Should we tax consumption instead of income and investment?

[Masterhawk]

The debate over whether taxes should be raised or lowered is a contentious one in the political realm. The argument in favor of lowering taxes states that rich people, who pay the most taxes, are hindered from properly investing in businesses that would increase the general welfare of the public. The counterargument is that rich people end up pocketing most of those benefits while tax cuts come at the expense of public services meant for the lower and middle classes. Assuming the counterargument, it's worth asking the question what do rich people spend their additional revenue on. Conservatives and libertarians argue that rich people will spend it on investment, pouring money into businesses and creating jobs. Progressives and socialists argue that they pocket the revenue and use it to buy an additional mansion or a private yacht.

Recently, I began wondering, maybe we should tax consumption rather than income or

The downside of a neutral consumption tax (i.e. a sales tax) is that it ends up being regressive. You see, people lower on the economic totem pole end up spending a higher percentage of their income while wealthy people are more likely to put income into investment. For this reason, I would propose the tax to be levied on luxury goods (goods that go up in demand more than proportionally to income) and/or nonessential goods. It might also be a good idea to tax people for buying a third home (those buying a second home may simply be transitioning to another area and intend on selling the first home). It might also help deter home speculation.

If implemented properly, rich people will be taxed for buying a mansion or a Ferrari but not for selling stocks, saving money, or donating to charity. This might help bring about the best of both worlds in which conservatives don't have to worry about taxes slowing down economic growth while progressives can rest easy, knowing that the wealthy are paying their fair share.

 

[ecofarm]

The downside of a neutral consumption tax (i.e. a sales tax) is that it ends up being regressive.

Pre-bate taxation on expenditures up to the poverty line. Then it's progressive. Further, only tax new retail goods, not used goods. Then it's intrinsically progressive.


FairTax - Wikipedia


For me, if someone wants to talk federal consumption/sales tax, they must know the FairTax. That's class 101. It provides the concept names and vocabulary.

 

[Drawdown]

The debate over whether taxes should be raised or lowered is a contentious one in the political realm. The argument in favor of lowering taxes states that rich people, who pay the most taxes, are hindered from properly investing in businesses that would increase the general welfare of the public. The counterargument is that rich people end up pocketing most of those benefits while tax cuts come at the expense of public services meant for the lower and middle classes. Assuming the counterargument, it's worth asking the question what do rich people spend their additional revenue on. Conservatives and libertarians argue that rich people will spend it on investment, pouring money into businesses and creating jobs. Progressives and socialists argue that they pocket the revenue and use it to buy an additional mansion or a private yacht.

Recently, I began wondering, maybe we should tax consumption rather than income or

The downside of a neutral consumption tax (i.e. a sales tax) is that it ends up being regressive. You see, people lower on the economic totem pole end up spending a higher percentage of their income while wealthy people are more likely to put income into investment. For this reason, I would propose the tax to be levied on luxury goods (goods that go up in demand more than proportionally to income) and/or nonessential goods. It might also be a good idea to tax people for buying a third home (those buying a second home may simply be transitioning to another area and intend on selling the first home). It might also help deter home speculation.

If implemented properly, rich people will be taxed for buying a mansion or a Ferrari but not for selling stocks, saving money, or donating to charity. This might help bring about the best of both worlds in which conservatives don't have to worry about taxes slowing down economic growth while progressives can rest easy, knowing that the wealthy are paying their fair share.

I support transaction fees on stock purchases.

 

[ttwtt78640]

Pre-bate taxation on expenditures up to the poverty line. Then it's progressive. Further, only tax new retail goods, not used goods. Then it's intrinsically progressive.


FairTax - Wikipedia


For me, if someone wants to talk federal consumption/sales tax, they must know the FairTax. That's class 101. It provides the concept names and vocabulary.

The problem is that without the IRS and the FICA payroll tax (and the associated employer reporting/busywork which is said to go away) how do you detrmine which households (or individuals?) are low income (thus deserving of the pre-bate)?

 

[ecofarm]

The problem is that without the IRS and the FICA payroll tax (and the associated employer reporting/busywork which is said to go away) how do you detrmine which households (or individuals?) are low income (thus deserving of the pre-bate)?

