Consumption Tax - Expenditure

[Sauwan]

While I dislike the concept of the FairTax for a few reasons, I was wondering what people thought of something like an Expenditure Tax.

Proposal for a Consumption Expenditure Tax

Essentially you're taxed on your *Expenditures* - *Deductibles* after every fiscal year. This means people get to keep all of their pre-tax income, and there will not be any sales tax. However at the end of every fiscal year citizens will be required to pay a tax on what they effectively spent. I'm assuming the government wouldn't require it in a lump sum which would create massive problems for people who didn't plan ahead, but this isn't what I'm concerned with.

With this style of taxation, the major problems with the FairTax, IMO, are avoided. We can continue to have a progressive tax bracketing system depending on how much a person spends (or even more attractive would be some form of logarithmic scaling with a ceiling so that there aren't any "jumps" in the taxation. This would be feasible with the advent of the computer age. It seems if the government made a tax preparation system available to the public via public computers/accountants that could do the integration of the logarithmic curve to determine a persons overall tax dues, this wouldn't create major problems and even might simplify the IRS) which won't cause the massive disparities between rich and poor that one sees with the fair tax.

If it were possible to slowly phase this in with a suitable collection system, would you be for or against something like this? I'm assuming it has it's problems largely because it hasn't been discussed much. (with the exception of the USA tax back in '95) What problems can you see with it and can you foresee a viable solution to that problem?

 

[ARealConservative]

It seems like it would be even more complex without fixing what I don't like. We still have to track everyones earnings just as the current system does, but we also must now track consumption spending as well.

 

[Spartacus FPV]

the major problems with the FairTax, IMO

As a barely educated fair-tax advocate, do you mind if I ask what they are?

 

[ARealConservative]

As a barely educated fair-tax advocate, do you mind if I ask what they are?

Not progressive enough is the usual critique. ie. It's too fair.

 

[Spartacus FPV]

All i've ever heard is "but then we aren't *** raping the rich anymore, they'll actually HAVE the money that we hate them for, CRY HAVOC!"

 

[Iriemon]

All i've ever heard is "but then we aren't *** raping the rich anymore, they'll actually HAVE the money that we hate them for, CRY HAVOC!"

Essentially true.

Proponents of progressive taxes believe those with great wealth should pay a higher portion of their income in taxes than a person on the bottom rung whose total income is already insufficient to cover basic necessities.

 

[Iriemon]

While I dislike the concept of the FairTax for a few reasons, I was wondering what people thought of something like an Expenditure Tax.

Proposal for a Consumption Expenditure Tax

Essentially you're taxed on your *Expenditures* - *Deductibles* after every fiscal year. This means people get to keep all of their pre-tax income, and there will not be any sales tax. However at the end of every fiscal year citizens will be required to pay a tax on what they effectively spent. I'm assuming the government wouldn't require it in a lump sum which would create massive problems for people who didn't plan ahead, but this isn't what I'm concerned with.

With this style of taxation, the major problems with the FairTax, IMO, are avoided. We can continue to have a progressive tax bracketing system depending on how much a person spends (or even more attractive would be some form of logarithmic scaling with a ceiling so that there aren't any "jumps" in the taxation. This would be feasible with the advent of the computer age. It seems if the government made a tax preparation system available to the public via public computers/accountants that could do the integration of the logarithmic curve to determine a persons overall tax dues, this wouldn't create major problems and even might simplify the IRS) which won't cause the massive disparities between rich and poor that one sees with the fair tax.

If it were possible to slowly phase this in with a suitable collection system, would you be for or against something like this? I'm assuming it has it's problems largely because it hasn't been discussed much. (with the exception of the USA tax back in '95) What problems can you see with it and can you foresee a viable solution to that problem?

Aside from the obvious problems of determining and policing how much each person actually expended, in the end this is a regressive tax system, as I think you are proposing it. A single mom with a kid working a cash register making 16k will have to expend virtually all her income on necessities. A person making millions has the luxury of saving a significant portion of his income. As a result, the single mom pays the full rate of tax on all her income. The multi-millionaire pays less than the full rate of tax on his income because he is not expending all of it.

 

[Synch]

Aside from the obvious problems of determining and policing how much each person actually expended, in the end this is a regressive tax system, as I think you are proposing it. A single mom with a kid working a cash register making 16k will have to expend virtually all her income on necessities. A person making millions has the luxury of saving a significant portion of his income. As a result, the single mom pays the full rate of tax on all her income. The multi-millionaire pays less than the full rate of tax on his income because he is not expending all of it.

She should have planned ahead, insuring herself an education capable of supporting a child before squeezing one out. She has no right to pilfer from the coffers of others.

Benefits of a consumption tax include lowering our trade deficit, reducing risks of a national crisis in case of foreign financial instabilities.

 

[Iriemon]

She should have planned ahead, insuring herself an education capable of supporting a child before squeezing one out. She has no right to pilfer from the coffers of others.

How is she pilfering from coffers of others by paying less tax?

