November 22, 2015

JUST ANOTHER WAY W WAS AHEAD OF HIS TIME:

Momentum Builds to Tax Consumption More, Income Less (John Harwood, 11/20/15, NY Times)

[T]he broad direction of their proposals -- toward taxing spending rather than income -- is one that many economists in both parties applaud. It is also one that politicians, of necessity, may eventually embrace.

Rand Paul would replace all of today's federal taxes with a 14.5 percent flat personal income tax and a 14.5 percent value-added tax.Tax Policy: Rand Paul and the VAT That Dare Not Speak Its NameJUNE 18, 2015
Promises of tax cuts were everywhere at the Republican debate in Milwaukee on Tuesday night.Road to 2016: The G.O.P. Tax Debate: Low or Lower; Flat or Flatter?NOV. 11, 2015
Senator Ted Cruz of Texas and Senator Rand Paul of Kentucky do it most explicitly by proposing variations on "value-added tax" systems used by European countries. Considered politically toxic in the United States -- which helps explain why neither candidate invokes the name -- VAT systems function as national sales taxes.

But other Republicans would also move, if less directly, toward taxing consumption (what economists call spending) and away from taxing income. Mr. Trump says his plan would eliminate income taxes for more than half of American households. Jeb Bush, the former Florida governor, and Senator Marco Rubio of Florida would let businesses immediately write off capital investment. Mr. Rubio would eliminate taxes on investment income.

"Every one of the Republican plans I have looked at closely has more of a consumption basis," said Leonard Burman, a former official in President Bill Clinton's administration who directs the Urban-Brookings Tax Policy Center.

Democratic politicians typically oppose taxing consumption on fairness grounds; lower earners spend a greater proportion of their income than higher earners. They favor what are called progressive taxes, those that tax a higher proportion of wealthier people's income. That instinct is especially acute in an era of stagnant middle-class wages and widening income inequality.

Yet Democratic economists, like their Republican counterparts, say taxing consumption encourages savings, investment and greater economic growth. Moreover, the very income trends Democratic politicians point to with alarm complicate their ability to raise enough revenue to finance government programs without increasing burdens on the middle class as well as the affluent.

Tax what you don't want, not what you do.

Posted by at November 22, 2015 11:45 AM

  

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