Everyone gets the prebate. 23% of the poverty line (~$12k). Let's say $4k. Everyone gets 4k in the mail at the beginning of the fiscal year.

If a poor person buys no new goods, only used goods (second hand clothing and electronics and a used car). I don't remember how food works exactly, but let's say processed and not like state sales tax. It's possible for someone to pay no federal sales taxes in a year and the 4k is a sort of subsidy.

The poorest not only pay no or little tax (few new retail goods), they have positive tax income under the FairTax. That's progressive.

One doesn't actually start paying the FairTax until one purchases 12 grand, in new retail goods, because of the prebate.

 

[ttwtt78640]

Everyone gets the prebate. 23% of the poverty line (~$12k). Let's say $4k. Everyone gets 4k in the mail at the beginning of the fiscal year.

If a poor person buys no new goods, only used goods (second hand clothing and electronics and a used car). I don't remember how food works exactly, but let's say processed and not like state sales tax. It's possible for someone to pay no federal sales taxes in a year and the 4k is a sort of subsidy.

The poorest not only pay no or little tax, they have positive tax income under the FairTax. That's progressive.

That (bolded above) almost makes sense, but at what age does a person get that $4K?

 

[ecofarm]

That (bolded above) almost makes sense, but at what age does a person get that $4K?

Here's the table (I linked to the section):

FairTax - Wikipedia

It's titled as monthly but such a period is new to me. I last studied the FairTax when it had a half dozen sponsors in the Senate and dozens in the House, some years ago. I thought it was annual but maybe it was monthly even back then.

 

[ttwtt78640]

Here's the table (I linked to the section):

FairTax - Wikipedia

It's titled as monthly but such a period is new to me. I last studied the FairTax when it had a half dozen sponsors in the Senate and dozens in the House, some years ago.

Yep, some complicated mess based on (monthly?) household size and the (stupid?) assumption that a "household" contains either one or two adults.

 

[ecofarm]

Yep, some complicated mess based on (monthly?) household size and the (stupid?) assumption that a "household" contains either one or two adults.

Here's what it boils down to: Post #5.

Of course, as you eagerly pointed out, it's more complicated than that. But you get the idea.

 

[ecofarm]

Fun side note:

You know what marked the death of the Tea Party; the moment it went from a fiscal movement to a cultural movement? When the TP rejected the FairTax, which at the time had considerable momentum. They killed it and that killed them as a fiscal movement. They were not a well regulated fiscal militia and the line broke.

I'm copyrighting Fiscal Militia. That's a good name for a lot of stuff. I think it's my new favorite fake band name.

 

[Crovax]

The biggest problem with a consumption tax is that it could lead people to simply choose not to buy things or only buy non taxable items. Leading to a spiraling downward of our service driven economy

 

[Gator]

The biggest problem with a consumption tax is that it could lead people to simply choose not to buy things or only buy non taxable items. Leading to a spiraling downward of our service driven economy

Plus, it adds 23% to the cost of your new car, home, etc. If you limit what the tax applies to it does not raise the same amount of money the present income tax raises. Some claim it would abolish the IRS but we would still have to have some agency to send out those rebates and determine who is eligible to receive them.

 

[Masterhawk]

Plus, it adds 23% to the cost of your new car, home, etc. If you limit what the tax applies to it does not raise the same amount of money the present income tax raises. Some claim it would abolish the IRS but we would still have to have some agency to send out those rebates and determine who is eligible to receive them.

Maybe the consumption tax wouldn't be able to completely replace other taxes but it could help discourage lavish spending. I would suggest 10% as a starting point. For cars, you could use this tax to encourage people to buy electric cars by taxing conventional cars at a higher rate than electric cars.

 

[Gator]

Maybe the consumption tax wouldn't be able to completely replace other taxes but it could help discourage lavish spending. I would suggest 10% as a starting point. For cars, you could use this tax to encourage people to buy electric cars by taxing conventional cars at a higher rate than electric cars.

I don't think it would discourage spending, it would just result in more borrowing like we are doing today assuming revenue was reduced. If it doesn't replace other taxes it eliminates one of the main arguments for it--simplicity.

