>4) replace payroll and income taxes with consumption taxes
how can this be implemented in a fashion that's non-regressive? income taxes in most countries are progressive, and consumption taxes are regressive.
how can this be implemented in a fashion that's non-regressive? income taxes in most countries are progressive, and consumption taxes are regressive.
For example, Exampleville institutes a consumption tax of 15%. Such a tax is regressive because consumption is usually a smaller proportion of a wealthy person's income than a poor person's income. To counteract this, Exampleville pays a monthly cash grant to all citizens and adjusts the payment level so that the cash grant is larger for the poor and smaller (or non-existent) for the wealthy.
See https://tax.purpleplans.org for an example of a real proposal that mimics this scheme.
I don't really see how these can be true given that, as you state, wealthy people spend a smaller portion (a lot smaller) of their income than do poor people.
To toss out some numbers, let's say the wealthy person makes $1M per year at a 35% effective income tax rate and the poor person makes $50K per year at an effective 10% income tax rate. Let's further suppose the wealthy person spends half their after-tax income, and the poor person spends all of it. Total tax revenue in this case would be $355K under the income scheme, but if we switch to a consumption tax, the tax revenue drops to $55,500. There's no amount of benefit allocation you can do to make up the difference. On top of that, the tax burden for the wealthy person (after offsetting for the benefit allocation) is still massively lower than under the income scheme, even if they get $0 in benefits. You'd have to raise the consumption tax ridiculously high (33% !) to get close, which will effectively discourage expenditures and encourage savings, pretty much destroying the US consumption-based economy.
I just can't see a realistic scenario where this setup isn't regressive or generally a bad idea. If you want to keep a progressive system but also eliminate income tax, we need to consider a wealth tax.
I don't think 33% is ridiculously high. VAT is 25% in Norway, Sweden, and Denmark, 27% in Hungary; and their economies are doing well.
Personally I think there is almost no way to make this work without being highly regressive.
However, if you just tried the experiment, then to the extent it redistributed resources, it would be taking more money from those who consumed more at a given level of income, and giving it to those who consumed less.
So it would probably reduce consumer activity, and I don't know if that would be good for the economy in the long run. I don't think it would be a null-op though. It doesn't seem like a logical or mathematical contradiction.
> A direct, personal consumption tax may take the form of an expenditure tax, that is, an income tax that deducts savings and investments, such as the Hall–Rabushka flat tax. A direct consumption tax may be called an expenditure tax, a cash-flow tax, or a consumed-income tax and can be flat or progressive...
> This form of tax applies to the difference between the income of an individual and the increase/decrease in his savings. Like the other consumption taxes, simple personal consumption taxes tend to be regressive with respect to income. However, because this tax applies on an individual basis, it can be made as progressive as a progressive personal income tax. Just as income tax rates increase with personal income, consumption tax rates increase with personal consumption. Economists from Milton Friedman to Edward Gramlich and Robert H. Frank have supported a progressive consumption tax.