>doesn't really make much sense. Of course investments are pre-sales tax. The sales tax applies after the investments are liquidated to cash and the cash is used to purchase stuff.
Say you have 100$ and you're rich. You invest that in the markets, compound for 40 years and end up with 4500$. You then get to pay sales tax on that after you've gotten your capital out multiple times over. If you're poor though you spend all the 100$ and pay tax right at the beginning, so you don't get to benefit from the compounding of your earnings because you have to use the money right away and thus have to pay the sales tax right away. Compounding is extremely important over even a single lifetime and rich people get to use it over generations.
>Let's say our hypothetical person is "rich", but it doesn't translate into extra consumption spending, then what's the point of being rich? It's not like he's getting anything out of it.
People put a very high value on aquiring wealth to pass on to their heirs. And even without that if what you buy is property there is no sales tax and you get to use that property throughout your life. If what you buy is investments you get to defer consumption till later and thus get much higher incomes through capital gains and thus pay all your sales taxes from investment gains of the pre-tax money you don't need to spend on day to day spending.
>You do have a point about estate taxes not affecting the majority of people, but estate taxes do affect estates with value greater than $5MM, and I'm working with the assumption that you and I are discussing "rich" people. The marginal estate tax in the U.S. ranges from 18% to 40%, which is higher than any sales tax.
The estimate from Wikipedia is that estate taxes apply to 0.2% of estates. That's what I mean by estate taxes being completely irrelevant for this discussion. The 0.2% of cases where your argument apply get to use all sorts of other tricks to avoid taxation, this is just about the difference between the people living paycheck to paycheck, the ones that get to put a little away and the affluent middle class. For all those 99,8% of the population estate taxes are irrelevant and sales taxes are extremely regressive.
If a poor person earns $100 and spends it, they're paying ~$9 in sales tax in my hypothetical world of 10% sales tax. The rich guy who earns $100 and invests it, spends $4500 and ~$409 (about 9%) of it goes to sales taxes. Sure, he gets 45x the value of purchased goods, but he also pays 45x in taxes.
Did you lose track of the topic of conversation? It looks like you're just detailing the ways that it's better to be rich than poor.
I was responding to ChrisSD's specific point many comments ago that: "Taxing spending tends to be regressive." To the contrary, it looks like it's neither regressive nor progressive. (I don't know the word for that. "Neutral", maybe?)
You're ignoring my actual points to just restate your conclusion. Money you use to buy properties doesn't pay sales tax, money you use to pass on to your heirs doesn't pay sales tax, money you get to save because you have surplus only pays sales tax after you've gotten your initial capital out multiple times so the sales tax on the initial income is 0.
But lets classify that investment gain as income as well and ignore that bit. Do you actually have any doubt that poor people spend a higher percentage of their yearly income on things where sales tax applies? That they buy less properties, invest less and then pass on less of a percentage of their lifetime earnings to their children?
Say you have 100$ and you're rich. You invest that in the markets, compound for 40 years and end up with 4500$. You then get to pay sales tax on that after you've gotten your capital out multiple times over. If you're poor though you spend all the 100$ and pay tax right at the beginning, so you don't get to benefit from the compounding of your earnings because you have to use the money right away and thus have to pay the sales tax right away. Compounding is extremely important over even a single lifetime and rich people get to use it over generations.
>Let's say our hypothetical person is "rich", but it doesn't translate into extra consumption spending, then what's the point of being rich? It's not like he's getting anything out of it.
People put a very high value on aquiring wealth to pass on to their heirs. And even without that if what you buy is property there is no sales tax and you get to use that property throughout your life. If what you buy is investments you get to defer consumption till later and thus get much higher incomes through capital gains and thus pay all your sales taxes from investment gains of the pre-tax money you don't need to spend on day to day spending.
>You do have a point about estate taxes not affecting the majority of people, but estate taxes do affect estates with value greater than $5MM, and I'm working with the assumption that you and I are discussing "rich" people. The marginal estate tax in the U.S. ranges from 18% to 40%, which is higher than any sales tax.
The estimate from Wikipedia is that estate taxes apply to 0.2% of estates. That's what I mean by estate taxes being completely irrelevant for this discussion. The 0.2% of cases where your argument apply get to use all sorts of other tricks to avoid taxation, this is just about the difference between the people living paycheck to paycheck, the ones that get to put a little away and the affluent middle class. For all those 99,8% of the population estate taxes are irrelevant and sales taxes are extremely regressive.