A Forum for Grinches and Ho-Ho-Hoes

[Sidd Finch]

Originally posted by taxwonk
My analysis comes from this perspective: (i) we have the goal of providing a certain level of services and support; (ii) therefore the prtoper aim of a tax system is to raise the necessary amount of revenue

That's an attitude I just don't understand. We can just borrow the money, Wonk.

[Sidd Finch]

Originally posted by Secret_Agent_Man
The dude who can't afford an airplane ticket may still benefit from some of the airline subsidies, airports, etc. if they have a job and work for a company whose executives need to travel for business, or which needs to ship or receive goods by air, or if they wish to have family members visit from overseas, etc. The dude without a car still likes to buy things from stores -- which things are overwhelmingly shipped by truck across our interstate highway system.

Those same indirect benefits accrue to the person who can buy the airline ticket and does have the car. And he gets the direct benefits too.

[ltl/fb]

Originally posted by Mmmm, Burger (C.J.)
I don't think what I've been saying is necesarily in tension with any of your goals. You seem to be stuck on the idea that consumption tax=flat tax. That's not necessarily the case. That may be the cheapest to administer (or it may not), but one could use the current income tax system but shift the tax burden to those who consume, and particularly those who consume a lot, and have it just as progressive as the current scheme (although, sure, it would benefit those who save more than those who borrow for consumption).

If we only tax consumption, tax rates are going to have to be higher than tax rates are currently. Unless you make the rates more progressive, that's going to translate to a greater proportion of the tax being borne, as a group, by people at the lower end. If you leave it at the same rates as it is for lower income (but now would be consumption) groups, and raise the hell out of the rates for high levels of consumption, I'd be more OK with it.

I wonder what overall effect this will have on our consumer economy, though.

[Mmmm, Burger (C.J.)]

Originally posted by ltl/fb
If you leave it at the same rates as it is for lower income (but now would be consumption) groups, and raise the hell out of the rates for high levels of consumption, I'd be more OK with it.
.

Of course you don't leave it at the same rates. But I'm kind of indifferent between having, say $100k (gross income) taxed at 25% or $75k (income net savings) taxed at 33%. And I imagine most others would be as well. But I'm pretty sure that if the latter is the rate, people will think a bit harder about the consume now/consume later question.

[bilmore]

Originally posted by Mmmm, Burger (C.J.)
I don't think what I've been saying is necesarily in tension with any of your goals. You seem to be stuck on the idea that consumption tax=flat tax. That's not necessarily the case. That may be the cheapest to administer (or it may not), but one could use the current income tax system but shift the tax burden to those who consume, and particularly those who consume a lot, and have it just as progressive as the current scheme (although, sure, it would benefit those who save more than those who borrow for consumption).

I can see a lot more danger of unintended consequences if we get into a consumption tax that allows for targeting. A higher rate for the purchase of luxury yachts? Caviar tax of 40%? The social engineering aspects - at least, the possible abuses of them - are staggering. Plus, the tracking system is harder. I can spend my money at a lot of private outlets that don't have the pressure to report as does an employer who must report the payment of compensation in order to get the tax break associated with the payment of an expense.

[ltl/fb]

Originally posted by Mmmm, Burger (C.J.)
Of course you don't leave it at the same rates. But I'm kind of indifferent between having, say $100k (gross income) taxed at 25% or $75k (income net savings) taxed at 33%. And I imagine most others would be as well. But I'm pretty sure that if the latter is the rate, people will think a bit harder about the consume now/consume later question.

OK, but for the LOWER ends of the income/consumption scale, I would like to see the rates stay the same. So that taxes aren't higher for someone making $25k who has been, and continues to, live basically hand-to-mouth.

[ltl/fb]

Originally posted by bilmore
I can see a lot more danger of unintended consequences if we get into a consumption tax that allows for targeting. A higher rate for the purchase of luxury yachts? Caviar tax of 40%? The social engineering aspects - at least, the possible abuses of them - are staggering. Plus, the tracking system is harder. I can spend my money at a lot of private outlets that don't have the pressure to report as does an employer who must report the payment of compensation in order to get the tax break associated with the payment of an expense.

Um, no, he's saying that at the end of the year, the last $1 you spent will be taxed at a higher rate than the first $1. People who buy lots of expensive stuff will spend more $$ and their overall tax rate will be higher.

