http://apnews.myway.com/article/20050303/D88JI49G0.html Greenspan Touts Idea of a Consumption Tax Mar 3, 9:41 AM (ET) By JEANNINE AVERSA (AP) Federal Reserve Board Chairman Alan Greenspan discusses the nation's economic outlook before the... WASHINGTON (AP) - Federal Reserve Chairman Alan Greenspan on Thursday embraced the notion of overhauling the nation's tax system and said that some form of a consumption tax - such as a national sales tax - could spur greater economic growth. The Fed chief made his comments in prepared remarks to the President's Advisory Panel on Federal Tax Reform. Revamping the complex tax code is an important goal of President Bush. Greenspan pointed out the merits of a "consumption" tax, as well as the challenges of setting up such a tax. Consumption taxes can take the form of national retail sales taxes or a value-added tax, imposed on the increased value of a good or service at each stage of manufacture and distribution and ultimately passed on to the consumer. (AP) Federal Reserve Board Chairman Alan Greenspan discusses the nation's economic outlook before the... Full Image "As you know, many economists believe that a consumption tax would be best from the perspective of promoting economic growth - particularly if one were designing a tax system from scratch - because a consumption tax is likely to encourage saving and capital formation," Greenspan said. "However, getting from the current tax system to a consumption tax raises a challenging set of transition issues," he added. Bush's advisers have spoken favorably of the economic benefits that could be achieved by moving from a system that taxes income to one that taxes consumption. However, Democratic critics contend such a consumption tax would hit low-income Americans the hardest. Bush's aides have pointed out that the current tax system is actually a combination of a system that taxes income and one that taxes consumption. They note the creation of individual retirement accounts and other tax-deferred savings accounts allows taxpayers to shelter some investment earnings from tax. Greenspan also said the tax panel will have to decide what type of system to use such as "a comprehensive income tax, a consumption tax or some combination of the two, as is done in many other countries." The tax panel is responsible for coming up with recommendations to make taxes fairer and simpler. In addition to revamping Social Security, Bush wants to overhaul the nation's tax system - two centerpieces of his second-term economic agenda. Achieving both will be difficult politically and economically, especially against the backdrop of swollen budget deficits, analysts say. Greenspan didn't offer a specific approach for policy-makers to follow as they consider an overhaul of the tax code. But he did say that changes should be aimed at making the tax code easier for Americans to navigate, be fair and should contain an element of predictability so that businesses and consumers alike can look into the future and have a good idea what their tax obligations are - allowing them to plan ahead. "A simpler tax code would reduce the considerable resources devoted to complying with current tax laws, and the freed up resources could be used for more productive purposes," Greenspan said.
Greenspan should just shut up and try to regulate the interest rates. I guess he figures that this he is an old guy and this is his last shot, why pretend any more to be some sort of moderate, go for the gold-- actually reduce the taxes on the wealthy to a lower percentage than that paid by the less well-off. We don't want to hear him talk about taxes or deficits after he just helped create the large budget deficits by talking up the Bush tax cuts for the rich. I guess that wasn't enough of a cut for he and his buds. Be a total greed head. Virtue of selfishness. A loving homage to Ayn Rand, who he screwed as a youth. You go Alan. That will teach the largely poor and middle class "values" crowd who though they were voting on abortion, gays, guns and God, but were just stupidly voting to redistribute their wealth to the real moves and shakers of the GOP.
Let's make this happen! The United States economy simply can not continue to not save money and run enormous trade deficits. Period. This is a step in the right direction. A very large step in the right direction.
How does buying domestic goods contribute to a trade deficit? Your argument is flawed. CASE CLOSED (always wanted to say that)
Got to love Jorge. He has sincere faith in "One Market Under God". Cut taxes and this increases the budget deficit. Well do it some more till it reduces the deficit. Never forget that Bush himself admitted his tax cuts disporportionately benefitted the higher income folks At times Jorge gets carried away with his simple minded faith. My favorite was when he told the Sweidsh poster that Sweden was not a superpower like the US because the marginal tax rate is higher there. Don't they teach geography or something similar at Rice? I suppose it would interfere with the pieties of econ 101 as taught in the biz school.
