales tax is collected from the end users rather than from the seller. Although 5% of one's salary sounds equal, its not when 5% of my salary leaves me living in poverty while 5% of someone else's salary still leaves them a millionare. In America, a federal VAT would be imposed on top of the retail-sales tax charged by 45 states. You must have come across people who hide their income to save income tax, but sales tax can’t be evaded because it is included in the price of the goods and services. Flat tax and national sales tax are important concepts in the field of taxation. Just because Income Tax is an amendment doesn't mean we are forced to use it. List of Pros of Junk Food Tax. Instead of having progressive taxes on the amount of money that is being earned, a national sales tax would charge the same amount nationally to everyone for the goods and services that qualify. Playing next. Here are some pros and cons of internet sales tax: Pros of Internet Sales Tax: States and local areas would potentially be able to collect more money to fund budget items like schools and roads; Small and medium sized brick and mortar businesses won't feel like they are competing with online retailers who aren't required to charge sales tax It could replace the income tax and the 6.2% employee portion of the Social Security tax. A national sales tax would require a new system of reporting and money collection that doesn’t exist right now. Different government entities employ various taxes and rates on their citizens. A junk food tax has been proposed and as you might have expected, it has caused quite the commotion among observers. A sales tax levied on luxury goods is only payable by the consumers who buy them. The consumption tax is an idea that is slowly gaining some traction in the United States, especially since the idea has been endorsed by former Fed Chairman Alan Greenspan. collecting sales tax is not an easy job. The more tax on the rich comes by what the cost is for their purchase. Families would also be issued 'prebate' cheques as to eliminate the inherent regressivity of a sales tax system. Therefore, these taxes are impartial in nature. The Income Tax Only days after the last elections for Congress in November of 1994, Congressman Bill Archer declared his strong desire to "tear out the income tax by its roots." Taxing Based on Sugar Content Is Feasible at the National Level 7 ... is excluded, applying the general retail sales tax to purchases. The economic pros and cons in the real estate world has revealed the hot new market niche of property or home tax sales that has developed into a Tax Sale usually called a lien or deed sale. Rosetta Beltran. It also applies to the sale of services. The fact that they have to spend on the same necessities are more well-placed folk is also an issue as when necessities expense is taken out of the picture, low … Businesses would collect the tax at the point of sale and send the revenue to the federal government. Why sales incentives should be used to motivate your sales staff? Thirty countries in Europe have VATs, but just three, Canada, Japan, and Switzerland, have rates under 10%. A national sales tax that does not have some system of refunds, rebates, or subsidies would create a regressive taxation system. Potential Pros for a National Sales Tax include: The elimination of all income taxes. Social cost. Quite similar like transportation and consumption tax, sales tax is also an indirect tax because it is directly embedded into the purchasing price of the goods and services. I love writing about the latest in marketing & advertising. At the end of the process, the garment maker will sell garments to a retailer who will charge the sales tax on the garments sold along with the price of the garment. That potential provides a lot of hope for those who are struggling with their incomes right now. Featured Story Internet Sales Tax is a "Money Grab" and a "Job Killer" By Diane Alter, Contributing Writer, Money Morning-April 25, 2013. For example, a citizen who earns $100,0000 annually will pay significantly high taxes than the citizen who earns $100,000 annually. The Pros & Cons of Regressive Taxation By Chris Joseph A woman pulls out cash from her wallet to pay for her goods and the sales tax. Pros and cons of a national sales tax. A sales tax levied on every product has to be taken care of. Now add in the expected 30% that would be required for a national sales tax and every product has a 40% tax upcharge. Citizens of a country are taxed differently depending on their incomes. Sales tax imposed on goods increase the prices of the goods, which results in a decrease in the demand for the product. Home » Pros and Cons » 12 National Sales Tax Pros and Cons. 1. However, tens of millions of the working poor currently pay zero income tax (Remember that the standard deduction, personal exemptions, tax credits, etc. Browse more videos. With national debt issues looming in the background, social programs that are chronically underfunded, and a progressive tax structure that