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But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption. Think about the three wealthy people I described earlier: One investing in companies, one in philanthropy, and one in a lavish lifestyle. There’s nothing wrong with the last guy, but I think he should pay more taxes than the others."
The notion of a progressive consumption tax is interesting and untested; you'd only pay taxes on what you consume, and the more you consume in a year, the more you pay. Do you think this would be a feasible, efficient, and fair tax? What do you think of some of Gate's other critiques of Piketty's work?
Hat tip: Marginal Revolution
I think that Gates overlooks some very important points. He casually references that the consumption tax would be hard to measure and I think this point is understated. Personally I have no idea how much I consume in a year but I can take a solid guess on how much I make. Many new policies would need to be implemented to track consumption and make sure that people are not losing receipts and lying about their habits. While the consumption tax is a great idea, until I am presented with a method of effectively implementing it I will remain a skeptic. I don't think the answer is to levy it and figure our how to deal with the overwhelming difficulties simply because all tax systems have similar problems, even if they are to a lesser degree.
ReplyDeleteI agree with Scott. I would have no idea how much I consume in a year and I don't consume even a fraction of what really wealthy people consume. How are those guys going to keep track of how much they consume. Maybe they could hire a guy for that. But, I do like Gate's idea of taxing the guy that uses his income for consumption more than the guys that use their income for philanthropy or investments. I just don't know how you would measure something like that.
ReplyDeleteMy main concern with Gate's consumption tax is that it could significantly discourage consumption. This potential consequence is very important to consider since our economy relies on high levels of consumption to continue the "virtuous cycle" that Reich described in the film we watched in class. However, I suppose in the absence of an income tax, people would have a higher level of disposable income, but then would consumption increase enough to cover the lost income tax revenues? It's difficult for me to wrap my mind around the implications of Gates' tax plan because it is so different from our current tax system (which is also quite complicated to fully to understand).
ReplyDeleteAlso since the richest people spend a smaller proportion of their income on consumption, would this progressive tax on consumption actually have the same effects as a regressive income tax?
If I were a government employee creating a tax policy reform, I would agree that using a consumption tax is the best option. It has a lack of transparency as we saw in class when Dr. McKinney asked us how much we spend on sales tax each year. We don't have the viable information to look this up like we do for income tax. However I am not a government employee, I am a consumer. Because of this, I d not agree with a non-transparent tax policy. It is unfair for budgeting money and takes advantage of the public. A balance between the two is good because it allows citizens to have a better gauge of their spending while still giving a nice boost to the government's budget. I think that people would start to monitor how much they are spending on taxes because after a few months, a larger chunk of their savings is gone. People would start to spend less and less money because they are not able to gauge how much they are spending. The only option from there for the public is to stop spending. In my opinion, I don't think this type of tax policy would be beneficial in the long-term.
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