 

[PirateMk1]

The debate over whether taxes should be raised or lowered is a contentious one in the political realm. The argument in favor of lowering taxes states that rich people, who pay the most taxes, are hindered from properly investing in businesses that would increase the general welfare of the public. The counterargument is that rich people end up pocketing most of those benefits while tax cuts come at the expense of public services meant for the lower and middle classes. Assuming the counterargument, it's worth asking the question what do rich people spend their additional revenue on. Conservatives and libertarians argue that rich people will spend it on investment, pouring money into businesses and creating jobs. Progressives and socialists argue that they pocket the revenue and use it to buy an additional mansion or a private yacht.

Recently, I began wondering, maybe we should tax consumption rather than income or

The downside of a neutral consumption tax (i.e. a sales tax) is that it ends up being regressive. You see, people lower on the economic totem pole end up spending a higher percentage of their income while wealthy people are more likely to put income into investment. For this reason, I would propose the tax to be levied on luxury goods (goods that go up in demand more than proportionally to income) and/or nonessential goods. It might also be a good idea to tax people for buying a third home (those buying a second home may simply be transitioning to another area and intend on selling the first home). It might also help deter home speculation.

If implemented properly, rich people will be taxed for buying a mansion or a Ferrari but not for selling stocks, saving money, or donating to charity. This might help bring about the best of both worlds in which conservatives don't have to worry about taxes slowing down economic growth while progressives can rest easy, knowing that the wealthy are paying their fair share.

A transaction tax is the way to go. Its neither a consumption tax nor an income tax. It is, in its essential form a tax on the flow of money. Every transaction is taxed a very small percentage under say less than a 2%. (The amount of money that moves per day in the US is on the order of 2+ trillion dollars.) This means that the tax by its very nature is "progressive". By making the tax low enough that the expense of evading it is not worth the effort you can minimize and stabilize taxes in such fashion that business's can properly plan for the long term more effectively than current. The tax encourages savings and investment.

An example of such a tax would be the SEC section 31 fee which is 1% of one eight-hundredth of the dollar value of the equity sold.

The individual tax bite is quite small but, cumulative with the number of transactions, end up to be very substantial.

 

[PirateMk1]

I support transaction fees on stock purchases.

There already is one, its the section 31 SEC fee.

 

[PirateMk1]

The biggest problem with a consumption tax is that it could lead people to simply choose not to buy things or only buy non taxable items. Leading to a spiraling downward of our service driven economy

Not necessarily. It depends very much on the size of the tax being levied.

 

[Drawdown]

There already is one, its the section 31 SEC fee.

$21/$1M on one side is not what I am talking about. That fee supports the cost of running the exchange. It doesn't cover general revenue of US government.

 

[j brown's body]

Fun side note:

You know what marked the death of the Tea Party; the moment it went from a fiscal movement to a cultural movement? When the TP rejected the FairTax, which at the time had considerable momentum. They killed it and that killed them as a fiscal movement. They were not a well regulated fiscal militia and the line broke.

I'm copyrighting Fiscal Militia. That's a good name for a lot of stuff. I think it's my new favorite fake band name.

Indeed, I remember watching a Tea Party person on the Colbert Report complaining about corporate handouts and corruption. That seems to have been forgotten.

 

[ecofarm]

Indeed, I remember watching a Tea Party person on the Colbert Report complaining about corporate handouts and corruption. That seems to have been forgotten.

When they kicked Neil Boortz and the FairTax to the curb, that was the end. That was when it became a thumpy bigot party.

 

[OrphanSlug]

The debate over whether taxes should be raised or lowered is a contentious one in the political realm. The argument in favor of lowering taxes states that rich people, who pay the most taxes, are hindered from properly investing in businesses that would increase the general welfare of the public. The counterargument is that rich people end up pocketing most of those benefits while tax cuts come at the expense of public services meant for the lower and middle classes. Assuming the counterargument, it's worth asking the question what do rich people spend their additional revenue on. Conservatives and libertarians argue that rich people will spend it on investment, pouring money into businesses and creating jobs. Progressives and socialists argue that they pocket the revenue and use it to buy an additional mansion or a private yacht.

