Quote:
Originally posted by Greedy,Greedy,Greedy
A consumption tax can have progressive rates, but will that make it a progressive tax?
Those with low income AND less wealth clearly have the least ability to pay. Yet, once they get over the exemption amount, they will pay 15% on virtually all their income and all their wealth (the two being virtually coterminous). At the same time, Bill Gates will consume a paltry couple of million a year, pay his 35% tax on that, but (absent other taxes) pay only a tiny fraction of either his income or his wealth.
So, the question is really how do we define progressive? Different formulas can be used, but at the end of the day what I (and I think Wonk) is most interested in is the taxpayers overall ability to pay, and thus a denominator in the progressive equation based on some measure of income and/or wealth.
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Let's say we start with exemption amounts roughly equal to, or actually more than, the amounts as they are now, and the rates the same as they are now (but on consumption instead of income). This will (very likely) bring in less revenue than the current system. I would propose that we freeze the lower brackets, so that people whose incomes are low and who spend everything they earn will be paying the same amount in income tax, and sharply increase progressivity in the higher brackets.
I'm thinking we would have to add in some protective measures to prevent abuse by people using corporations (real or sham, which would be paying income tax) but I haven't thought through that.
