Sales Tax Pyramid Scheme

[Trurl]

Sales tax Pyramid Scheme

 

 

Ok say I buy something for$100 + $6.00 sales tax. Then the person I bought from buys something for $100 + $6.00 sales tax. And so on and so forth for n, the number of money transactions.

 

Does that mean that on $100 the government just make $6.00 * n. And after $100 / $6 times the government is making more money than the original $100?

 

So the act of saying $100 is worth so much in gold, actually makes more than the value of the gold? And then transfer of money is promoted because it generates more value?

 

And you thought bitcoin was a scam.

Edited November 29, 2023 by Trurl

[pzkpfw]

I don't think that's a valid way of looking at it as you neglect to include where the $6 comes from.

It's from income (e.g. the money you spent minus the tax), and isn't infinite.

Start with the $106 that you got from somewhere. You buy that $100 thing and $6 goes to tax.

In your next step, that 2nd person starts with the $100 they got from you. They might buy something for $94.50 + $5.50 going to tax.

The third person spends that $94.50 as $89.50 with $5.00 going to tax.

... it's not generating infinite tax. All that taxed money still had to come from income somewhere.

 

(I'm tired, I'm making up the specific numbers.)

Edited November 29, 2023 by pzkpfw

[Ghideon]

1 hour ago, Trurl said:

Ok say I buy something for$100 + $6.00 sales tax. Then the person I bought from buys something for $100 + $6.00 sales tax. And so on and so forth for n, the number of money transactions.

What fiscal system is that? In a typical sales tax system, the tax is levied only on the final sale to the consumer. Your description does not match any existing system that I am familiar with, so I'm curios.

[Trurl]

It isn’t a tax system. I am just raising the question is taxing money making more revenue.

I used sales tax as an example. With every purchase or transaction there is 6%. The cost is $100 to purchase each time. So one person buys something for $100 and pays $6 sales tax. The person who receives the money makes their own purchase of $100 and so forth.

So the same $100 generates revenue more than its original value over time. More transactions means more $6 in tax fees.

 

[swansont]

49 minutes ago, Trurl said:

It isn’t a tax system. I am just raising the question is taxing money making more revenue.

I used sales tax as an example. With every purchase or transaction there is 6%. The cost is $100 to purchase each time. So one person buys something for $100 and pays $6 sales tax. The person who receives the money makes their own purchase of $100 and so forth.

So the same $100 generates revenue more than its original value over time. More transactions means more $6 in tax fees.

 

It’s not the same $100. At the very least, it’s $94 after the first purchase. You’re adding an extra $6 in each step. But yes, more transactions means more tax. But it also means more income for the business in each step, and more income for the workers. The government is not the only beneficiary of a robust economy.

$100 spent does not generally turn into $100 profit, that can be spent in the same fashion. The item purchased had some wholesale cost, and there is value added by labor.

Not all money that is spent is subject to sales tax

[Sensei]

When you buy something for $106 gross, $100 is the net amount and $6 is the tax amount. Then, from this $100, the seller must subtract CIT ("corporate income tax") https://en.wikipedia.org/wiki/Corporate_tax , the rest must be used to purchase goods in the warehouse or to production, employee salaries and other bills.

 

[Trurl]

I realize that I didn’t use an official tax system. I just wanted to illustrate that tax compounded makes more for the government than the amount of money they tax.

I choose sales tax. In high school we are taught this is the most fair tax. The more you spend the more your tax. And everyone pays the same rate. But like most taxes I think the more money you have the less the tax affects you.

But imagine a flea market with dealers buying from one another. Each spends $100 on an item from the other dealer and pays $6 tax on every $100. The $6 is additive. You still need $100 to purchase, but you must add the $6 tax. The tax is subtracted from the individual buyer each time they spend. The $100 is constant.

I am trying to illustrate that the tax has the potential to generate more tax than the original payment of goods. I don’t think this is new. I think it is inherent in taxes themselves.

I would say the inability for governments to track transactions of cryptocurrency is why they want cryptocurrency to fail.

I know if you have tax it takes away from the amount of money you have left. But money transfers it is never destroyed. I am not an economics expert, but somewhere somehow someone has mapped the movement of money between taxpayers and the amount of tax revenue generated.

[iNow]

3 hours ago, Trurl said:

I would say the inability for governments to track transactions of cryptocurrency is why they want cryptocurrency to fail.

By this logic, governments want cash to fail too, yet they’re the ones creating it so more likely your assertion is nonsequitur. 

3 hours ago, Trurl said:

money transfers it is never destroyed

It’s fungible. That’s the word to describe what you mean, but it can be “destroyed” in special circumstances. 

[Endy0816]

6 hours ago, Trurl said:

 

I realize that I didn’t use an official tax system. I just wanted to illustrate that tax compounded makes more for the government than the amount of money they tax.

I choose sales tax. In high school we are taught this is the most fair tax. The more you spend the more your tax. And everyone pays the same rate. But like most taxes I think the more money you have the less the tax affects you.

But imagine a flea market with dealers buying from one another. Each spends $100 on an item from the other dealer and pays $6 tax on every $100. The $6 is additive. You still need $100 to purchase, but you must add the $6 tax. The tax is subtracted from the individual buyer each time they spend. The $100 is constant.

I am trying to illustrate that the tax has the potential to generate more tax than the original payment of goods. I don’t think this is new. I think it is inherent in taxes themselves.

I would say the inability for governments to track transactions of cryptocurrency is why they want cryptocurrency to fail.

I know if you have tax it takes away from the amount of money you have left. But money transfers it is never destroyed. I am not an economics expert, but somewhere somehow someone has mapped the movement of money between taxpayers and the amount of tax revenue generated.

Sales tax is indeed regressive.

https://www.investopedia.com/terms/r/regressivetax.asp

That being said it's not a pyramid scheme or at least no more so than any other tax is.

Crypto is trackable via the blockchain. Government's problem with it is that they can't increase the effective quantity to pay off their debts.

3 hours ago, iNow said:

It’s fungible. That’s the word to describe what you mean, but it can be “destroyed” in special circumstances. 

Converts penny to souvenir coin.

Edited December 6, 2023 by Endy0816