Instead of trying to parse differences between this and that kind of product, why not simply exempt spending up to the poverty level from the sales tax? The oft-discussed 'fairtax' proposal contains such a clause (monthly tax rebates).
I think there are two challenges to this runaround. Firstly, while there may be a government-determined definition of the Poverty Line, it does not address the reality that a) someone earning $5 more than the poverty line isn't, in fact, also poor and that b) the current poverty line is generally agreed to be well below what households actually need to meet basic needs (and so it would have to be revised).
Secondly, a monthly tax rebate, if I understand it correctly, still asks the individual/household to spend the money first. We're talking about food clothing and shelter as your basic class of necessities here and not having the money to begin with (to buy a $12 loaf of bread) means not being able to feed, clothe or house yourself and your family. That's pretty serious.
This all sounds an awful lot like my Cafeteria Health Spending Plan which is annoying as heck, even though I save about 25 percent on health related purchases. Saving the receipts, going through the book to determine what is allowable and what is not, keeping track of what has been taken out so far - oh, is that a child care or health expense?, those are two separate accounts so one has to be careful! Its all a bit too much.
I think the tax code needs to be revised, but I am happy to pay my taxes and I think a flat tax would benefit the rich far more than the poor.
Well, who defines who is 'rich' and who is not? And then, high tax rates at upper ends punishes exactly that which we want to encourage, that being innovation, success, job creation, etc. Hammering the job-creating class with confiscatory tax rates only results in less economic activity and fewer jobs. (Note, for those who try to tell me otherwise, ALL investors want a certain level of *after tax* return on their investments and if more of those earnings are seized by the government, costs will have to be cut elsewhere in order to make up that difference - and what is the easiest variable cost of all for a business to control? - Labor.)
It really doesn't matter what you define as rich and poor when you are measuring the differential between the two. The point in economics when measuring income gaps is looking at the distribution of income along the continuum from those who make the most to those who make the least. To be stable (politically and economically) you want a lot of folks in the middle. What we are seeing now is a very strong trend (and again, more than any other industrialized nation) toward a small cluster at the high end, few in the middle, and the largest cluster at the low end. This distribution makes for an unstable economic and political environment and is bad for the nation as a whole. IMHO
As far as job creation, the "expected" after tax profits of a given class of people or business owners is a shifting target. When times are good, people expect higher profit, when times are bad, they expect less. The main thing, economically, is that these folks want to leverage their wealth to make more. So, even if the tax burden is higher this year than a few years back, the incentive to use what profit and excess remains to make more remains. Keeping it under the mattress will not make more money. In fact, many would argue that smaller profits (but still profits nonetheless) are just the kind of incentives needed to spur further innovation. If you can' t influence the tax code, focus on modes of production.
I have a hard time seeing the wealthy just sitting on their money and pouting because the tax rate went up. I expect them to fight it and try and convince the rest of us to get on board, but giving up trying to make money is not a likely scenario to me. There will be bitching, but there will also be innovation.
Labor costs are only one of the factors that industry manipulates to keep costs down or increase profit. Materials (getting them cheaper or finding better, more affordable ones), units produced over time (might not have to do with more or cheaper labor, but just better equipment), innovation in terms of effectiveness of products and how quickly you can get them into production, etc. all play a role. I think this argument that suddenly these big corporations are going to start laying people off the day after tax filings is a red herring.
Remember, we are not INCREASING taxes on the wealthy, we are RESTORING the tax rate that existed when the TEMPORARY (and stated so at the time) Bush tax cuts were established. I don't think any wealthy person who pays any attention to money could have been under the impression that the Bush deal was intended to be permanent. Would they like it to be? sure, but there was no suggestion made that it would be from the get go, so I really don't get what all the brew haha is about. :-{
We are a consumer based society and all this focus on the wealthy "job creators" overlooks the fact that we also need a middle class with extra cash to buy all this stuff. They are also the job creators - they create the demand for the products and services. This idea that the wealthy will grace us with more jobs if we give them more back in taxes tends to obscure the nature of this exchange. We all need to come up together and there is no doubt that the wealthy have been building their money bags much quicker than anyone else in the nation. That will serve them poorly in the long run as well as demand for consumer goods declines.
