Progressive annual consumption tax?

Or maybe we'd assume that all money taken out of your bank account is for consumption, and tax it accordingly? For example, if I make two thousand dollars a month, and at the end of the month I have one thousand in my account, we calculate that as a thousand dollars spent, and tax it according to the graduated rate.

Or just get rid of paper money entirely, and make sure all purchases happen with a credit card, debit card, app, whatever, which can be recorded by the government. Youd probably see a pretty big pushback against the abolition of cash, if cash were the only way to duck paying the tax.

 

An oxymoron.

From Forbes no less.

No surprise that they buried the lede in this story. I expect this is the bit that really has Gates salivating: No corporate tax. No capital tax.

So we need to move along that spectrum to the more expensive taxes, the ones with higher deadweight costs. And that's where our progressive consumptions tax comes in. We want to get rid of those more expensive ones, on capital, corporations and incomes and move to taxing consumption.

Really, this is nonsense, with no functional difference from taxing income, and we already have a consumption tax; it is called sales tax.

Spending more money isn't in and of itself a bad thing; it is a very good  thing, and ultimately what increases GDP, and employs more people. Given that,  I find it odd that this is something economists favour.

Start taxing people on how much they spend and one big incentive I see is the drive for people to buy cheaper goods, cheaper food, and cheaper everything. Who benefits? The larger corporations that sell things cheaper

The only reason I think someone might fall for this as a progressive idea is the confusion of consumption (spending of money) with consumption of resources. And the false idea that spending more on things is is necessarily wasteful, gluttonous, and using too much. It isn't.

Why is it the only tax not mentioned is the one that WOULD deal with real consumption  - of resources: a carbon tax?

Please explain how you make a consumption tax (that is blind to earning) progressive?

Moving on from that, the idea of not taxing savings is problematic. First, if you move your income to spend out of country is it taxed at the border? If so, be prepared for a 20 cent dollar.

If you mean to ignore all earnings not spent -- in other words tax harder the people who only make enough to live -- be prepared for increasing poverty and and greater inequality.

If you tax only what is spent, be prepared for the mother of all depressions as people with lots of money simply wait it out.

Having more than one type of tax can be a way to avoid excesses. It is also easier to design than finding one perfect tax -- so consumption taxes with rebates, property taxes, business taxes and income taxes as well as other duties and taxes is where we are.

I would move to reduce reliance on property tax before doing anything else. It pushes up the cost of housing. Instead replace it with a luxury tax on some items -- including high-value properties. A small civic fee for city services could remain as a tax but be based on income.

6079_Smith_W wrote:

Plus all the offloading from the provincial and federal levels have wound up falling on the municipalities. Virtually all our recent cuts here in SK have translated into a massive hike in property tax.

And getting rid of sales tax would be good as well, since it hits you harder the less you earn.

Of course the real elephant in the room is doing exactly the opposite of what Bill Gates wants - restoring corporate tax to a fair rate. Do that, and we wouldn't have to worry about tweaking here and there on everything else.

I have not heard Gates's opinions on corporate tax rates.

There are some issues with consumption taxes that we may want to bear in mind, especially as they are now with us. They are a real attack on the underground economy and many have to pay tax that could otherwise avoid it were it not for this tax. It is hard to say how much money is collected over the table business taxes that would otherwise have been lost without the intrusive sales tax credit system.

Consumption taxes are regressive by nature, but the use of a credit system can make them less so. I think these are not so simple.

Just as I have debated the flat tax issue -- A flat tax can be regressive or progressive depending on how you design it. A flat tax that starts at the first dollar earned as some libertarian's would have would be extremely regressive. Set a flat tax at a high rate and place the basic exemption at, say, 75% of the median wage and do the math, it would be more progressive than the current system. A two tier, almost flat tax would be even better via a surtax on income over $100,000. with the high up front exemption everyone would get, the result would provide similar progressivity to what we get with three tiers below $100,000 in earnings.

 

It may be better to avoid distractions like what to do with consumption taxes and focus more on the declining share and rates of corporate tax and income tax reductions for the very wealthy.

Stephen Gordon wrote:

Actually, we already have pretty much the equivalent to a (progressive) consumption tax in place. For almost everyone, income from savings in exempt from tax - accumulated house equity, pension contributions, RRSPs, etc. So what we call income tax is a tax on income that hasn't been saved - that is, consumption.

Hello Stephen,  I remember discussing this a number of years ago, though I cannot find the thread.  I strongly  believe that it has strong merits, though I also would say that transition is tricky.

Do not confuse this with current sales taxes - which are inherently unprogressive.  A universal progressive consumption tax would replace income tax (taxable income x progressive tax rates) with a consumption model where income is reduced savings/investment (taxable income - savings x progressive tax rates). It would need to be combined with a wealth tax (periodic or inheritance) as a consumption tax model does not recognize the value of ownership (income tax is not much better).

