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Comment by darkchasma | Hacker News Reader

This would only penalize the poor, as the rich could afford back yards full of solar panels and wind turbines, and drive Tesla cars... And since the rich are such a small percent, this would have virtually no impact on the environment.

I love the idea, but I do not believe this is a better solution to sales and employment tax.

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I think a consumption tax is the best solution. Basic necessities like food, housing, etc.. are not taxed (or are minimally taxed). Luxury items like televisions, cell phones, etc. should be taxed though. This wouldn't penalize the poor, but the government would get the money they're looking for.

Can anyone think of any downsides to this?

EDIT: Yikes, I leave for half an hour and come back to a maelstrom of comments. So, to acknowledge one of your points, it could be difficult to categorize what is or isn't a luxury item. But, c'mon, is a $90,000 car really a necessity? I think it's easy to tell which items definitely aren't necessities.

Where do you draw the line? Is a home broadband connection a necessity or a luxury good? How about a computer? Or a car?

In New York, shoes under $120 aren't taxed. You can segment taxes easily by price range.

If you can ever get the bureaucrats to keep the inflationary adjustments current. See the alternative minimum tax for the greatest example of that in action.

The answer to this objection is, as always, "somewhere reasonable."

What I'm trying to get across is that it is totally pointless to complain that an internet comment isn't exhaustive in its detail.

You'd have to figure out where "basic necessities" stop. No taxes on a 10 million dollar house but the poor family buying a TV will have to pay?

Someone else suggested it, and I think it works too - consumption tax on everything (one thing I would add is a scaling tax rate of the per goods cost against the median income, so that a car costing 200k might be taxed 10% higher than a 20k one, and I would call the taxation of large purchases at higher rates a benefit) but a tax credit for everyone equivalent to some metric to measure the amount of money it costs to feed / house / heat / clothe oneself.

I imagine that would have severe economic implications.

Televisions and cell phones are not luxury items.

I suppose in an age where we're used to being able to contact anyone from nearly anywhere with a cellphone and it's increasingly hard to find payphones, those might not be a "luxury" per se. And cellphones can be had for relatively cheap. But televisions? Nobody needs a television.

I'm not a luddite and I appreciate the things that technology enables for me, but I appreciate those things even more because I realize I don't need them.

What about a computer screen?

They come built in.

Not on desktops, they don't. Even if a "bundle" can be considered built-in, should I buy a whole new computer when my monitor breaks?

Who buys desktops anymore? They can pay sales tax.

Plus, if you really wanted to tax TV's and not computer monitors, they're usually different SKU's and accept different inputs. If it has HDMI, coax, or component inputs, tax it as a TV. VGA, DVI, DisplayPort, Thunderbolt, tax it as a monitor.

"Who buys desktops anymore?"

Okayyy......

The trend has turned very sharply towards laptops over the past 10-15 years. It's a moot point in any case as you can distinguish computer displays from televisions according to input format.

About 250 million people per year apparently. And for the next decade desktops are likely to continue to be sold to the tune of 200+ million units per year even when taking into account a sales decline.

Access to mass communication is a basic necessity in any democracy. People have to be able to inform themselves about current political topics if they are to take informed decisions.

As such all that’s needed to access that information is not a luxury item. I agree that nowadays it’s possible to inform oneself equally well if one can access the internet (and a newspaper subscription was always a possible substitute), but I think it would be wrong to privilege certain forms of access to information, not the least because certain forms of accessing information might be harder or easier to use for certain groups of people. Consequently privileging, say, internet access would potentially exclude certain people from the political process.

Mass media plays a central and important role in the democracy of any larger democracy. Its existence is vital and as many people as possible should have access to it.

I think you make an extremely important point. I largely agree with you, yet I don't think it's entirely cynical of me to think that if your primary source of data for making informed decisions is coming from television, you're (and we're all) still probably better off without it.

Really? I guess you have a narrow definition of luxury.

A phone is necessary to get a job, and at least where I live, cellphones are cheaper than landlines.

Exempting specific categories of purchases quickly becomes a quagmire of complexity. Better to just have an automatic tax credit of whatever amount is determined to offset tax on the typical "basic necessities" purchases of an individual or family.

We have this in form of VAT back in the other side of the pond. It's a massive, massive failure because it's impossible to actually keep the items list up to date. For example, a refrigerator and a TV are counted as luxury items because of the date the law was enacted, and it has since not been updated because of the gridlock not unlike D.C.'s.

One solution that a number of people have been working on is called the "Fair Tax." [1]

The general idea (and I'm probably missing some of the significant points, but this is a rough outline) is that there would be no income tax at all — all taxes would be on consumption. Rather than trying to regulate what is taxed and what isn't, everything would be taxed at the same rate.

To fight any regressiveness involved in that, everyone would get a set amount of money every year, which is equal to the consumption tax you'd be paying on the first, say, $30K of purchases a year. So if the consumption tax rate is 25%, you'd be given $7,500 a year. (The term they use is "prebate.") That way, everyone's first $30K of expenses is a wash. After that point, you're only taxed on the money you spend beyond it. The more you buy, the more tax you pay.