But we'll work on that law prohibiting women not having college degrees from having kids. What do you think? Forced sterilization? Or mandatory abortions?

Benefits of a consumption tax include lowering our trade deficit, reducing risks of a national crisis in case of foreign financial instabilities.

How so?

 

[128shot]

She should have planned ahead, insuring herself an education capable of supporting a child before squeezing one out. She has no right to pilfer from the coffers of others.

Benefits of a consumption tax include lowering our trade deficit, reducing risks of a national crisis in case of foreign financial instabilities.

Umm-so what if the husband walks out? or the husband is killed and life insurance doesn't cover all expenses? What if the husband was killed in Iraq?

you have no idea what the situation of the lady is, so what make such an assumption?

 

[Synch]

How so?

Increase supply of loanable funds increases net capital outflow, increasing net export.

But we'll work on that law prohibiting women not having college degrees from having kids. What do you think? Forced sterilization? Or mandatory abortions?

Lay off with the strawmen will you? I never suggested anyting remotely closed to government mandated eugenics, I'm simply saying other people should not be forced to subsidize the incompetency of others.

How is she pilfering from coffers of others by paying less tax?

She gets more for less, while others get less for more.

What if the husband was killed in Iraq?

I'm sure there are monetary compensations for that.

mm-so what if the husband walks out?

child support.

or the husband is killed and life insurance doesn't cover all expenses?

Consequence of inadequate planning.

you have no idea what the situation of the lady is, so what make such an assumption?

because in the overwhelming number of situations my assumptions are true.

 

[Sergeant Stinger1]

The reason that Uncle Sam takes out taxes from peoples payroll is that if they didn't not to many would have the money to pay their taxs at the end of the year.
The only, fairest, easiest and cheapest way is to have a flat tax so every one and every company will pay their share.

 

[Iriemon]

Increase supply of loanable funds increases net capital outflow, increasing net export.

That is why the "Benefits of a consumption tax include lowering our trade deficit, reducing risks of a national crisis in case of foreign financial instabilities."?

How does a consumption tax "increase the supply of loanable funds"? How would an "increase in the supply of loanable funds" "increase captial outflow", and how does that lead to "increasing net export"?

Lay off with the strawmen will you? I never suggested anyting remotely closed to government mandated eugenics, I'm simply saying other people should not be forced to subsidize the incompetency of others.

How is lowering taxes the poorest working folk pay subsidizing the incompetence of others?

She gets more for less, while others get less for more.

Get more what? She makes $16k. Compare a guy making $10 million. How is she getting more?

 

[ARealConservative]

How is she pilfering from coffers of others by paying less tax?

But we'll work on that law prohibiting women not having college degrees from having kids. What do you think? Forced sterilization? Or mandatory abortions?

No need.

Instread, we make her face up to her responsibilities like the rest of us. Then we can all use her as an example for our kids on how life can be hard if you make poor decisions and don't prepare for the future properly.

 

[Iriemon]

The reason that Uncle Sam takes out taxes from peoples payroll is that if they didn't not to many would have the money to pay their taxs at the end of the year.
The only, fairest, easiest and cheapest way is to have a flat tax so every one and every company will pay their share.

IMO, taxing money the very poorest earn they need for basic necessities so that the very richest can have more luxuries is not fair.

 

[Iriemon]

No need.

Instread, we make her face up to her responsibilities like the rest of us. Then we can all use her as an example for our kids on how life can be hard if you make poor decisions and don't prepare for the future properly.

You have a point. Hordes of families and kids living under freeways and starving might provide some incentive.

 

[ARealConservative]

You have a point. Hordes of families and kids living under freeways and starving might provide some incentive.

Those "hordes of people" must of treated people around them like total crap to find themselves under the freeway even after we all get to take home more of our pay and they still can't get assistance.

 

[Iriemon]

Those "hordes of people" must of treated people around them like total crap to find themselves under the freeway even after we all get to take home more of our pay and they still can't get assistance.

How exactly do the poorest "get to take home more of" their pay when you raise their taxes 20% or so she "fairly" pays taxes like the rest of us?

 

[ARealConservative]

How exactly do the poorest "get to take home more of" their pay when you raise their taxes 20% or so she "fairly" pays taxes like the rest of us?

um. the poorest are under the freeway - remember?

Guys like me that get stuck paying the stupid AMT tax will have more money. Nearly everybody would have more money.

Where is the family and friends of those people living under the freeway though?

My parents took good care of me - they can count on me returning the favor if need be. I bend over backwards for friends - I know if things ever get bad, they will do everything in their power to keep me from living under that freeway.

Consider it another nice life lesson for the kids. Treat people like crap and you might find yourself under a freeway. :mrgreen:

 

[Iriemon]

um. the poorest are under the freeway - remember?

Guys like me that get stuck paying the stupid AMT tax will have more money. Nearly everybody would have more money.

Where is the family and friends of those people living under the freeway though?

My parents took good care of me - they can count on me returning the favor if need be. I bend over backwards for friends - I know if things ever get bad, they will do everything in their power to keep me from living under that freeway.

