Bill Gates: Don't tax my income, tax my consumption [video] | Hacker News Reader

Bill Gates: Don't tax my income, tax my consumption [video]

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10 pointsk-mcgrady17 comments

But rich people spend much less of their income than other people do. And poor people living paycheck-to-paycheck spend 100% of their income. So only taxing consumption is a huge benefit to rich people over poor people.

A consumption tax is a wealth tax.

Imagine I make $100 in two possible worlds:

In one, you tax my income at 10%, leaving me with $90. I save this remainder for one year, earning 8% interest, and end up with $97.20 to spend.

In the other, you don't tax my income at all. I save my entire income, $100, for one year, earning 8% interest, and end up with $108 to spend. However, there is a consumption tax of 10%. This means that I can only buy $97.20 worth of stuff.

The objection here might be: a consumption tax might have an equal effect on the spending power of the rich, but it means that we might never gather any taxes from huge funds that are never completely consumed. Here's the problem with that logic: it is fundamentally impossible to tax someone on money they do not intend to spend. For example, I could take $1,000 from Bill Gates, but if he didn't intend to spend that money (or the interest on it), the incidence of the tax can not actually fall on Bill Gates, because it does not affect his life in any way. It must fall on someone else--for example, the business he would have invested in or the charity he would have given to.

On the other hand, if Bill was planning to spend that money (or its interest), then I can rest assured that my consumption tax will collect my 10%.

The rich could spend less percentage wise of their income (they may also spend more since they have more disposable income), but they could also spend more in a real dollar value wise which would generate more tax revenue.

Taxing consumption already occurs: For example, if you drive a car you pay the gasoline tax and therefor pay more than a person who doesn't drive a car (who doesn't have to pay for fuel). Similarly, sales tax. The more you buy, the more tax you pay.

Real dollar value of rich vs poor isn't the question. Unless something is horribly wrong, the rich will always pay more tax dollars than poor people! The question is taxing income vs taxing consumption. Taxing income means you get more money from rich people than you would if you only taxed their consumption, since they spend a smaller percentage of their income.

Taxing consumption vs. taxing income promotes more savings and less consumption.

Also, in theory, you simplify compliance and decrease evasion as your tax income comes from businesses and not individuals.

> Taxing consumption vs. taxing income promotes more savings and less consumption.

Right, but I don't want "more saving and less consumption" as much as I want more people to be able to afford to choose whether savings or consumption is best for them, and taxing things that the poor do more than the rich promotes less people being able to afford to choose whether savings or consumption is best. Marginal propensity to consume is pretty strongly negatively correlated with income at all levels, so even with poverty-level exemptions that create some progressivity at the lower end, consumption taxes are overall regressive in income.

> Also, in theory, you simplify compliance and decrease evasion as your tax income comes from businesses and not individuals.

This only makes sense, even in theory, if you start with the presumption that the average business is less likely to seek to manipulate things to minimize tax (whether through avoidance or evasion) than the average individual, which is an assumption which could use some justification.

Well, the point was by simplifying compliance due to a much smaller tax collection base, you reduce the likelihood of non-compliance due to the higher scrutiny.

> Taxing consumption vs. taxing income promotes more savings and less consumption

It promotes saving amongst people who can afford to save. For poor/normal people there are several priorities they are not meeting before they would reach savings.

Poor people generally already consume way below their minimum preferred standard of living - given the option, they won't consume less. Rich people will consume less.

And then, less consumption precludes trickle-down and decreases opportunities for those poor people. Overall, very bad.

I don't disagree. I'm not an economist so I can only look at it from what I think is logical.

That being said, I read about the FairTax proposal a long time back and that is what turned me on to the idea of preferring consumption vs. income tax. In that proposal they actually address the issue via a poverty level spending tax rebate (prebate in the plan).

If the net effect on the poor is basically a wash, do you still object to the idea? Do you also have a problem with the idea of less consumption as you feel it will overall hurt our economy?

Personally I welcome the idea of burning the current tax code and starting fresh with a simple consumption tax collected by businesses.

As a side note, the 'richer' people become, the more they find ways and can afford ways to avoid, and in some cases evade, paying taxes. The poor and lower-middle class cannot generally afford to do this. Not to mention large corporations and the games they play.

So, do you want rich people to save more of their money? Or would you rather structure the tax system to reward investment?

Considering poor people have to both have some of their money taken away due to income tax, and pay a tax on whatever they purchase, having just one of those could provide a net benefit.

Not if it was revenue neutral -- consumption taxes (because the poor have a higher marginal propensity to consume) are weighted toward the poor. Income taxes are weighted toward the more well off (really, the upper middle class, because the upper class earns most of their income from capital, which is specially favored income in the tax systems). Shifting the tax burden from the exisitng mix to all consumption tax would increase the relative tax burden on the poor and lower middle class and decrease it on the rich and upper middle class.

And if it wasn't revenue neutral, so you just took away income tax and left existing consumption tax, then while the absolute tax burden on the poor would be less (as it would for everyone), either the national debt and deficit would skyrocket, or massive cuts to government operations that would cause the most immediate pain for the poor (but long term pain across the board) would have to be made.

You wouldn't tax essentials (basic food, basic clothing etc.). You would tax the extravagances that only the wealthy can afford.

Not sure how you fairly determine what clothing is needed and what is extravagance.

Currently, where I live, basic food items are already tax free. Things like candy and other junk are taxed.

I think it would work best based on relative price. So the cheapest jeans on the market are $10. Jeans that cost 50% more than that are taxed.

That seems unworkably complex and subjective.

No, no - don't tax his income, tax his wealth :)

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