A number of Republicans have been in favor of the Fair Tax, and it was one of the planks of Gary Johnson's presidential campaign last year. But it gets support from Democrats as well, and was one of the main components of Mike Gravel's campaign in 2008.

I'm sure others will point out downsides to it, but one that I know of is that current retirees, who have already paid income tax on some of their savings, would have much less purchasing power under the new plan. That is, they'd be double-taxed on the money used to buy goods under a Fair Tax plan. I believe there's also been skepticism from opponents that the numbers actually work out well enough that a Fair Tax system would bring in enough money (as compared with current tax revenues). [Edit: the double-taxation wouldn't be limited to retirees; they're just the group that's often mentioned as being significantly affected.]

(I'm not an apologist for a Fair Tax approach; just wanted to mention it as one theory for introducing a consumption-based tax in the US, in case you're interested / want to learn more.)

1. http://www.fairtax.org/

One seemingly obvious problem to this (at least the way you describe it, maybe not the way it's actually proposed - I didn't read it) is that this would disincentivize spending, and incentivize saving. So it would seem[1] that this would cause the economy to take a big hit.

I just remember a few years back when the economy was at the worst we've seen in a while, the government seemed to really push spending and investing in stocks over saving. So if there was no penalty for earning money, only spending it, we'd be back in the same boat.

[1] Disclaimer: I'm certainly not an expert in economics.

The US economy is in such dire straights because of consumption, not due to the lack of it. The Keynesian economics fraud of the last few decades (see: Japan, half of Europe, the US), which has been pushed 24/7 at every level of government and media, is massively to blame.

Ask yourself one simple question: how does higher consumer spending help the US economy when all that money flows back to eg China? Right now the US is merely a middleman, with service workers that take a small cut for distribution.

China as you'll have noticed is getting wildly rich, at breakneck speed, without the need to constantly push over consumption (their savings rate is doing just fine).

America needs a lot more savings, capital investment, and production, and a lot less spending. We had this algorithm decades ago, and we were extraordinarily rich accordingly, and were far better off with a lot less consumer spending as a ratio of our economy.

To paraphrase Warren Buffett: you get rich producing things, and you get poor buying things.

China figured out how it works. Their economy more closely resembles the US economy of the early 20th century, in terms of production vs consumption. The arguments being made for China to consume more, are arguments in favor of China handicapping itself to allow others to compete more easily.

sounds like VAT, no?

isn't VAT universally hated?

It doesn't sound like VAT to me.

Still, VAT is a taxation scheme that actually makes some sense. Is it really hated? Why would it be hated?

The planet money podcast recently talked about this. One of the reasons:

If you're "poor" and you spend 90% of your income on goods, you're getting taxed on 90% of your income.

If you're "rich", you spend 10% of your income on goods and just put the rest in other investments. This means that only 10% of your income gets taxed.

Surprised nobody has mentioned a Land Value Tax.

http://www.monbiot.com/2013/01/21/a-telling-silence/ http://www.newstatesman.com/blogs/mehdi-hasan/2012/02/land-t...

I'm glad that nobody has mentioned it.

Land value taxes are among the most evil possible. It's no coincidence land value taxes are so commonly related to extreme Socialism and Communism ideologically.

Modern property taxes are a pretty horrendously vile tax on average people as well and are extremely regressive. The notion that you can work your whole life, pay off your average house, and still owe $2,000 per year in property taxes should be an outrage. $20,000+ over ten years? That destroys all the value return a typical home owner can ever expect to earn on their house. For most people, a house is the largest investment they'll ever make, and property taxes help destroy that. Not to mention the terrible idea that your paid for house can then be stolen because you don't pay the tax.

The idea seems good though. By occupying land you are hoarding scarce resource. Tax should incentivise you to occupy less. I think the tax should be progressive so if you have small house and lot you don't owe state that much but if you have McMansion you should pay handsomely or sell it tho someone who can actually afford it or to someone who splits the lot between multiple buyers.

The idea seems good but the implementation could lead to cramped living and this in turn leads to sanitation and social issues.

People need space - forcing them to live in small areas will not work out well.

Some large percentage of land value taxes could be dedicated to improving transport infrastructure around the place where high taxes come to lessen the squash.

Is a $50,000 car a necessity? $20,000? $10,000? Is a car a necessity at all?

How about food? Is a $250 dinner at Saison a necessity? $5 dinner at McDonalds? $20 per pound imported beef at the grocery store?

$200 jeans vs $80 vs $20?

Are glasses a luxury item? How about Google Glasses?

How do you define it? The devil is always in the details with laws and especially tax law, you can't just hand waive this kind of stuff away.

You'd have to place caps on items. That said, you'd have to deal with complexity in pricing: $500,000 for a house in Houston is probably a luxury, but not so much in markets like San Francisco.

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