Quote:
Originally Posted by Big Fo
I thought that 40% was the amount of people that didn't pay federal income tax but there were still payroll taxes, state taxes, etc.
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We often hear that sort of statement here (Australia) and what they mean is that many people pay taxes out of their income but also receive payments from government in various forms (rebate on child care sort of thing, health insurance etc) and the net result is that 40% (or whatever) receive more or equal to what they pay in taxes and therefore have a net tax rate of zero or less.
So, taxes are paid but cancelled out by various rebates.
Most other countries, certainly Britain and Australia, have reformed the tax system so that a "consumption tax" (value added tax in Britain, a goods and services tax in Australia) have taken over much of the tax burden from income tax. Such a tax avoids the arguments over "income redistribution", everybody (including the unemployed and pensioners) pay tax when they "consume" and the rich's efforts to avoid tax with their various schemes are countered.
At first this seems to load the tax burden on the lower end of society because it's a flat rate tax but because the rich's schemes are to some extent foiled the figures have seemingly worked out that the bottom end doesn't in fact take on any greater share of the burden. There is still a graduated income tax but it's no longer as onerous as it was.
It also has the advantage of being a far less painful way of paying tax (without affecting the amount paid). As a self-employed worker I know the pain of having to write out a cheque for several thousand dollars whereas paying an extra 3 dollars on a restaurant bill, an extra ten on a food bill, a couple of extra for a haircut doesn't hurt nearly as much. In fact it quickly blends in into the accepted cost of living.
Even in the recent US debates I have seen it suggested the US should follow suit, remove state sales taxes and cut federal income taxes and replace with a federal consumption tax.