Experts Warn Against Consumption Tax

[cthrumatrix]

Experts Warn Against Consumption Tax

Wed Mar 23, 3:13 PM ET U.S. Government - AP


By MARY DALRYMPLE, AP Tax Writer

NEW ORLEANS - A poorly designed tax system overhaul to make the current income tax more like a consumption tax would be "the worst of all worlds," experts told a presidential commission Wednesday.

Bob Greenstein, founder and executive director of the Center on Budget and Policy Priorities, told the President's Advisory Panel on Federal Tax Reform not to add consumption tax features, such as large tax-free savings accounts, to the income tax.


"That approach, I think, is the worst of all worlds," he said. "It's sort of a `what not to do.'"


William Beach, director of the data analysis center at The Heritage Foundation, agreed. "The motto is, tax all income once and at its source," he said.


http://news.yahoo.com/news?tmpl=story&u=/ap/20050323/ap_on_go_ot/tax_overhaul

Hmmmm.... I guess we will not be seeing the 23% Consumption Tax that has been discussed.

[CindyDale]

1. It would be a disaster for consumption, but we need to reduce consumption.

Can you imagine how Freecycle would grow, carpooling (no more Hummers and the public screaming for improved public transportation)?

Actually, there might be some benefits to this if they exempted the poor.

I hadn't thought about that too much before, but it's a more interesting idea than it seemed at first, even if were unfair.

Services should be exempt, though. That's the only way I'd support it. Of course, I am a service provider. :-)

edit: diction

[merwin]

2. Problem is, the poor would be the hardest hit under this administration.

[AP]

15. Most people who work for a living make money by selling a consumer good.

Reducing consumption through a tax would kill those people.

Most people who get very rich these days do it not by selling consumer goods to a wealthy middle class. They get it through financial tricks, or getting a piece of some irrationally inflating bubble.

If we're going to tax anything, it should be, for example, profits on capital gains and dividends over 500K .

[Deja Q]

23. There's a flaw here:

Do you believe they will really exempt the poor?

[Charlie Brown]

3. If even The Heritage Foundation thinks it's a bad idea

then that's pretty unanimous.

[sled]

4. Yep...

Whenever all these "experts" agree, they're never wrong. Maybe, but I can't recall one instance, when these "experts'" consensus of opinion was "unanimous", & they were right...ever.

If they all agree, you better look again...there's a rat to be smelled.

Iraq, the "drug war", the Patriot Act, etc., etc., etc., ad nauseam.

[Charlie Brown]

5. So you SUPPORT a consumption tax?

replete with several layers of sales tax and non-taxable savings accounts?

[OrangeCountyDemocrat]

6. Am I Reading This Right?

They are actually against this? I certainly think it's a dumb idea, but I figured the conservatives would be all over this one. Really hits the lower & middle classes hardest, even though the wealthy consume. They would do far better with this tax I think than an income tax. But I still suppose they support a flat tax, which would also be disasterous, but in different ways.

[jmowreader]

8. The rich generally get that way through consumption

More specifically, people consuming the things the rich sell.

Or their investing in companies whose products are consumed by the masses.

Or their investing/owning companies who sell products to companies who make consumer goods out of them...you get the idea.

A consumption tax will lead to lower consumption. When you're dependent upon consumption, reductions in it are bad, m'kay?

The tax cut that would most stimulate the economy is one Bush will never, ever agree to: take the bottom two tax brackets and set their rates to zero. Don't do anything else. Take a family that has a $2000 tax liability and run it back to a $100 liability, and what happens? They're going to do one of four things with it: spend it, give it to charity, pay some bills or stick it in the bank. All of those things will positively impact the economy in different ways.

[sled]

11. Assumptions vs. Consumption

Is it an assumption, that a consumption tax will lead to lower consumption, thereby depriving the government of revenue, or is the correct assumption, that since consumption makes people rich, & richer, due to folks consuming the things the rich sell, that by taxing consumption, the government would also be enriched, by consumption? Maybe the assumption, about consumption, is something we do not know. Are our consumption assumptions flawed, or are our assumptions, concerning consumption, absolutes? Will higher prices mean assumptions, about consumption will prove correct, & consumption will decrease? It's never happened, yet, & the assumption, about consumption, seems to be a fallacy, that has never been, & may never be.

