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Post 22 Apr 2016, 2:19 pm

http://www.vox.com/2015/1/16/7545509/inequality-waste
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Post 27 Apr 2016, 1:32 pm

An interesting read. It took a while to get to the proposal, and it seems to have some merit, but there are some issues with a tax on consumption - even if progressively applied:

1) In the US you have sales taxes, and duties on particular goods. These vary by jurisdiction to quite a degree, and they would need to be considered if a consumption tax is brought in, in terms of whether they remain, and what jurisdictions own the consumption tax. If this is a Federal Tax, then there is a whole mess about whether it is Constitutional.

2) taxing a thing makes it less desirable to do, and the idea is indeed that excessive consumption at the top, which drives up demand and the median cost of living would be curbed. But the other side to it is that this demand is serviced by vendors, and so curbing it would hit them economically. And could have a wider chilling effect on economic growth.

Yes, it might encourage investment and savings, but those both to an extent those depend on consumption as well. When you invest, what are you investing in? Traditionally it would be an enterprise which is seeking to use the investment to buy stuff worth $X and do a process to then sell on as a product for $X+Y. By "stuff" that would also be intangibles such as labour. So if Y is hit by a consumption tax, the returns on investment will be also. Savings in most cases are simply a further step removed, putting them into a bank that invests the money itself and gives you back part of the profit in interest.

3) It does not distinguish between the types of consumption - essentials or luxuries, imported or local, etc. We can make an assumption that the more someone consumes the more of it is luxuries, but that may not be the case - a single person on a moderate income could spend a little and still be using a high proportion on luxuries. A family with several kids, one of which may have some special needs would be spending more, and more on necessities.

4) I don't see how this would be more effective than Income Tax with progression, or any less complicated. Or how it would not see loopholes (hiding consumption as "investments" for tax benefits)