Income taxes can be made progressive. Sales taxes are almost always regressive. Businesses need to do a lot more paperwork to document these taxes.
Why don’t leftist parties campaign to abolish sales taxes and replace the lost revenue with an increase in a progressive income tax?
Am I missing some critical functionality of sales taxes that income taxes cannot replicate?
Edit: Here’s an important feature of sales taxes that a few commentators helped me realize. It’s better if we think of a sales tax as a “revenue tax” instead. Let’s say we are in a country with multiple provinces. A business sells stuff in province A. However, the business and its owners are both located in province B. If sales tax didn’t exist, then all money earned by the business would go to province B’s government. Province A cannot enact tariffs and stuff like that. Thus, it puts up a “revenue tax” that is taxed to business for all revenue earned, i.e., a sales tax.
For those wondering, no, a corporate tax is not a revenue tax. It’s a tax on profit. Non profits for example, do not pay any corporate tax, but they do pay sales tax (which is basically, revenue tax).
They’re very different, but sales tax does at least two things that income tax doesn’t:
It taxes consumption. If you consume a lot, you pay more sales tax than someone who consumes less.
It taxes the value of the markup on sales transactions. It takes a long time for money to reach the government through company taxes and income taxes. Sales taxes are instant on the transaction. A business buys a product and pays a sales tax to the supplier, and this is deductable. It also sell the same product with a markup, and collects a higher sales tax from he consumer. This difference is payable to the government. Focusing only on this product in this company, the government gets the tax from the markup almost as soon as it happens.
A negative side of sales tax is that it affects poor people more than the rich simply by being a higher percentage of their disposable income. It’s worth noting though that retail pricing is highly psychological. Whenever sales taxes change, the prices usually revert backto whatever price people are willing to pay regardless of how much of the price is taxes and how much is profit.
Usually in the US items purchased for resale are tax-exempt. A restaurant, for example, would have a resale certificate on file with their suppliers. Any food, beverage, and disposables they get would have no taxes since they are expected to sell those to a consumer. Cleaning supplies, however, are outside the bounds of their resale cert, so they would pay sales tax on those items.
Also, sales tax is not remitted to the government instantly in the US. I think it’s done quarterly, but I’m not exposed as much to that side of it.
USA is different from the majority of the world on this by having an actual old school sales tax. Other places have value added tax instead. The difference is basically purely administrative. In both cases it’s the final price at consumption that determines the actual government income.
By instant, I mean monthly or quarterly. It’s still much shorter than the annual company tax which itself is only a pre-payment of the owners income tax which would occur several years after the income transaction was made.
Why would you want to tax (in this case, discourage) consumption though? Isn’t it a good thing when exchange of goods and services for currency happens more in the economy? Let’s take the example of bread. I am better at programming than making bread. Therefore, it is good for everybody if I program more and if the baker bakes more. However, an introduction of sales tax has discouraged me from buying bread. I thus find it more economical to bake my own bread. This is bad from all angles - the baker’s income decreased, the government’s income tax revenue decreased, the baker ain’t going to get better software which I could have made and I’m not going to get better bread.
Makes sense.
The functionality of being able to disou certain products is something that has been introduced later with differential taxes etc. The initial intention of sales tax is simply to have a transactional taxation.