Consumption Tax

[Rubia Warren]

I've seen quite a few articles suggesting that in the future, we may be looking at some sort of comsumption tax as a reform of our current federal tax system.
What do you think about it?
Would that be a better thing, or is it a bad idea?

[Ryokan]

As long as they make sure to make provision for the very poor, its fine. I think it would promote savings, which is nice.

[Teallaura]

We have a sales tax based system in Alabama (effectively) - it's a really bad idea. First, it's hard to exclude the poor (although I suspect that a card-based system modeled on WIC could work). But the big problem comes during economic downturns - people have a strange tendency not to buy as much when times are bad. That translates into lower funds at a time when the government needs more funds (spending our way out of a downturn is a time honored method - well, at least it tends to work). Couple it with a Balanced Budget Amendment (if one gets revived) and there will be a new word in the national lexicon - proration. Believe me, it's not a pretty word.

Consumption taxes sound good in theory - but they don't work that well in practice.

[jason]

I've seen quite a few articles suggesting that in the future, we may be looking at some sort of comsumption tax as a reform of our current federal tax system.
What do you think about it?
Would that be a better thing, or is it a bad idea?
It depends how it is done.

We got a GST (Goods and Services Tax) in Australia. But a lot of other taxes stayed around, and we now even get GST on taxes (Like GST on fuel levies) which is just wrong.

I think a better solution for government is to get out of businesses it has no proper place being. Then the government would not need so much money to underwrite projects it shouldn't be involved in in the first place.

Jason

[Ryokan]

We have a sales tax based system in Alabama (effectively) - it's a really bad idea. First, it's hard to exclude the poor (although I suspect that a card-based system modeled on WIC could work). But the big problem comes during economic downturns - people have a strange tendency not to buy as much when times are bad. That translates into lower funds at a time when the government needs more funds (spending our way out of a downturn is a time honored method - well, at least it tends to work). If Alabama were the federal government, though, it could cut taxes to induce spending. And a little economioc downturn that got Americans saving rather than spending would be good in the long run.
Couple it with a Balanced Budget Amendment (if one gets revived) and there will be a new word in the national lexicon - proration. Believe me, it's not a pretty word.[=/QUOTE] A balanced budget ammendment will never get passed because the world's economy needs a US deficit. Just not one as big as it currently is. A balanced budget ammendment would end in a taxx increase any way you cut it, anyway.
[quote]
Consumption taxes sound good in theory - but they don't work that well in practice.


Just for state governments.

[Teallaura]

If Alabama were the federal government, though, it could cut taxes to induce spending. And a little economioc downturn that got Americans saving rather than spending would be good in the long run.
If Alabama cut taxes any more it couldn't sustain basic functions (and believe me, it doesn't do much else). Actually, Alabama takes in more Federal dollars in matching funds and grants than it pays out in taxes - not an option for the Federal government.

A mild downturn, maybe - but what about a severe recession? The Federal government wouldn't have the same flexibility to stimulate job growth. Nor would it have the same capacity to accelerate defense spending as quickly unless it had reserves to call upon - you're asking for a lot of fiscal responsibility from a modern Congress....



A balanced budget ammendment will never get passed because the world's economy needs a US deficit. Just not one as big as it currently is. A balanced budget ammendment would end in a taxx increase any way you cut it, anyway.

Just for state governments.
Never say never in politics - a strongly isolationistic government - and that's not outside the realm of possibility - and it'll come back pretty quick. I agree it's not on the immediate horizon.

I don't see results improving by expanding the scope from state to Federal. Many of the programs the Federal government now funds are there for the long haul simply because there would be way too much political backlash to deal with if they were cut (Welfare, Social Security, M'caid, M'care...) or they are essential functions (defense, et al). You can tweak only so much - I don't see the political will for the massive cuts you'd need to support this - and eventually you'd still run into funding inconsistency from declining economic conditions. It stinks with education budgets - I'd say skip it with defense or any other essential - or even the social programs.

[Ryokan]

If Alabama cut taxes any more it couldn't sustain basic functions (and believe me, it doesn't do much else). Actually, Alabama takes in more Federal dollars in matching funds and grants than it pays out in taxes - not an option for the Federal government.

A mild downturn, maybe - but what about a severe recession? The Federal government wouldn't have the same flexibility to stimulate job growth. Nor would it have the same capacity to accelerate defense spending as quickly unless it had reserves to call upon - you're asking for a lot of fiscal responsibility from a modern Congress....
But Alabama cannot go into debt. The Feds can. The tax system in no way changes that. Its a different means of getting money, but it can still be raised, lowered, and taken out debt against like the current system. Its a nonissue. Alabama's problems are that it spends to much.



Never say never in politics - a strongly isolationistic government - and that's not outside the realm of possibility - and it'll come back pretty quick. I agree it's not on the immediate horizon.
I hope it never comes to pass. That would be a far greater disaster for us and the world than any tax system.

I don't see results improving by expanding the scope from state to Federal. Many of the programs the Federal government now funds are there for the long haul simply because there would be way too much political backlash to deal with if they were cut (Welfare, Social Security, M'caid, M'care...) or they are essential functions (defense, et al). You can tweak only so much - I don't see the political will for the massive cuts you'd need to support this - and eventually you'd still run into funding inconsistency from declining economic conditions. It stinks with education budgets - I'd say skip it with defense or any other essential - or even the social programs.


The trick is to keep the growth under the rate of inflation. Then the gov budget will slowly and stealthly shrink.

[Bill the Cat]

I'm for a 10% flat tax.

[C. D. Ward]

I agree with Bill the Cat, although I'm not sure about the amount. At the very least, it's a better way (IMO) to approach the problem than consumption taxes.

The issues Teallaura raises are very real. Consumption taxes seem to work for states, but then again, few states depend only upon consumption taxes; most have income tax at some level as well. And those that do depend upon consumption taxes (like Florida) are generally ones where they have significant out-of-state consumption (of in-state goods) that provides a higher-than-otherwise base for revenues.

And, of course, consumption taxes are quite probably the most regressive of all taxes. And problematic to collect; consider how many states attempt to tax inter-state spending. How successful do you imagine they actually are?

[Ryokan]

The best solution is a 25% flat tax, I think. And then a balanced budget ammendment of some sort. Like, the budget has to be balanced over the life of the economic cycle. But that's never gonna happen.

[Bill the Cat]

Read this for a good defense of a 19% flat tax

http://www-hoover.stanford.edu/publications/books/fulltext/flattax/chpt4.html

[Zeluvia]

I dont support a so called "flat tax" because sooner or later, someone would want some "exemptions".

I have copies here of my Grandfathers very first tax return. It was damn close to a flat tax back then!

Value added consumption tax works pretty well elsewhere, and Texas manages to survive on sales and propery taxes.