The current-account balance is equal to the gap between domestic saving and investment. What makes you think you could correct me when talking about Economics? Big mistake on your part. Don't go bear hunting with a stick, rookie.
It almost disgusts me to agree even in part with t_j, but a consumption tax could easily be designed to reduce the regressive nature of sales taxes. First of all, used goods would be exempt (with a C.T. that I would design), since they are truly only "consumed" when they are purchased for the first time. This would help businesses like Ebay and resale shops to thrive. In addition, it would usher in a new business model for refurbished goods and would encourage consumers to purchase goods that have a long lifetime rather than the cheap throwaways that sell for pennies at Wal-Mart. This would also help to encourage recycling, which would have peripheral benefits both on the economy and the environment. The biggest impact however, would be on savings. With a C.T. (or a VAT), you would get tax benefits from saving and investing. Since you would also receive your entire paycheck (less SS) and would know exactly how to avoid paying taxes, it would be much easier to save and invest than most people currently find possible. There are also other ways to reduce the regressive nature of sales taxes. Food, medicine, and other necessary goods could be exempted. In addition, I would also create an exemption of perhaps $5000 for each adult and $2500 for each child. This exemption would be easily implemented using existing credit card readers much like food stamps are now implemented. If you want to use your exemption for a certain purchase, you swipe your card and it debits your account. Over the course of time as the dynamics of saving and spending evolve, I think that a C.T. could also reduce or eliminate the need for SS altogether. Of course, that would be a VERY long term goal (50-100 years), so it is good that SS is solvent for quite some time yet. The average American spends 24 hours a year dealing with their taxes. With a consumption tax, that time goes to virtually nil, giving another benefit. I would set the tax rate high enough to pay for all of our spending plus about 5%, with that 5% going to pay down the debt. Once we reach certain levels of debt, we could use some of that 5% as a "tax holiday" around back to school time much like we do here in Texas. Once 25% of the debt is paid, a quarter of that 5% gets rebated as a "tax holiday." Once half the debt has been paid, the holiday gets extended and so on. If we set the consumption tax based on government spending, it would also pressure lawmakers to reduce spending since the tax rate would be pegged to pay for all of our expenditures. This would be far more transparent, would make deficits a thing of the past, and would give us the ability to pay off the debt.
Didn't Australia institute a consumption tax (or GST), including an exemption on "fresh food" in 97 or so? I wonder how they feel about it now? Charging GST. Businesses are required to charge GST at the rate of 10% on goods and services that they supply to customers. The GST payable is included in the price paid by the recipient of the goods and services. The supplier must pass on this amount of GST to the Tax Office. Here's a list of goods that are tax exempt: GST-free supplies This checklist shows the types of supply that are GST-free, subject to conditions in some cases. Note also that some supplies are outside the GST system altogether. Cars for disabled people Charities: - Donated second-hand goods - Non-commercial activities - Raffles and bingo Child Care Education Exports Exported insurance Food Funerals contracted pre 1 December 1999 Health and medical Health Insurance International mail Post 30 June 2000 supplies under certain transitional contracts Precious metals, supplies to dealers Professional and trade courses Real estate transactions: - Farm sales - Farm subdivisions - Government land grants Religious services Sale of business: - Sale of farm - sale of going concern Second-hand goods - Charities Travel and Tourism - International travel - Inwards duty free shops - Travel agent’s fees on exempt travel, overseas accommodation, etc - Travel insurance on exempt travel Water, sewerage and drainage Everything else is taxed at a 10% rate that the business sends to the government.
my understanding is that the plan under the FairTax proposal is widely supported by many on the left...particularly those whose constituents are among the impoverished. i used to know the details of that plan better than i do now...but i remember reading articles citing how odd it was to see some of those folks in lock-step with guys on the right.
