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Consumption (Sales) Taxes

Consumption (Sales) Taxes. Taxes On Most Transactions. Multi Stage Taxes: Turnover Taxes. A.k.a. cascade taxes Simple in concept, terrible in application Tax can be passed on to next stage in production, merchandising process Prices go up dramatically Favors vertically integrated firms.

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Consumption (Sales) Taxes

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  1. Consumption (Sales) Taxes Taxes On Most Transactions

  2. Multi Stage Taxes: Turnover Taxes • A.k.a. cascade taxes • Simple in concept, terrible in application • Tax can be passed on to next stage in production, merchandising process • Prices go up dramatically • Favors vertically integrated firms

  3. Multi Stage Taxes: Value Added Taxes • Each purchaser (except end consumer) gets to deduct the portion of a purchase attributable to the supplier's VAT • Self enforcing • Popular in Europe (Canada's GST???) • Periodically proposed in U.S.

  4. Taxes On Retail Sales: The U.S. Approach • Two versions • General • Excise (one specific good or service)

  5. General Sales Taxes • Begun by Mississippi during Depression • Property tax revenues disappearing • “New” revenue source • Quickly • Criticized by one & all as another example of that State's backwardness • Copied by most other states

  6. General Sales Taxes • Base: all retail sales • Erosion • From downturns in economy (people purchase less) • Via policy decisions • Services • Food • Medicine

  7. Erosion, cont. • Via administrative discretion, e.g. • Garage sales • Certain individual transactions

  8. General Sales Taxes: Usage • Is a key revenue source (along with IT) for states • 45 states have one • Is a major revenue source for states. In 2000 (per the 2002 Statistical Abstract of the United States): • 45 states used general sales taxes, all 50 states employed some form of excise taxation • Roughly 18% of states’ total self-generated revenues were from general sales taxes • Roughly 26% of states total self-generated revenues were from general sales and excise taxes • Many states allow local S.T. Such taxes represent a major local revenue source in a few states

  9. Criteria • Productivity • Elasticity • Incidence • Equity (ability to pay v. benefit) • Neutrality • Effectiveness • Political Acceptability

  10. Consumption (Sales) Taxes Taxes On A Single Good Or Service: Excise Taxes

  11. Excise Taxes • There are a number of them • Mostly state level, some federal • Are interesting, in a certain sense

  12. Criteria • Productivity • Elasticity • Incidence • Equity (ability to pay v. benefit) • Neutrality • Effectiveness • Political Acceptability

  13. Excise Taxes: Why Have Them? • Easy (cheap) to administer • Cumulative revenues can be significant • But not able to rival broad based tax revenue potential • Enhance tax system's progressivity

  14. Why Have Them, cont. • Regulatory mechanisms • Sumptuary reasons (“sin taxes”) • Revenue stability • Shift tax burden • Earmarking for benefit taxation, e.g. gasoline excises

  15. Excise Taxes Per Gallon (Per Ohio Department of Taxation, 2008) Ohio Excise Tax 28 cents 18.4 cents (gasoline) U.S. Excise Tax 24.4 cents (diesel)

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