BTW...since when has your pissed off self ever cared about relating anything to the discussion at hand?
I care incessantly, which is why I'm asking you to unpack your statement, in a brah-ther-ly sense. Why are you declining?
I don't mean to get into anyone else war here, but I do think Thumbs is making an honest attempt at debate & discussion in this thread.
Yes, it is. The rich have gotten tax cuts out the wazoo over the last 30 years, resulting in massive deficits and cuts in service. It is time to correct that imbalance. No, because the vast majority of middle class spending is on food, housing, and medicine, which would be exempt, and they would also get a tax deduction (without any real analysis, the example I would give is $5000 for each adult and $2500 for each child) so that the first $15,000 in taxable spending for a two adult, two child household would be tax free. It would appear that you haven't gone to the link I provided to actually look at my proposal, since all of these questions are addressed at that link.
Just my opinion, but part of the problem with a consumption tax is that a lot of the analysis performed to demonstrate its viability has an underlying assumption that people's spending habits remain the same. In reality, I'd think people's spending habits would change drastically if we eliminated income tax and levied a consumption tax instead. People will always try their utmost to pay as little tax as possible. A consumption tax would put control directly in people's hands, and consumption would plummet as a result. It doesn't matter if disposable incomes are X% higher. I guarantee people will choose to consume less. It's one of the reasons the luxury tax we enacted in 1990 failed so miserably. Even though they could easily afford the tax, rich people simply stopped buying yachts and those yacht-builders slowly went out of business. On the other hand, no amount of income tax will prevent people from wanting to make more money.
Of course it will reduce consumption, that is the entire point. People will choose to consume less, save more, recycle and reuse more, etc. If you had read my blog post, you would see how I addressed this. There are certainly many people who would work to reduce their tax bill. Others (those with more income) would continue to buy what they want new, especially since they would have more income to spend.
I disagree that people with more income would continue to buy. The moment you give wealthy people an opportunity to pay fewer taxes, they'll take it. There would be massive demand shocks to the entire luxury industry (new supercars, yachts, jewelry) because the tax implications for those purchases would be huge. Anyway, I'm not saying it wouldn't work. I'm just saying that's there's too much risk. We can wax philosophical all we want about the potential benefits, but the truth is...none of us can really predict what would happen to the economy if we were to make a sudden switch from income to consumption tax.
VATs are typically small. Very few are in the world are over 10%, and most are under 5%. Furthermore, nearly all countries that levy VATs still maintain personal income tax or payroll taxes. The handful that rely on VAT alone are usually tiny economies like Andorra or the Maldives. You honestly believe you have a concrete idea what would happen to a $15 trillion dollar economy if we abolished income tax and established a 20-25% VAT on top of local sales tax? Like I said, I'm not saying it wouldn't work. I'm just saying the effects would be very difficult to predict.
If sales fluctuate by huge amount, do you fire and hire government employees on an yearly bases? This is for GladiatoRowdy.
Not true... http://en.wikipedia.org/wiki/List_of_countries_by_tax_rates Sweden, Norway, Denmark, Greece, Ireland, Finland, Belgium, Argentinia, and Italy are only the biggest of the countries with national sales taxes north of 20%. I believe the eventual benefits to such a tax would outweigh the problems.
Alrighty, I'll give you the big VATs for social democratic states, but the second part of my statement is still true. None of those countries eliminated personal income tax. You'd be hard pressed to find a large economy whose government taxes consumption alone. What benefits? I read your blog entry and there are a few holes in your argument. 1. You want the government to continually run a 5% surplus. 2. You're advocating a consumption tax only on new goods. 3. You'd allow the tax rate float on an annual basis except... 1. Per Wynne Godley, a government that continually runs a surplus will slowly drain the private sector of all its financial assets. 2. A consumption tax on new goods alone will sink demand for new goods and crush production. Continued production of new goods depends nearly 100% on the idea that "rich" people continue to buy their stuff new. 3. Continually adjusting the tax rate would be very unpopular as people's purchasing power could swing wildly from year to year. EDIT: Again, I'm not saying a consumption tax couldn't be implemented correctly. I'm just saying that there are a lot of risks involved in doing such an overhaul...one of which is tanking (or severely reducing) the production of new goods in our economy. Is it worth taking such a risk just to balance the budget, especially when given the nature of our currency and banking system...we don't actually need it to "balance" per se?