has thousands of pages of complication, many Americans are looking for an alternative taxation solution. This was raised to 5% in 1997 and to 8% in 2014. A flat income tax is notably simpler than a progressive tax. The Cons of a National Sales Tax. Definition and Steps, What is coaching? Required fields are marked *, Copyright © 2020 Marketing91 All Rights Reserved, What is Sales Tax? There is a good chance that this could cause home prices to drop dramatically because there would no longer be a market for a home. 1. The high tax on certain goods like cigarettes and alcohol make a huge burden on consumers. Sales tax is incurred on each item whether it is bought to use as a day-to-day necessity or for luxury. These taxes discourage industries because of the high cost of production and less profit. Which confuses end payers and they have to maintain detailed records to avoid legal issues. National Sales Tax vs Income Tax essaysThe National Sales Tax vs. What is Sales Prospecting & its role in Sales? ", 8 Eye Opening Employee Appreciation Stats, Spotify SWOT Analysis for 2021: 26 Strengths and Weaknesses, Uber SWOT Analysis for 2021: 23 Major Strengths and Weaknesses, Netflix SWOT Analysis (2021): 23 Biggest Strengths and Weaknesses, Tesla SWOT Analysis (2021): 33 Biggest Strengths and Weaknesses, 14 Core Values of Amazon: Its Mission and Vision Statement, Is AliExpress Legit and Safe: 15 Tips for Buyers, How Does Zoom Make Money: Business Model Explained, A Look at Southwest Airlines Mission Statement: 10 Key Takeaways, Apple’s Mission Statement and Vision Statement Explained, How Does WhatsApp Make Money: Business Model & Revenue Explained. Ireland has introduced an interesting law, which has placed a 15 cent tax on the plastic bag. 5. The sales tax does not develop civic consciousness, because taxpayers are not aware of the tax they are paying as it is embedded in the price. Shadow Pricing: Meaning, Examples, Advantages, Uses, and Limitations, Sales Broker: Role, Advantages and Disadvantages Explained, What is Sales Compensation? Elements, Importance and Advantages, What is Sales Channel Development? The Fair Tax Plan is a 23% sales tax that would replace the current U.S. income tax. The national retail sales tax proposal would repeal the personal and corporate income tax code and replace it with a tax on all final sales of goods and services to consumers. Report. Whether someone is in the country illegally or they are purchasing items to turn into black market products, the point of sale is still going to happen in some way, shape, or form. 6. Several Republican presidential hopefuls have stated their support of the “Flat Tax.” Ted Cruz, Ben Carson, and Rand Paul have all expressed interest in a tax reform plan that moves our current code to a new “Flat Tax.” As a result, there is renewed interest in what a Flat Tax is, what its pros and cons are, and how it could impact different taxpayers. Many communities have a state sales tax that approaches 10% – if it isn’t above it already. Pros & Cons of Internet Sales Tax. That would reduce the value of all retirement accounts and potentially encourage households to look at other options. One of the main benefits of a national sales tax is that the increase in sales tax paid is offset by a decrease in the income tax paid. National Sales Tax. This tax-advantaged account is funded with post-tax dollars. It would eliminate double taxation issues on certain types of business income. It creates a truly equal system of taxation. For a household earning $100,000, the effective tax rate is around 21%. Sales tax is only charged by the end user of goods and services because a product passes through several manufacturing stages which are operated by different entities and it will require a huge amount of documentation to prove who should be responsible for paying sales tax. Tax Policy. I am a serial entrepreneur & I created Marketing91 because i wanted my readers to stay ahead in this hectic business world. Retail stores, for example, might add a 30-percent charge to every purchase and then forward what they collect to the federal government. Irrespective of income, this tax is imposed only on people who buy a particular product. For example, a citizen who earns $100,0000 annually will pay significantly high taxes than the citizen who earns $100,000 annually. 