Consider it another nice life lesson for the kids. Treat people like crap and you might find yourself under a freeway. :mrgreen:

Not all are as fortunate as you.

 

[ARealConservative]

Not all are as fortunate as you.

probably not. And others are even more fortunate then I am.

If your debate platform has nothing to it but "life isn't fair but should be", you lost from the word go.

 

[Iriemon]

I think we beat this horse recently on another thread.

 

[Synch]

How does a consumption tax "increase the supply of loanable funds"? How would an "increase in the supply of loanable funds" "increase captial outflow", and how does that lead to "increasing net export"?

A plurality of tax revenue from the US government comes from the income tax. This creates a situation for the upper and upper middle class where the marginal tax rate becomes the marginal tax rate for saving, as they have enough to consume and put the rest in the market for loanable funds through banks, mutual funds, etc.

If there is a tax on consumption, everyone will have more incentive to save their income as they are not taxed if they were used to consume goods instead, people would obviously save more if the income tax was changed to a consumption tax.

This increases the supply for loanable funds, increasing the quantity of loanable funds lent, and lowers the equilibrium real interest rate. This will make foreign investments more attractive to US nationals as the rate of return for US investment lowers, and part of the demand for loanable funds in the US loanable fund market is used to purchase foreign assets. This increases the supply of US dollars in the international market for US dollars(as US investors now want to purchase foreign assets), leading to a depreciation of the US dollar and a movement along the demand curve for the US dollar(comprised of demand of dollars to purchase US goods, services, and assets). This increase real net export, as Americans purchase less of foreign goods and foreigners purchase more of American goods, because the quantity American goods that can be purchased by foreigners at a given price level is determined by the supply of US dollars.

Net Capital outflow= Net Exports by an accounting identity, due to exports produced in one country being matched by reciprocal payments of some asset from a receiving second country.

How is lowering taxes the poorest working folk pay subsidizing the incompetence of others?

The richer will pay a larger share of the money that goes to federal programs that subsidize the incompetence of others.

Get more what? She makes $16k. Compare a guy making $10 million. How is she getting more?

The 16k and 10 million are earned. Federal programs give more to her while she pays less taxes than the guy who's making 10 million/y.

 

[Iriemon]

A plurality of tax revenue from the US government comes from the income tax. This creates a situation for the upper and upper middle class where the marginal tax rate becomes the marginal tax rate for saving, as they have enough to consume and put the rest in the market for loanable funds through banks, mutual funds, etc.

If there is a tax on consumption, everyone will have more incentive to save their income as they are not taxed if they were used to consume goods instead, people would obviously save more if the income tax was changed to a consumption tax.

OK, I can agree that essentially making investment and investment income tax free should marginally increase the savings rates.

This increases the supply for loanable funds, increasing the quantity of loanable funds lent, and lowers the equilibrium real interest rate. This will make foreign investments more attractive to US nationals as the rate of return for US investment lowers, and part of the demand for loanable funds in the US loanable fund market is used to purchase foreign assets.

Why would the ROR of US investment lower relative to foreign investments?

This increases the supply of US dollars in the international market for US dollars(as US investors now want to purchase foreign assets),

There would not necessarily be more US dollars in the international market. The extra savings comes at the cost of less purchases, which would also me less foreign goods purchased which would offset, even if your first step were true.

leading to a depreciation of the US dollar and a movement along the demand curve for the US dollar(comprised of demand of dollars to purchase US goods, services, and assets).

You mean the US dollar would devalue compared to other currencies? A decline in US real interest rates would not have an effect on foreign exchange rates necessarily.

This increase real net export, as Americans purchase less of foreign goods and foreigners purchase more of American goods, because the quantity American goods that can be purchased by foreigners at a given price level is determined by the supply of US dollars.

Net Capital outflow= Net Exports by an accounting identity, due to exports produced in one country being matched by reciprocal payments of some asset from a receiving second country.

Lots of ifs and maybes in that contention

The richer will pay a larger share of the money that goes to federal programs that subsidize the incompetence of others.

The incompetence is subsidized regardless of who pays the tax. Someone has to pay for it.

The 16k and 10 million are earned. Federal programs give more to her while she pays less taxes than the guy who's making 10 million/y.

If you are arguing that we should have a flat tax with more federal programs to provide assistance to the poor who will now be poorer, IMO the better solution would be to just lower their taxes.

 

[Sauwan]

IMO, taxing money the very poorest earn they need for basic necessities so that the very richest can have more luxuries is not fair.

Which is exactly why I proposed a logarithmic scale. Keep in mind that the log of something less than 1 (which would be defined as the poverty level) is a negative value. [edit]

I do not see how this is a regressive tax in the slightest. I know there are issues with implementing it, however, I'm more interested in the normative aspect.

Edit: Of course, a new strategy would have to be implemented for those below the poverty line as the logarithmic scale drops steeply below "1". But I think there should be either no tax or some well funded programs to help those below that level.