David Brooks:

The tax code should tax consumption, not income, and in the meantime, it should do more to encourage savings up and down the income ladder.

Amen.

Stefanie wrote:
David Brooks:

The tax code should tax consumption, not income, and in the meantime, it should do more to encourage savings up and down the income ladder.

Amen.

taxation on consumption is a regressive form of taxation and therefore hits those lower down the income scale disproportionally heavily

ubernoir wrote:
taxation on consumption is a regressive form of taxation and therefore hits those lower down the income scale disproportionally heavily

I've run into that argument many times. I wasn't planning to get into this, but since you've brought it up... ;)

Actually, a consumption tax is extremely fair, and that's what we have in Tennessee, in lieu of a state income tax. If by "regressive," you mean that consumption taxes don't punish the wealthy for their success by requiring them to shoulder more than their fair share of the burden, so that government can redistribute their wealth, then I agree that consumption taxes don't do that.

A tax scale that progressively increases the percentage paid based on the more one earns is punitive, and I dare say, born of class envy. Staying with income taxes for a moment, a flat rate would simply be fair, not regressive. At a rate of 10%, a person who earns $100 pays $10, and one who earns $1,000,000 pays $100,000. The person who earns more is already paying much more in actual taxes, but both are paying a fair and equal share. There's nothing regressive about that.

In a system with flat, equal tax rates, if the taxes are a burden on low-income citizens, that's not an indication that the high-income citizens aren't paying enough in taxes; it's an indication that the government's tax rates are too high, and that the government is spending too much money. In my opinion, any government that takes more than 10% of any citizen's money (through income or consumption taxes) is trying to do too much, mismanaging funds, or both. Tennessee operates on a 9.25% sales tax rate, and I still consider that too high. Our federal government eventually could do the same, but I realize that the transition couldn't happen overnight.

Also, the government is still receiving more money from wealthy citizens via consumption taxes, because they spend more than the rest of us. With income taxes, those on the low end of the tax scale have no choice but to pay taxes straight out of their earnings, but with consumption taxes, they can reduce the taxes they pay by choosing to cut back on non-essential spending. Granted, some don't have much in the way of non-essential spending to cut, but the factor of the individual's control (rather than government control) over income and spending is still relevant.

Another benefit to consumption taxes is that whenever government increases tax rates, all citizens will be aware of it on a daily basis, making it much more difficult for government officials to gain support for tax increases, keeping in check the size and scope of government.

Some suggest that a national sales tax in the USA would create a black market for untaxed goods and services. Again, that would be the case only if government were greedy and set the tax percentage too high. At a rate of 10% or less, it's unlikely that there'd be enough profit margin for the sellers or savings for the buyers to warrant the risks involved with such illegal sales. It's certainly not a widespread problem in my state.

Aside from the fairness/regressive/progressive argument, there's the issue of big government. It takes a much smaller government agency to process revenue from consumption taxes than from income taxes. With income-based taxes, we have huge, invasive government agencies (the IRS in the USA, as well as revenue agencies in state governments) that collect way too much information about citizens. Where a citizen works and how much money one earns should be none of the government's business. We're also tracked by our social security numbers (also used by the Social Security Administration, another federal agency that never should have existed, but that's another long discussion), which is the equivalent of assigning citizens identification numbers by default.

I'm sure you've heard all of that before, though.

Stefanie wrote:

ubernoir wrote:
taxation on consumption is a regressive form of taxation and therefore hits those lower down the income scale disproportionally heavily

I've run into that argument many times. I wasn't planning to get into this, but since you've brought it up... ;)

Actually, a consumption tax is extremely fair, and that's what we have in Tennessee, in lieu of a state income tax. If by "regressive," you mean that consumption taxes don't punish the wealthy for their success by requiring them to shoulder more than their fair share of the burden, so that government can redistribute their wealth, then I agree that consumption taxes don't do that.

A tax scale that progressively increases the percentage paid based on the more one earns is punitive, and I dare say, born of class envy. Staying with income taxes for a moment, a flat rate would simply be fair, not regressive. At a rate of 10%, a person who earns $100 pays $10, and one who earns $1,000,000 pays $100,000. The person who earns more is already paying much more in actual taxes, but both are paying a fair and equal share. There's nothing regressive about that.

In a system with flat, equal tax rates, if the taxes are a burden on low-income citizens, that's not an indication that the high-income citizens aren't paying enough in taxes; it's an indication that the government's tax rates are too high, and that the government is spending too much money. In my opinion, any government that takes more than 10% of any citizen's money (through income or consumption taxes) is trying to do too much, mismanaging funds, or both. Tennessee operates on a 9.25% sales tax rate, and I still consider that too high. Our federal government eventually could do the same, but I realize that the transition couldn't happen overnight.

Also, the government is still receiving more money from wealthy citizens via consumption taxes because they spend more than the rest of us. With income taxes, those on the low end of the tax scale have no choice but to pay taxes straight out of their earnings, but with consumption taxes, they can reduce the taxes they pay by choosing to cut back on non-essential spending. Granted, some don't have much in the way of non-essential spending to cut, but the factor of the individual's control (rather than government control) over income and spending is still relevant.

Another benefit to consumption taxes is that whenever government increases tax rates, all citizens will be aware of it on a daily basis, making it much more difficult for government officials to gain support for tax increases, keeping in check the size and scope of government.

Some suggest that a national sales tax in the USA would create a black market for untaxed good and services. Again, that would be the case only if government were greedy and set the tax percentage too high. At a rate of 10% or less, it's unlikely that ... [ Read More (0.2k in body) ]

ubernoir wrote:
the term regressive is from economics 101

Yes, I know, but I was making a point. With some policies, intentions might be good, but results are not.

ubernoir wrote:
fair is a matter of opinion

Agreed; what I think is unfair, another thinks fair, and that's why we have debates and elections.

ubernoir wrote:
in praise of progressive taxation from The Wealth of Nations by Adam Smith

Within the context of this particular discussion, I respectfully disagree with both of you. I still enjoy debating, though.