Crazy plan X - discuss

[essentialsaltes]

California tax revenues 2009-2010 (see figure 8):

personal taxes $47B
corporate taxes $8B
sales taxes $26B

Pertinent facts:
Sales tax in my hood is a ridiculous 10.25%.
Sales taxes are regressive.
I chortle with glee when I order something on Amazon and pay no sales tax. Even if I had to pay for shipping (which I never do!) it can still be cheaper than paying sales tax. Of course, I always send a big check to Sacramento to cover all my online purchases every year!

Proposal:
Eliminate sales tax and increase income and corporate taxes.

Positive(?) Effects:
more progressive tax
encourages consumption of California goods and services
eliminates online tax loophole
pleasant shock at cash registers everywhere

Negative(?) Effects:
rich people whining
horrifying shock on paychecks everywhere
some people are unable to calculate tips

Comments

[essentialsaltes.livejournal.com]

Using mathemagics, it looks like increasing personal and corporate taxes (each) by 47% would make up for the elimination of sales taxes.
This would raise the corporate rate to 13%.

If the company was less dickish, and raised the price to $10.20, then...

$10.2M revenue
$4.2M profit
x 13% tax = 0.546M tax
leaving $4.2 - .546 = 3.654M after tax profit
slightly more than under the current system.

CA consumers would see a lower total price, which might help sales, but California consumers will have less disposable cash, since it's been pulled out of their paychecks. In principle it all evens out, except that the tax burden falls more heavily on people who (typically) save money rather than spending it.
If the widget company's local suppliers are also less dickish, then the widget company's costs will decline, increasing profit.
Sales outside California might be negatively affected by the higher price.

In your final scenario (using the $11 price), the $8 million profit at 13% tax would yield $1.04M in taxes, leaving the company with nearly $7M, more than in the old system.

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My main problem with a naive implementation of my plan is that it is too progressive. Right now a poor married couple making $13,000 spends all of that (and maybe more!) contributing to sales tax revenues. Removing food and other taxfree purchases, maybe 5% gets to the state or $650. For income tax, with a standard deduction of $7K, the remaining 6K is taxed at 1%, or another $60. Total tax bill of $710. My plan would eliminate sales tax, but add 50% or so to the income tax. Total bill $90. Yes, it's nice to give poor people $600, but when I work the numbers for me, I start to consider the merits of the tea party. Of course, I don't have a good feel for how much sales tax I give the state, but I know I don't spend all my money. But I think a 'fairer' implementation would make the income tax somewhat more regressive, to make up for the hugely progressive nature of the elimination of sales tax.