Remember, we are taxing income minus net savings, not taxing at the point of consumption. He's not talking about a VAT or sales tax.

I'm actually OK with Burger's thing, as long as we aren't raising taxes on people who spend pretty much their entire income on basic things like food and housing and clothes from e.g. K-mart and Target.

[bilmore]

Originally posted by ltl/fb
Remember, we are taxing income minus net savings, not taxing at the point of consumption. He's not talking about a VAT.

Ah. I missed that part.

[Greedy,Greedy,Greedy]

Originally posted by Mmmm, Burger (C.J.)
I don't think what I've been saying is necesarily in tension with any of your goals. You seem to be stuck on the idea that consumption tax=flat tax. That's not necessarily the case. That may be the cheapest to administer (or it may not), but one could use the current income tax system but shift the tax burden to those who consume, and particularly those who consume a lot, and have it just as progressive as the current scheme (although, sure, it would benefit those who save more than those who borrow for consumption).

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.

[Greedy,Greedy,Greedy]

Originally posted by ltl/fb
I'm actually OK with Burger's thing, as long as we aren't raising taxes on people who spend pretty much their entire income on basic things like food and housing and clothes from e.g. K-mart and Target.

Hmmm. So, you're OK with eliminating all tax on "savings".

I guess there will be a good business here for lawyers who can advise clients on how to "save" by investing in securitized yachts, "investment property" in Aspen, and, of course, the corporations that will pay for all those fancy trips.

Are you sure you're OK with this? It basically makes the whole world a great big 401(k).

[ltl/fb]

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.

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.

[Mmmm, Burger (C.J.)]

Originally posted by Greedy,Greedy,Greedy
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.

But why do you want to encourge his spending more? If you give Bill Gates a dollar, would you prefer to see him spend it or save it? If he saves it, and it's invested productively, won't that benefit everyone more than if he puts another flat screen TV in his house?

Besides, someone eventually has to spend it. If gates saves it, his kid might go nuts on the spending of his trust. It's not like the savings disappear, never to be taxed again.

Finally, he probably will spend it. Over one's lifetime, spending=income. Well, let's say income-estate, but still. It's just a timing question.

If all it is is a timing question, why not give incentives for savings over consumption that will enhance the strength of the economy by increasing the flow of money to the most productive uses?

[Sidd Finch]

Originally posted by bilmore
I can see a lot more danger of unintended consequences if we get into a consumption tax that allows for targeting. A higher rate for the purchase of luxury yachts? Caviar tax of 40%? The social engineering aspects - at least, the possible abuses of them - are staggering. Plus, the tracking system is harder. I can spend my money at a lot of private outlets that don't have the pressure to report as does an employer who must report the payment of compensation in order to get the tax break associated with the payment of an expense.

2. Add to this the fact that this would cause a lobbying frenzy like nothing ever seen before. Imagine the Association of Widget Manufacturers' response to a bill to increase tax widget purchases at 20% rather than 10%.

And administratively, I think small business owners will shoot themselves if they have to apply differential sales taxes to every product they sell. (Hmm..... Vibrator..... is that taxed on the Medical Device Rate because you're using it for massage, or the Frivolous Pleasure Rate because....)

[ltl/fb]

Originally posted by Greedy,Greedy,Greedy
Hmmm. So, you're OK with eliminating all tax on "savings".

I guess there will be a good business here for lawyers who can advise clients on how to "save" by investing in securitized yachts, "investment property" in Aspen, and, of course, the corporations that will pay for all those fancy trips.

Are you sure you're OK with this? It basically makes the whole world a great big 401(k).

Burger, please address anti-abuse provisions re: corporate crap. I think the yachts and investment property would be addressed by having only certain things approved as vehicles for the savings that can be subtracted (like, could your IRA own that yacht or property? I don't think so, but I'm not sure).

[Mmmm, Burger (C.J.)]

Originally posted by Greedy,Greedy,Greedy


I guess there will be a good business here for lawyers who can advise clients on how to "save" by investing in securitized yachts, "investment property" in Aspen, and, of course, the corporations that will pay for all those fancy trips.

.

IRAs have rules on investments. No reason those couldn't be more clear so that a Consumption Savings Account wouldn't be abused in this way. If you limit the permissible investment vehicles, I think this concern goes away.

BTW, there's no corporate income tax--taxes are paid on dividends, if those are used for consumption.