Recently, I began wondering, maybe we should tax consumption rather than income or

The downside of a neutral consumption tax (i.e. a sales tax) is that it ends up being regressive. You see, people lower on the economic totem pole end up spending a higher percentage of their income while wealthy people are more likely to put income into investment. For this reason, I would propose the tax to be levied on luxury goods (goods that go up in demand more than proportionally to income) and/or nonessential goods. It might also be a good idea to tax people for buying a third home (those buying a second home may simply be transitioning to another area and intend on selling the first home). It might also help deter home speculation.

If implemented properly, rich people will be taxed for buying a mansion or a Ferrari but not for selling stocks, saving money, or donating to charity. This might help bring about the best of both worlds in which conservatives don't have to worry about taxes slowing down economic growth while progressives can rest easy, knowing that the wealthy are paying their fair share.

Absolutely not.

In application all that means is taxing spending and we know without debate that the lower income quintiles tend to spend everything they make anyway thus all their spending ends up taxed as "consumption" oriented and regressive.

The wealthy on the other hand still spend but not in the same terms, and would see benefit to not doing so (i.e. not taxed) by changing their behavior of where their money ends up invested or at rest. The latter being a problem, a potential cause of economic fault. Either way there is every indication that velocity of money will fall despite economic conditions as those with means will avoid tax penalty, the policy itself may harm how we deal with fiscal policy and monetary policy at those times where the toolbox is opened to deal with some aggregate demand fault.

 

[jamesbyoung]

(1) Rich people invest to enrich themselves, not to invest to do the right thing for the economy.

(2) A graduated wealth tax of 50% on income would be about right.

 

[Masterhawk]

Absolutely not.

In application all that means is taxing spending and we know without debate that the lower income quintiles tend to spend everything they make anyway thus all their spending ends up taxed as "consumption" oriented and regressive.

The wealthy on the other hand still spend but not in the same terms, and would see benefit to not doing so (i.e. not taxed) by changing their behavior of where their money ends up invested or at rest. The latter being a problem, a potential cause of economic fault. Either way there is every indication that velocity of money will fall despite economic conditions as those with means will avoid tax penalty, the policy itself may harm how we deal with fiscal policy and monetary policy at those times where the toolbox is opened to deal with some aggregate demand fault.

Hence why I talked about a luxury tax (luxury goods go up in demand more than proportionally to income). If you read the OP, you'll see that I talk about this problem. Perhaps it can't completely replace the current taxes we have now but if we ever feel like raising taxes, this might be a good way to do it.

 

[Torus34]

A case can be made for taxing wealth instead of income. It has certain advantages and disadvantages, as does our present complex system.

 

[Moderate Right]

The debate over whether taxes should be raised or lowered is a contentious one in the political realm. The argument in favor of lowering taxes states that rich people, who pay the most taxes, are hindered from properly investing in businesses that would increase the general welfare of the public. The counterargument is that rich people end up pocketing most of those benefits while tax cuts come at the expense of public services meant for the lower and middle classes. Assuming the counterargument, it's worth asking the question what do rich people spend their additional revenue on. Conservatives and libertarians argue that rich people will spend it on investment, pouring money into businesses and creating jobs. Progressives and socialists argue that they pocket the revenue and use it to buy an additional mansion or a private yacht.

Recently, I began wondering, maybe we should tax consumption rather than income or

The downside of a neutral consumption tax (i.e. a sales tax) is that it ends up being regressive. You see, people lower on the economic totem pole end up spending a higher percentage of their income while wealthy people are more likely to put income into investment. For this reason, I would propose the tax to be levied on luxury goods (goods that go up in demand more than proportionally to income) and/or nonessential goods. It might also be a good idea to tax people for buying a third home (those buying a second home may simply be transitioning to another area and intend on selling the first home). It might also help deter home speculation.

If implemented properly, rich people will be taxed for buying a mansion or a Ferrari but not for selling stocks, saving money, or donating to charity. This might help bring about the best of both worlds in which conservatives don't have to worry about taxes slowing down economic growth while progressives can rest easy, knowing that the wealthy are paying their fair share.

no...