Progressive Consumption Taxes April 26, 2011

I agree with Frank, not with Henderson.  I have a lot less problem with progressive consumption taxes on the rich than with progressive income taxes.  That way if the rich use their money constructively, for capital investment, saving, or philanthropy, they are less likely to be penalized for making the money.  Note that consumption or sales taxes, if equal on all items, tend to be ‘regressive,’ since the less affluent usually spend a higher portion of their incomes.  If we want to soak the rich, it’s less unhealthy to do so when they are spending it on bling than when they are making or receiving it in the first place.

Related: “Robert Frank’s Strange Case for Taxing The Rich” by David R. Henderson at Cato.org

 

One Comments
PeterAttwood 04/27/2011

Henderson evidently finds holes in Frank’s logic, but it reminds me that you can be right even though your proofs are wrong, as happened a lot in mathematics in the 17th century.
On the whole, I think consumption taxes are a better idea than income taxes, because needless consumption is harmful all the way around.  Indeed, it’s quickly becoming unsustainable, and the idea of basing prosperity on ever more frenetic consumption – that is waste – is just nuts.  But it’s addiction, which is why this obvious truth will go unheeded until enforced by collapse.
But higher income taxes for rich folks are also appropriate.  The theological reason is obvious – all should be taxed equally, and the two copper coins of the poor are far more than the abundance of the rich.  As Jesus pointed out, the first penny is a lot more than the extra million dollars, since the poor woman’s living is what is involved, unlike with the abundance of the rich which is unconnected to anything real like that.
And this reality explains another reason why superfluous income should be taxed away – if the rich man doesn’t buy bling, the superfluity still works mischief.  This extra money wants to go out and speculate, which is a big reason why extreme wealth disparity, with all that extra money sloshing around, results in financialization of the economy, with the invention of exotic instruments and clever tricks – all of which is not only unproductive but is altogether idle and destructive.  All kinds of talent goes into accounting, speculating, and lawyering which would have been of more use figuring out how to do real things better, and doing them.  If the pull of money into this futility weren’t enough, the push caused by lost demand in everyone else that is impoverished ensures the results we now see.  And so, as it is written, he that robs the poor and he who gives to the rich will both alike come to poverty.
 
 

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