6. National Sales Tax – Pros & Cons 3 One notable positive about having the United States switch to a sales tax system would be that households could control how much tax they pay by controlling how much the spend or consume. Because more people would be affected by a national sales tax, the end result would be additional funds being raised to meet the needs of the people. From my understanding, the concept of a national sales tax is to get rid of federal taxes and replace them with a sales tax of 15% flat. In the early years of the United States, its citizen did not have a lot of taxes imposed by the government. ... National Tax Lien Association. The progressive system of taxation in place puts a greater burden on those who earn more money. Most low-income households that earn $40,000 or less in the U.S. have an effective tax rate around 13%. A VAT would eliminate (so advocates assert) the labyrinthine U.S. income tax system, since the VAT is so much more efficient and would bring in more revenue. Consumers pay the tax, which is a tax on consumption. Hence, the cost of manufacturing products will increase and consequently, the price of the final product will increase which will become a burden on the pocket of the final consumer. Everyone has to pay the same price to buy a product. Japan first introduced a 3% consumption tax back in April 1989. According to this article: Value-added tax as I understand it, there ultimately isn't that much difference from the consumer's point of view. Although the same percentage would be paid at the register, low income families would wind up paying a greater percentage of their income to taxes than those in the wealthier brackets. A similar study by the National Bureau of Economic Research in 1999 concluded that applying existing sales taxes to the Internet would slash the number of online buyers by 25 percent and reduce online purchases by 30 percent or more, thereby damaging one of the leading sectors of … 4. People could control how much taxation affects them. The national sales tax would fall between 23% and 30%. The national sales tax pros and cons show that there is some potential for this idea, but there are some problems that need to get worked out as well. AdvAntAges • The property tax is a more stable and reliable revenue source than any other tax. 1. Sale tax has quite a lot of similarities with the use of taxes, which is applicable to the purchaser when he buys a product outside his jurisdiction. 2. Those one-time charges would be it because they could then eat the food grown without being taxed for it. Pros and cons of a national sales tax. Importance, Types & Uses. 5. This means that annual filing of income tax forms through the IRS would also be … prevent many Americans from paying anything for federal taxes). Knowing the advantages of the sales tax has benefits for those on any side of the issue. Although switching over to this system would save money potentially in the long-term, there would be huge short-term expenses that would come from the building of the new infrastructure. It penalizes low-income earners Low-income earners, well, earn much less than others. Think of it like a sales tax, but on a much larger scale. Flat Tax Vs. National Sales Tax. Just because Income Tax is an amendment doesn't mean we are forced to use it. The initial state levels of sales tax started small and have been building upward ever since. Upon retirement, when distributions are taken from the fund and used to purchase items, that post-tax money would then be fully taxed a second time with the presence of a national sales tax. The pros and cons of a National Sales Tax. Abe has postponed the hike to 10% two times over concerns of the economic impact. Different sales tax is levied by different jurisdictions, which usually overlap to increase the final price of the goods because of states, countries, and municipalities each levy their own different sales tax. It would lower business taxes. Sales tax increases the burden on the manufacturing industries. Economically speaking, sales tax is an excise tax. The Bottom Line. The sales tax does not produce any revenue to the seller. It would create systems of double taxation. The tax-exclusive sales tax rate is the ratio of the tax to the pretax price (that is, the tax payment is excluded from the denominator). to add an Internet sales tax to all goods purchased online. The national sales tax would fall between 23% and 30%. It could replace the income tax and the 6.2% employee portion of the Social Security tax. Tax policy pros also warn a national sales tax … A national sales tax would be a consumption tax, meaning that people would pay it every time they make a purchase. Increase In Revenue Simply raising the taxes on junk food is not enough to make people stop their consumption. In this example, it would be 30 percent (30/100). Phases, Advantages and Disadvantages, What is Sales Growth? 1. A flat tax is not fair to low income families. Use taxes have quite same rates as sales tax but they are difficult to enforce, hence, they are applied on a large purchase of the product. Without subsidies or refunds in place, it would become a regressive tax structure. The pros and cons of VAT A last resort. More money coming into the budget with the potential for households to be spending less in taxes every year. Only the top 10% of incomes would see a tax cut. The end result could be an economic benefit that has rarely been seen in the US or anywhere else in the world. So a change to a national sales tax plan reduces the disincentives to work, and workers as a whole would likely end up working and earning more. That’s because property values are usually less susceptible to short-term economic fluctuations than other major revenue sources, including sales and income taxes. Pros and Cons of a New Tax on Banks. 