I don't have a mortgage. My house is worth a great deal more than the stated $100,000 sale price , in the example, and my income is substancially higher than the $40,000. Now, I decide to sell my present house and buy another. Right now, up to $500,000 of what I make, over what I paid for this place and the improvements made to it, over the years, is tax free. I don't have to pay a consumption tax, should I decide to buy another house/ co-op / condo.
With the consumption tax in place, I have to hope that my buyer will show up and not have a heart attack, about getting a mortgage and paying a tax on the asked for sale price. Then, I, in turn, will have to pay a consumption tax on what I buy, and pay a percentage to the realestate lady; TWICE. Maybe I don't like THAT and decide to stay here, when I'd rather or need to get out of here. Multiply that scenario, all over the country and a HUGE problem arises.
Oh, and as I stated earlier, in the places , that I am familiar with, $100,000 will buy a shack; if you're lucky. So, let's say that it'ss only be the poor, who actually buy and sell homes. How much money would that bring in ?
Yes, a consumption tax WOULD get those on the " underground economy " to pay something ; at last. What it would also do, is to stop, stone cold dead in its tracks, wealthier people from buying very high end goods and services. There would also be some sort of new " underground economy " dealings. There always are.
Interest rates, BTW, are at an all time low, right now. That isn't helping the economy.
I don't care about the $100,000 price... sell price is all relative.
Let's say $500,000. How much must you earn to buy a $500,000 house in cash (no mortgage). If your avg income tax rate is 28%, then you must earn $500,000 / .72 = $694,444.44.
If there is no income tax, then you must earn the price of the house + tax. Let's say the tax rate is 25%. How much will you have to earn to buy the house?
$500,000 * 1.25 = $625,000.00.
and for your final comment about interest rates... I will try to keep this simple. Let's say you had been wanting to start a business, but the cost of capital was too high. Well, one year ago, interest rates dropped like a rock, so you borrow money and start a business. How long do you think it would take, on average, to create a profitable venture that employs several people? It does not happen immediately. To say interest rates dropped 6 months ago, but you don't see immediate results is looking far too much in the short-term. If a company sells a 30 year bond at low interest rates, you will see the impact during the 30 years, because costs will be lower due to lower interest payments. It takes time for the money obtained through the sale of the bonds to be put into an economically beneficial use.
Undeniable Logic