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Comment by harmonicon | Hacker News Reader

I have a lot of respect for Bill Gates because of his philanthropic efforts. However, I am very skeptical of the consumption tax argument. To me that sounds like a sales tax and sales tax is regressive. i.e. Tax on French baguette hits the poor more than the rich, since as a group they consume way more baguette.

Even if it is just a special sales tax that targets the rich only, discouraging spending by people with money can hardly be a good thing; that's how recession happen and the rich will continue to capture a bigger share of the total wealth. For an economy to flourish we need the wealth to flow from individual to individual. If all the water on earth is stuck in the ocean we'd have serious problem. Same with wealth.

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It's true that most sales taxes are regressive, but you can have progressive sales taxes as well. A few examples:

In New York, there's no tax on clothing and shoes under $110 (at least that was the number when I lived there a few years ago). If you're buying stuff that costs more than that, then you can probably afford the tax, since there plenty of completely fashionable and functional items that cost far less.

In many (most?) places, there's no sales tax on most foods you'd buy in a supermarket, but there is on prepared foods and restaurant meals.

You could probably take these even further by raising the taxes on more expensive clothing items. If you're buying a $1,000 purse or eating a $500 meal, you can probably afford a higher tax rate.

It would probably be challenging to apply a progressive sales tax to everything, but it's certainly possible for many purchases.

It is possible to make sales taxes that aren't massively regressive, and your examples are a lot better than most of the "progressive" consumption-only tax proposals (which generally revolve around giving a basic rebate and then taxing yachts and basic foodstuffs alike)

But the bigger problem isn't the proportion of consumption being taxed, but that the very rich actually consume very little of their income (which implies higher taxes for everyone else). To be fair to Bill Gates, he also favours high taxes on intragenerational transfers of all that accumulated wealth and is busy giving his own self-made fortune away. But even then, consumption taxes miss one of the biggest, if not the biggest benefits to holding large amounts of wealth.... being able to choose exactly when, if and on what terms you spend your "work" time. A person who consumes $100k per annum in interest income from their professionally-managed wealth fund which is so big they never have to worry about their future is much, much better off in real terms than somebody spending a little over $100k from a salary they spend 50% of their waking hours earning not to mention many hours worrying about what would happen if they lost that job.

Obviously the status quo income tax isn't ideal in that respect either, and ramping up tax on capital gains has the side effect of harming good companies' chances of getting funded, but that's why Piketty favours taxing the entire capital base rather than only capital which happens to be spent on luxury shoes or earning a decent return on investment.

People seem to be having a hard time with the consumption tax argument. I may be completely wrong but here's how I interpret it:

1. Like income tax you have various 'bands' 2. The more you spend/consume they higher the band you are in 3. Lower bands pay less 4. Someone with little money buying just the essentials consumes e.g. $10,000 per year. Band 1 (a tax of say 10%) starts above $10,000 and thus this person is exempt. 5. If you buy Ferrari's, mansions etc. and consume $5m per year you would be in one of the higher bands and would pay a higher tax rate (say 40%).

In other words the little people keep all their money as it's only spent on essentials. People who have disposable income pay back a percentage of what they spend.

Your argument that it would discourage spending and be bad for the economy is fine but I don't think it would hit as bad as you think. Say I can afford to spend $1m on a car but because of the 40% consumption tax it will actually work out as $1.4m at the end of the year will I still buy that car? Chances are that $0.4m isn't a big deal to me. Sure I might not like it but I probably have enough disposable income that I'll pay it.

The key is getting the tax bands correct so that your disposable income is still high enough that after the tax you will still buy the item. You will have less purchasing power but the money going into the tax system could be used to offset the decline in economic growth.

That's how I interpret it as well, though I don't see how one would implement this. Would we all have to start collecting all our receipts, even for private purchases? That seems like a headache...

True, a system would need to be put in place. Would it be enough to just look at money going out of your bank account and report that? I guess there would be irregularities if you were sending money as a gift or to charity.

The system would also need to be global, through international cooperation - otherwise one who spends the same amount in one country would end up in a higher tax bracket than one who spends the same amount divided between two countries.

he proposed progressive tax on consumption. His argument makes sense.

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