[jmowreader]

17. Sled really likes his rhyme time...

But check it out, man. Every country that has a consumption tax (also known as VAT, MwsT, or whatever the name of it is) also has an income tax...because taxing consumption alone doesn't pay the government's bills.

I think you'd see a great increase in highway robbery if a consumption tax came about. People would hijack Wal-Mart trucks to gather goods for sale on the black market. (Somewhere in the archive is a little tale I wrote about a notional couple who ran a tax-free store in their basement. Its stock came from hijackers.)

If you've got a 7-percent state sales tax, a 25-percent federal sales tax, and federal and state income taxes that maintain possibly lower rates than pre-federal sales tax, you've reduced the taxpayer's buying power by twenty percent--which means for those who spend it all because they have to, there's going to be some doing without. Okay, you can do without DVDs. You can do without Barbie dolls--your kid will be pissed, but she can. And you can probably do without the gas to visit Grandma every weekend. But surprise, folks: you can't do without food.

When it gets to the point at which people are turning in their dogs to the pound because they can't afford to feed them, and they're taking second jobs to afford the gas to go to the first one, they're gonna be pissed. Bush can go Clinton Clinton Clinton all day long, but eventually a little light will go on: I didn't have to put my dog to sleep because I couldn't afford to feed him when Clinton was in office. Okay George, what's the fuckin' deal?

[sled]

21. Absolutely...

There's no question about it, that ending up with an income tax & a consumption tax, could be one possible outcome, along with a number of other possibilities, and that, no doubt, would be the worst of all. The downsizing of the size & scope of the federal government would probably, & hopefully, have to accompany any type of change in our current system of taxation. To some, a negative, for myself, as a self-proclaimed Jeffersonian anti-federalist, & a proponent of states' & the American peoples' rights, a boon.

As with all things, there's probably a number of negative & positive consequences, just like with an income tax, that is, if there's actually anything possibly positive about the current federal income tax.

My point is, without comparing the two, on equal footing, sans the input of these "experts" from Washington, who, by my last count, have been absolutely wrong, concerning everything they've ever voiced an opinion about (i.e. Iraq, the "drug war", etc., etc.), especially when they speak in unanimity, no new idea will ever receive a fair hearing.

Throughout history, the "experts" have proclaimed an ability to be all knowing, & all seeing, from the "flat earth" types, to the "humans can't fly" consortium, & all have been proven lacking. When they agree something's impossible, folks of vision see the possible, maybe even the most likely.

My only point being, lay all the cards on the table, & have a fair & open hearing, but if Americans continue to follow these self-anointed "experts", we more than likely, as history seems to reflect, will end up in a ditch...again.

As Satan said...

"Oh, it's true. I know your race. It is made up of sheep. It is governed by minorities, seldom or never by majorities. It suppresses its feelings and its beliefs and follows the handful that makes the most noise. Sometimes the noisy handful is right, sometimes wrong; but no matter, the crowd follows it." - Mark Twain, "The Mysterious Stranger" (Chapter 9)

[w4rma]

19. The result will be that the wealthy "investor" class will quit investing

and start "saving" until the situation arises again where they MUST invest to keep an income. And in the meantime, the pool of capital in circulation will be much much smaller, which means there will be much much less money to be made by *anyone*.

[sled]

25. Maybe...

From assumptions, about consumption, to caving, to saving, to "they MUST", or they bust...bottom line, we do not know, what we do not know, but history may tell us, that the current federal income tax system, is the worst of all possible schemes...too broke, to fix...& it is fixed, by whoever currently holds the reins, of power...don't tax you, don't tax me, tax that other guy, behind that tree...usually, the middle class, working bloke...

[sled]

9. "SUPPORT"??? Where???

I don't "SUPPORT" any tax. When defining what I "SUPPORT", I tend to align myself with the founder of the Democratic party, an anti-federalist named Thomas Jefferson.

I also realize that, the vast majority of these "experts" who tend to agree on about everything that's detrimental to freedom, liberty, justice, & the natural rights of working men & women, in America, seem to form a symbiotic relationship, housed within the confines of Washington, where they perform monkey shines, & call it a two party system, while every American outside the "beltway", sucks hind tit, & is forced to pay for these excesses, & brilliant ideas, flowing from on high. These same overpaid politicos, lobbyists, & "experts", who never quite seem to have the best interests of the majority of Americans at heart, let alone, good ideas, concoct report, after opinion, after study, explaining to us lesser beings, exactly what is right & wrong, with any new thought, that might cut the purse strings, & insane spending sprees, that have gotten us into these messes, of governance, to begin with. Any system that takes the wind out of sails, of these rights-robbing hooligans', is just fine by me. Reinstating the Constitution, & the Bill of Rights, as written, would be a nice place to start. Power to the people.