1. With a national sales tax in place, the need for income taxes would disappear. Advantages of growth Possibly the greatest competitive advantage of business growth is the ability to capitalise on the economies of scale . People don’t like a flat tax because a true flat tax impacts taxpayers disproportionately even though the tax is proportionate. What is a Sales Contract? Most of the times, poor citizens are exempted from paying any type of tax and a large part of the government’s revenue is spent on poor citizens. In order to learn more about the pros and cons associated with a junk food tax, read on. Unlike other types of taxes, the collection of sales taxes embedded in the price of the goods and services. The sales tax causes an increase in the price of a product. sales tax on these goods is kept high to reduce their consumption. If the proposed 14.5% flat tax is approved, the wealthier households get an effective tax cut, … It may or may not replace the existing national tax system and would be in addition to any state sales taxes. That’s because property values are usually less susceptible to short-term economic fluctuations than other major revenue sources, including sales and income taxes. Here are some of the pros and cons to consider for this idea. Oct 9, 2015 Oct 7, 2015 by Editor in Chief. 10 Biggest Pros and Cons of the Fair Tax Act. The IRS would become obsolete, and your net income would no longer have anything to do with how many exemptions you can claim. Only five states have no general sales tax. 5 years ago | 3 views. To reduce the burden on the poorest consumers, sales tax laws generally exempts essential goods like food from the tax. The ultimate cold calling guide - Use cold calls to your advantage. Heather Horn. Follow. Quality and Skills of a Sales Consultant. You can follow me on Facebook. The tax on salt is not a burden on a rich person, whereas, it is a huge burden on a person with low income. No, a federal sales tax would be difficult and confusing. This would create scarcity in the used market, raising the prices for everything used because there is more demand for it. What is Primary sales, Secondary sales and Tertiary sales and what factors determine them? Under the fair tax structure, business income would get rid of all payroll taxes. May 2, 2019 By Hitesh Bhasin Tagged With: Sales management articles. National Sales Tax – Pros & Cons 2 A National Sales Taxing System in the United States Within our country’s history, there has been changes made to our forever changing national tax system. Let’s use the Roth IRA as an example. The sales tax is automatically collected when goods and services are sold. To do this, the government needs to have a team of administrative people to manage everything effectively. Sales taxes are not imposed on everyone. The FairTax, if implemented would replace most U.S. taxes with a national sales tax at a 23-percent tax inclusive (equivalent to a 30-percent tax exclusive) rate. This would mean that equality would hit the system of taxation so that no matter what someone’s socioeconomic status happens to be, they are all putting equal skin into the game. Revenue generated from sales tax is uncertain, because of the demand for products in the market. United States income taxes are very complex. 2. This move on paper looks like it … internet sales tax pros and cons. Your email address will not be published. You should carefully consider the pros and cons of expansion before pursuing business growth. 3. http://www.REIClub.com Are Tax Sales a Good Investment For Real Estate Investors? A national sales tax that does not have some system of refunds, rebates, or subsidies would create a regressive taxation system. - a national sales tax will not be enough money for the government - it will encourage states to get rid of their sales tax, giving them less money - states will either continue income tax or increase sales tax significantly, starving the poor - There is a very severe problem of taxing business inputs under a sales tax. Tax Lien Investing Pros And Cons. A small amount of tax on each item does not feel too high to the taxpayer, but these collected small amounts will generate a large amount of revenue for the government which can be used for the well-being of the nation or for the well-being of the nation’s citizens. What is Benefits Administration? Let's stay in touch :), Your email address will not be published. Here are some of the results. Trade Discount - Difference Between Trade Discount and Cash Discount? Without subsidies or refunds in place, it would become a regressive tax structure. Therefore, it is easy for both tax collector as well as for the taxpayer. The tax is imposed on the money as it is paid into a household. January 12, 2010 Link Copied. With existing mortgages, this could create a lot of underwater homes and high levels of debt that would replicate the same crisis of 2007-2009. 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