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Ed Viguerie

Max Sawicky, a lefty economist with the Economic Policy Institute, has a blog post on this subject you might find interesting:


Josh Yelon

To me, it seems this consumption tax is really just the income tax, with IRA status granted to all savings account.

So I say: drop the payroll tax entirely. Scale up the income tax to compensate (if you wish, raise the bottom tax rate, but not all the way up to 15.3%). Then, if you want to convert the income tax to a consumption tax, do that by granting IRA status to more and more kinds of investments. In other words, no need to create a whole bunch of new law for this, we already have what we need.

Or, if you're worried that dissolving the payroll tax will eliminate the social security trust fund, and if you don't want that to happen, then do this: redefine payroll tax as a constant multiple of income tax.


Actually, though I'm not much read, I commented on this as well, some actually in line with what you write. My thoughts are here:



So did Drum, BTW:


Michael Lipsky

I welcome the new ideas on taxes because they open up discussions that simply can't be had in the present tax cut debacle. How much do we care about fairness and progressivity? To what extent are we poorly served because the current tax system is too easy to demonize and discredits democratic government? Why do different behaviors and sources of income get treated differently? I know that this is the bread and butter of tax specialists, but it would be useful to have a broader discussion of some of these issues.

Ben Page

Josh Yelon is right that a consumption tax is quite similar to an income tax with tax-exempt saving, with one key exception. When a consumption tax is instituted, retirees are hit hard- they paid tax on returns to saving all along, and then they have to pay again when they consume in retirement. That hit to the elderly is actually where most of the "supply side" effect of moving to a consumption tax comes from- the elderly reduce consumption because they have no other choice (except for those who can reduce bequests), and therefore national saving and investment increase. Understandably, advocates of a consumption tax don't tend to make a big deal of this fact.

Josh Yelon

Ben - tricky.. hmm.

Probably the thing to do is to let people record which, of their investments, they already had at the time the new tax was implemented. All of those investments would be subject to capital gains tax on withdrawal. Any new money they invest from that day forward would be tax-deferred, which would mean that it would be taxed as income on withdrawal.


Josh nailed it. If you can make current savings go away (which he explains how to do) the increased incentive to save takes care of seniors once they begin to live off retirement income. The only problem I see is that the amount of money you need to save to maintain the same standard of living as before the consumption tax has suddenly jumped and not everyone might appreciate that...

Paul C

I not sure I understand why income is seen as the best indicator of ability to pay. Isn't net worth a better indicator? Surely someone like Bush, who inhereted or was given so much money has a greater ability to pay than someone who started from nothing but now has a seven figure income.

Erik D

Nice try, but a reform like this wouldn’t work for the simple reason that it is not simple enough – no one would have any idea what it’s actually about, least of all the people it is meant to benefit.

More to the point, this is exactly the kind of opacity that here in Europe leads to such rampant and gleeful non-compliance across the income spectrum, cheating that makes everyone co-conspirators in a system that inevitably disenfranchises those at or near the bottom.


right Eric, how to tax the informal earners, which is large in the US.

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