An anti-federalist Jeffersonian cynic, & what was once the Democratic Party's school of thought, is what I "SUPPORT"...a party of the common man. Of the people, by the people, for the people, & closest to the people.

[snippy]

7. What Bush and many of the Tax Cut Monkeys want is an income tax

on wages and salaries only which would have the effect of a consumption tax on middle and low income earners. They want to allow unlimited deductions for income which is invested and exempt all investment income from the income tax.

[Toots]

10. "It's sort of a `what not to do.'"

If this is true then it's a given that is what they will do..It is what they have done in all other areas.

[DFWdem]

12. I actually think a consumption tax could be a good idea

Provided the first $50,000 or so in spending is exempted from taxation.

[AP]

14. The richer you are, the lower the tax burden would be.

So wherever you start taxing people (50k, in your world) the tax is most unfair to the people just above the threshold.

Why do you want to put the tax hammer to people who make 50k-100K relative to people who make 1,000,000-100,000,000?

Why do that when there are many ways to tax people that spread the burden equitably?

[DFWdem]

16. Well

I pulled the $50k number out of the air. The middle class shouldn't be completely exempt from taxes. Also, we're talking about a consumption tax rather than an income tax. The first $50k in spending would not be taxed. That doesn't mean the tax starts on people making $50k a year. Obviously the CBO or someone would have to determine what spending level would be taxed, but in theory it could work. I might favor it if the line of demarcation was around the median US income or something along those lines.

[AP]

18. In theory and in practice it would be very unfair.

Presuming you could figure out a way to not tax consumption up to 50K, above that, your effective tax rate would be a function of the difference between what you make and what you spend, and it would also be a function of the depreciation of the assets you purchase.

The wealthier you are, you benefit two ways: (1) the gap between what you spend and what you make grows, and (2) you are in a better position to buy things that don't depreciate (and in fact, you could make sure that most of your consumption -- from cars to pens to watches to jewelry to furniture) was on appreciating assets.

Therefore, the wealthier you are, the lower your effective tax rate would be. It will approach zero, and although it wouldn't reach zero, it will still be much less than the effective tax rate on people over your threshold who spend more of their income and spend it on items that depreciate.

[cascadiance]

13. We should frame consumption tax as THE CROOK'S TAX

... as that is who will benefit mostly from it, since it would be a nightmare to enforce properly and invite all kinds of evasion that won't be prosecuted. It is the crooks that are championing it too. They want to increase their tax loopholes ten-fold just like CEO's, etc. have increased their salaries and benefits 10 fold over the last two decades over the rest of us too. The regressive nature is bad enough, but even if one accepts the notion that consumption should be taxed, one shouldn't accept the inherent unenforcability of it in a fair manner.

[4dsc]

20. Your missing this important point here

These so-called Fair Taxer's believe that corporate America would reduce of the cost of new goods and services by 20% to 30%, what they call the "hiddem tax" on all goods and service.. They state that corporate American escalates the costs of goods by 20-30% to cover the taxes they have to pay..

but I ask them for PROOF that corporate American would lower price by 20-30%, I never get an answer...

Not to mention, this is nothing more than a massive giveaway to the rich !! No more capital gains or other investment taxes!!

[sled]

24. "PROOF"???

The reason you may not get the answer, you seek, is it's very hard to provide "PROOF", about something that hasn't happened.

Just as, I can't prove to you that a consumption tax would capture revenue from an underground, black market economy, like proceeds from illegal activity (i.e. sales of illegal drugs & contraband, folks who work exclusively for cash, prostitution, etc.), but the outcome is plausible, & very likely, that it would, maybe even enough to offset the "20-30%", which might not occur, that you wrote about.

[Deja Q]

22. Duh. Our economy is BASED ON CONSUMPTION! Yipes,

Stop consuming and the economy disintegrates from the inertia.

It's so simple that even eminent non-experts can see what would happen.

[sled]

26. Sooo...

Do we "eminent non-experts" conclude that consumption will cease, or tax revenues will rise? One has never happened, in the history of the world, the other is an unknown, unless one can truly predict the future.

Most likely, much ado, about nothing, in either case.