Should the US replace income tax with consumption tax?

Question

I'd like to hear economists' opinions, not political ones. It seems to me that by taxing income, we are discouraging something that is desirable to society- people working. What if we replaced income tax with a "consumption tax"- charging people for the resources they consume rather than their work? This would encourage resource conservation while at the same time eliminate a negative incentive on working. I think this would lead to increased productivity and job growth in the US. What are your thoughts?

Answer 1

I think we'd be a lot better off with a consumption tax instead of income tax. While all taxes harm the economy (I'm not saying that aren't necessary though---the government needs revenue), it's better to encourage productivity than consumption. Without an income tax, people would have more incentive to produce more, and with a consumption tax, people would have more incentive to not buy junk they don't need. It's also harder to cheat with consumption taxes, and people would spend less time and energy figuring out their taxes. Nevertheless, it's extremely unlikely that a consumption tax would replace the income tax. Many, many people and organizations have a lot to lose if the income tax went away and would fight to keep it. For charities and their donors as well as realtors and people who pay mortgage interest, if there's no income tax, there's no income tax deduction to benefit from. HR Block would go out of business if no one needed help doing their taxes. People who have a lot of wealth in relation to their income, such as senior citizens and people who inherited or married into a rich family, would also lose if spending rather than working were taxed. All told, I think the forces against switching tax systems are too strong for us to make a switch to a consumption tax.

As for the consumption tax being less progressive, that could be true, but I've heard it proposed that the government could give everyone a flat rebate (same for rich and poor) that would make a consumption tax more progressive. Also, luxury goods could be taxed at a higher rate, while essential needs could be not taxed at all.

Answer 2

Of course you are correct. Taxing spending instead of earning puts a new value on saving. As long as certain "necessities" (primarily food) was exempt it would be a fair way to raise revenue. Plus, the IRS could effectively be shut down as no one would need to file a return. This would also have an immediate effect on the economy because the only taxes withheld from paychecks would be for social security. Everyone would get a raise in take home pay which would, for the most part, increase purchasing. The cost of goods would increase to cover the tax, but it puts the decision of when and how much tax anyone would be willing to pay. If you have a lot of money and enjoy spending it, you will pay quite a bit in taxes. However, if you are a saver, regardless of your income, you can keep your tax bill low simply by holding your spending in check.

Answer 3

No way in hell! the two could be a super bonanza for the wealthy yet might crucify the poor and center type. A flat tax might would desire to be assessed at a fee of 25% a minimum of to enhance an analogous gross revenues because of the fact the present ingenious tax of 10% to 35%. And that is with out exemptions, credit, or different deductions in any respect. purely taxpayers nicely into 6-parent territory pay internet earnings taxes everywhere close to 25%. A $10,000,000 a 12 months CEO might get a funky $a million,000,000 tax smash yet a single mom helping 3 little ones on a crap $9 an hour job might lose just about $11,000 a 12 months in paying for skill with loss of the EIC, extra newborn Tax credit and a 25% tax invoice. the common relatives of four on the median $45k consistent with 12 months earnings might lose over $10,000 consistent with 12 months. intake taxes are not to any extent further effective. a countrywide revenues tax might would desire to be accrued at just about 30% or greater to enhance an analogous gross revenues. The poor and center type spend maximum of their earnings on mandatory (and taxable) products and amenities. they could be crushed by using an in one day 30% improve contained in the cost of each little thing. the prosperous on the different hand have a tendency to acquire wealth, no longer spend all of it, so as that they had see a super tax cut back. Do you have an extra $6,000 to pay the tax on a clean $20,000 automobile? Or how appropriate to the $60,000 tax on a clean $2 hundred,000 abode? In money at last? Neither do I! That tax wold harm the two the automobile and shape industries in one day. that does no longer even start to handle the themes of black advertising that is brought about by using this type of severe tax fee and the charges of imposing the tax and gathering it. the 1st rule of taxation is that this: confirm that the taxpayer can arise with the money for to pay the tax. Neither a flat fee earnings tax nor a severe fee revenues tax meets that attempt. the sole tax that universally meets that attempt is a exact applied ingenious earnings tax. property taxes occupy a center floor as long as you do no longer overbuy and your earnings retains p.c.. with property values and local budgets. although as quickly as you turn to a fixed earnings in retirement, property tax will improve often stress vendors to sell off just to stay afloat financially.

Answer 4

The main argument agaist a consumption tax is that it is an extremely regresive form of taxation falling most heavily upon those who can least affort to support such a form of taxation while those who have extremely high incomes for whatever reason would bear the least tax burdon.

Answer 5

Economically, it would kill the lower class, and you would have to support financially that lower class by raising taxes (the consumption tax) and then the lower class would get even lower since you just raised the consumption tax, and you would have to raise taxes more to help them, and then the lower class would get lower and larger because you just raised the tax, and then you would have to raise the tax again.... etc.

Get it?

Answer 6

I don't know what kind of tax we should go to be we need to do something. Taxing our income isn't working at all.

Answer 7

thats brilliant... the less you want, the less you pay :-)

theyd never go for it... let me know when you run for governement so i can vote for you LOL

if your not a car addict and you ride a bike its actually already free LOL... no insurance on bikes and the bike is a pedsetrian legally