A Forum for Grinches and Ho-Ho-Hoes

[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.

To make up the tax revenue, the tax rate on consumption over $40k a year would be considerably higher than 35%.

Which is what might make this totally unpalatable to the rich.

[ltl/fb]

Originally posted by Mmmm, Burger (C.J.)
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.

The rates at the high end of consumption are getting really, really high here, Burger. I'm just saying.

[bilmore]

Originally posted by Mmmm, Burger (C.J.)
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?

You are busy asking questions relating to overall social effect, but those issues aren't going to drive this topic. Ultimately, the only argument that matters concerns the level of "progressivity" of the tax system. A discussion of a tax system that fails to resolve the "why should the rich pay a higher percentage of taxes" argument goes nowhere.

[Sidd Finch]

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 or sales tax.

It's difficult to imagine how people would plan their lives to deal with that. Many would have no idea what their taxes would be until April 15 of the following year... and then they might not have the money to pay them.

And I suspect this does away with the concepts of withholding and quarterly taxes -- again, hard to imagine how those fit in with a system that essentially would be "wait until the year is over, then tell us what you made, what you have left, and we'll tax you on the difference". And how does gov't function day-to-day without the inflow of withholding and quarterly taxes?*


*Let me guess -- debt?

[Mmmm, Burger (C.J.)]

Originally posted by ltl/fb
(like, could your IRA own that yacht or property? I don't think so, but I'm not sure).

I thought you were the expert, but I understand that IRA/401ks cannot invest in certain tangible assets, including such things as coins, baseball cards, and what not, but also including real estate (other that REITs) and presumably other things--you can't just own a factory in your IRA.

Because we're on an income system, you have to come up with a transition. You can't just say you get taxed when you pull out savings, because then all retirees get soaked. So if you use CSAs, it's entirely optional. Put in what you want, with the recognition that anything you pull out from that account will be taxed as "income". It's not a perfect system, but within a generation, one could much more easily transition to a pure consumption tax without the need for accounts.

Think outside the box people--it's not a tax shelter, it's just a question of when you pay the tax. With highly beneficial consequences for savings over consummption.

[ltl/fb]

Originally posted by Mmmm, Burger (C.J.)
I thought you were the expert, but I understand that IRA/401ks cannot invest in certain tangible assets, including such things as coins, baseball cards, and what not, but also including real estate (other that REITs) and presumably other things--you can't just own a factory in your IRA.

Because we're on an income system, you have to come up with a transition. You can't just say you get taxed when you pull out savings, because then all retirees get soaked. So if you use CSAs, it's entirely optional. Put in what you want, with the recognition that anything you pull out from that account will be taxed as "income". It's not a perfect system, but within a generation, one could much more easily transition to a pure consumption tax without the need for accounts.

Think outside the box people--it's not a tax shelter, it's just a question of when you pay the tax. With highly beneficial consequences for savings over consummption.

If you are trying to use this to transition to a VAT, I say, fuck you. And you do realize that if you are accepting keeping tax rates low on lower levels of consumption, the tax rates on higher levels are going to have to be pretty astronomical to have this be revenue neutral?

Sidd, we could still withhold on income. People who saved more would get bigger refunds.

[Mmmm, Burger (C.J.)]

Originally posted by ltl/fb
The rates at the high end of consumption are getting really, really high here, Burger. I'm just saying.

short run perhaps. long run no. unless everybody decides to die rich. what happened to spending your children's inheritance?

[Sidd Finch]

Originally posted by Mmmm, Burger (C.J.)
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?

Spending money isn't productive? What happened to the whole trickle-down theory -- that more money in people's hands promotes more spending which creates more jobs? What happened to Bush's post-9/11 message of "go shopping"? (Yes, I know that there were other and more serious parts of the message, I'm not suggesting otherwise.)

Consumer spending drives the economy -- accounts for 2/3 of it, in fact. Would you rather Bill Gates buy a bunch of stuff that results in a bunch of business making money and bunch of employees getting paid, or that he invest in a mutual fund that invests in consumer-goods companies in China? Which is better for the US economy?


eta: The 2/3 estimate is my recollection of what I've read. If I'm wrong, lemme know.

[ltl/fb]

Originally posted by Mmmm, Burger (C.J.)
short run perhaps. long run no. unless everybody decides to die rich. what happened to spending your children's inheritance?

People will decide to die rich. They already do it.

[Mmmm, Burger (C.J.)]

Originally posted by ltl/fb
The rates at the high end of consumption are getting really, really high here, Burger. I'm just saying.

corporate tax is what 10% of all revenues? Less? Think of the savings alone from compliance and all the BS hoops they jump through to expense/amortize/depreciate. All gone. Think of all the corp. tax lawyers out of jobs (!!!).

[Sidd Finch]

Originally posted by ltl/fb
Sidd, we could still withhold on income. People who saved more would get bigger refunds.

So the amount withheld counts as money "saved", on which there is no tax?

This system gets crazy, fast. Can we talk about something that might actually be possible?

[Mmmm, Burger (C.J.)]

Originally posted by ltl/fb
People will decide to die rich. They already do it.

And just as there will always be inheritances, there will always be spendthrift trust babies.

[ltl/fb]

Originally posted by Sidd Finch
So the amount withheld counts as money "saved", on which there is no tax?

This system gets crazy, fast. Can we talk about something that might actually be possible?

No, it does not. It counts as income, from which savings is subtracted to determine consumption, which is what is taxed.

You aren't very good with the numbers, are you?

[Mmmm, Burger (C.J.)]

Originally posted by Sidd Finch
It's difficult to imagine how people would plan their lives to deal with that. Many would have no idea what their taxes would be until April 15 of the following year... and then they might not have the money to pay them.

And I suspect this does away with the concepts of withholding and quarterly taxes -- again, hard to imagine how those fit in with a system that essentially would be "wait until the year is over, then tell us what you made, what you have left, and we'll tax you on the difference". And how does gov't function day-to-day without the inflow of withholding and quarterly taxes?*


*Let me guess -- debt?

Why? Your tax base is income + savings withdrawals. If you know your saving money, then your tax bill goes down; if you know you're withdrawing, it goes up.

Right now if you withdraw from an IRA you have to pay 20% to the IRS right off, even if you put the money into another IRA. Same reporting; same payment--if you withdraw from your CSA, you get withheld. Crikey--old people get regular payments from their IRA now, as required by law. They seem to be able to figure out their taxes.

[Mmmm, Burger (C.J.)]

Originally posted by Sidd Finch

This system gets crazy, fast. Can we talk about something that might actually be possible?

No, that only happens when I propose to combine it with life-cycle taxation. Pay estimated payments until you die; your estate settles up.