February 11, 2003


Consumption tax theory (Bruce Bartlett, February 11, 2003, townhall.com)
The idea of taxing consumption rather than income has been around for almost 500 years. In 1651, the philosopher Thomas Hobbes wrote in "Leviathan" that taxing what people consume is more fair than taxing what they earn. The former, he thought, represented what people take out of society, while the latter showed what they contributed.

Hobbes asked, Why should a rich man who saves much and consumes little be more heavily taxed than one of modest means who consumes all he earns and more by going into debt? The first is giving something to society by saving, while the second makes society poorer.

At almost the same time, Sir William Petty also made a strong case for taxing consumption on the grounds that the goods and services that people consume are a truer measure of their well being than what they earn. "Every man should pay according to what he actually enjoyeth," Petty wrote in 1662. And taxes should be light on those "who please to be content with natural necessities."

In the 18th century, the great Scottish philosopher David Hume argued that a principal benefit of consumption taxes is that they are to a certain extent voluntary, because people can choose whether or not to consume the taxed commodity. This view was endorsed by Alexander Hamilton in Federalist No. 21. Consequently, he thought that taxes on consumption were less likely to become excessive.

I bring this history up only to indicate that taxing consumption, rather than income, is not a radical new idea, but one that has a long and distinguished pedigree. It fell out of favor in the 20th century because of Keynesian economics and the popularity of income redistribution as a central tenet of liberalism. Keynes saw saving as bad for growth, and income taxation discourages saving by including it in the tax base, which would not be the case under a consumption tax. And income taxation also supported liberalism by justifying heavy taxes on forms of income mainly accruing to the wealthy, such as capital gains and dividends.

Keynes bad. Hamilton good. Posted by Orrin Judd at February 11, 2003 10:09 AM

Taxes of consumption have the advantage of finding ability to pay that is concealed by barter, under-the-counter transactions and the like. Under comsumption taxation the pimps, drug dealers and politicians would be taxed as heavily as the rest of us. The idea will go nowhere, I fear, as envy of the rich has a death grip on the consciousness of the electorate.

Posted by: Lou Gots at February 12, 2003 3:49 PM

AUTHOR: Lou Gots
EMAIL: bigfootsix06@yahoo.com
DATE: 02/12/2003 03:49:00 PM
AUTHOR: Lou Gots
EMAIL: bigfootsix06@yahoo.com
DATE: 2/12/2003 03:49:00 PM

Posted by: Lou Gots at February 12, 2003 3:49 PM