I agree. The only way I could support a CT/VAT would be if there were a flat tax on coporation and workers to counterbalance. The flat tax could also be phased in to shield low income earners. We could lose the SS/Medicare tax will we are at it.
http://www.fairtaxvolunteer.org/smart/faq-main.html#13 How does the FairTax protect low-income and lower middle-income families and individuals? Under the FairTax plan, poor people pay no net FairTax at all up to the poverty level! Every household receives a rebate that is equal to the FairTax paid on essential goods and services, and wage earners are no longer subject to the most regressive and burdensome tax of all, the payroll tax. Those spending at twice the poverty level will pay a tax of only 11.5 percent – a rate much lower than the income and payroll tax burden they bear today. Under the federal income tax, slow economic growth and recessions have a disproportionately adverse impact on lower income families. Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides. The FairTax dramatically improves economic growth and wage rates. Retaining the present tax system makes economic progress needlessly slow, thus harming low-income people the most. In contrast, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower income families and individuals. In addition to receiving the monthly FairTax rebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more hidden taxes on goods (averaging 22 percent) or services (averaging 25 percent), and used goods are tax-free.
http://www.fairtaxvolunteer.org/smart/faq-main.html#13 Is it fair for rich people to get the exact same FairTax rebate from the federal government as the poorest person in America? Let’s look at a billionaire under the FairTax – if he spends $10,000,000 dollars he pays a tax of $2,300,000 and gets a rebate of $4,283 (assuming he is married and has no children). His effective tax rate is 22.96 percent. Now, let’s look at a middle-income married couple, under the FairTax, with no children – if they spend $40,000, they pay $4,917 net of their rebate for an effective tax rate of 12.3 percent. The effective tax rate increases as spending increases, but never exceeds 23 percent! Figure 3: Comparison of effective tax rates FairTax Income tax FairTax Income tax Expenditures = income $40,000 $40,000 Net tax $4,917 $6,005 Effective tax rate 12.3% 15.0% In contrast, this same couple, if they earn $40,000 in wages today under the income tax, pays $3,060 in payroll taxes and $2,945 in income taxes for a total of $6,005 in taxes (15.0 percent). In addition, their employer pays another $3,060 in payroll taxes. Most economists agree that the employer payroll tax is actually borne by employees in the form of lower wages. Looked at this way, this couple is paying $9,065 (22.6 percent) in taxes today, which doesn’t even include the hidden taxes they pay every time they make a purchase. Therefore, a middle-income married couple with no children has an effective FairTax rate of 12.3 percent, compared to their effective income tax rate of 22.6 percent! Finally, let’s look at a low-income couple under the FairTax – they pay no net FairTax at all. Today, under the income tax system, they not only pay 15 percent in payroll taxes, but they also pay hidden taxes - arising from corporate taxes, private sector compliance costs, and payroll taxes passed on to consumers and embedded in the price of everything they buy, from goods (averaging 22 percent) to services (averaging 25 percent).
It is nice to be cheery, contented and all, but can anyone think that Greenspan and Bush have all of a sudden decided to have a progressive consumption tax? Please provide one example, statment, or shred of evidence that these guys have had a change of heart. It is just another scheme to soak the poor and middle class. It might also be a feint to detract from the mess they have made of the budget and the public's rejection of their attempt to destroy social security. Maybe Bush can do a Code Orange or something tomorrow. for further distraction.
I will admit that I do not understand this as well as others, so let me ask a question. The Chronicle today said that they want to lower property taxes and raise the area sales tax to 9.8%. Does that mean that along with a National consumption tax of 10%, sales tax would be 19.8% on most items?
So how does this help me when: I barely pay income tax now (lower income, law student with education credit) and I don't own a house but my rent would go up 10%
You will spend the vast majority of your life outside of this set of circumstances. In other words, you cannot limit your benefit analysis to your current situation. That's ridiculously short-sighted. With logic such as the above, unfortunately I can not make you my intern this summer.