In a narrow economic sense it will focus energies on thrift and productivity.  Kardashian lifestyles will be punished while simple living will be rewarded. In the macro view investment will be pushed toward investment and can be focussed (in my view realestate investments would limited).  Moreover saving the planet calls on us to not just switch our energy sources but to reduce our energy usage a tax system that rewards this is a key component.

I don't necessarily agree with all the items on Stephens list, but it points to the transition. However, it is important to identify the serious issue of wealth.  The more the system becomes oriented to consumption taxation, the more important dealing with wealth tax becomes.

The answer to how to tax is coming up with an array of taxes that achieve tax goals. In addition to fairness and efficiency taxes need to judged on how they affect the economy.  I agree that until a consumption tax can prove that it is fair and efficient, that income tax is needed.

The key thing about global warming is that talking about changing energy sources is only a small part of the solution. We need to reduce our energy usage drastically, and we need to build our societies rules around reducing energy consumption. Discretionary consumption and the production footprint of products for discretionary consumption has to be reduced. 

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The problem is that a lot of people do not know what is "dirty" and what is "clean". An effective taxing mechanism would help people appreciate the difference.

Like "Stewardship Ontario"s disastrous "eco fees"?  Remember those?  Pretty much arbitrary extra fees on things that sound scary, like bleach?

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So yes, reducing discretionary consumption has to be one of our key goals.

Before we roll up our sleeves on that, we'll first need to agree in what consumption is discretionary.

That basket doesn't recognize that people have different wants and needs, except for the very basics of food, clothing and shelter (including heating in a cold climate).

When I was growing up I spent the summers on the farm with my cousins.  Very little money those days.  No kleenex - everyone had a hanky.  They also talked of the days when the Eaton's catalogue was in the outhouse. So yes Kleenex is a choice, so is survival of the planet.

What I trying to say is that fighting over pipelines is looking at the wrong end of the telescope.  We need to develope rules and penalties (the tax system being central) that force us  to make choices.  This is both as individuals and as industry creating products for individuals. We need to start looking in the mirror instead of at the bogeyman somewhere else.

 So yes if your 'hobby' is jumping on a plane and visiting new and exciting places, we need to punish you for your choice.

lagatta4 wrote:

That basket doesn't recognize that people have different wants and needs, except for the very basics of food, clothing and shelter (including heating in a cold climate).

Very true. Just like our current tax system is far more complicated than how much did you make - give us a chunk. No reason that the tax reductions for remote communities, disabilities, families and such could not be factored in.

It is not just the tax, but also the opportunity to avoid being taxed. How does Lagatta annual expenditures on her bike transportation compare to my truck? Is there a problem with her choice getting a tax benefit for this choice?  

Consider the tax as revenue neutral, the ten houses on your block pay the same total amount. Your neighbor on the left makes the same as your neighbor on the right and paid the same income tax.  However one household likes to travel, has a carport full of cars and toys, and has all new clothes of the latest fashion,  while the other household grows a small garden, buys produce in seasons and preserves it, and shops second hand.  When you have them over for a dinner one night the world travellers complain about their tax bill and you point out that they decide how much tax they pay and point to your other neighbor whose taxes have fallen dramatically.  

As a side point I would imagine they both use kleenex and toilet paper, but it is likely that one household uses reusable rags while the other uses paper towel.

Well the tax system is unblinking.  You buy a $200 bike every second year and spend another $100 to keep it on the road.  On top of that you end up driving to work twice as much because the junker bike is slower and breaks down.  If in the end the expensive bike costs less then you pay less tax. If the expense is more, and you just like looking cool, then pay the tax.

Fair point on the paper products. However take a look at it as a process. If the tax is applied progressively then if you are a few bucks into the next tax rate you pay a little higher rate of tax.  So get rid of the ski vacations and replace them with cross country skiing somewhere local, paper products will not be the low hangin fruit.  After a while people will be trained to look for consumption savings.  As people move into lower taxation levels, the tax rates will need to adjust to provide the same level of revenue.

Stephen Gordon has pointed out that we have taken many steps down this path. The tax free savings account is one in particular. Medicare was a complex idea at one time.

We are already implimenting steps in Canada.  We don't have to look at Europe.  Put it into google and you will see that it is being discussed the world over (both from the right and the left). I am not holding out hope that our small thinking country will impliment it in full, just saying it is the right thing to do.

What I trying to say is that fighting over pipelines is looking at the wrong end of the telescope.  We need to develope rules and penalties (the tax system being central) that force us  to make choices.  This is both as individuals and as industry creating products for individuals. We need to start looking in the mirror instead of at the bogeyman somewhere else.

..although i agree that some taxes need to happen re climate i disagree with the thrust of this statement: 

1) stopping pipelines directly targets those creating the problem and opens up dialogue for change from the bottom up where change really comes from.

2) trying to do this through the tax system that targets everyone is not identifying what and who needs to change if we are going to avoid catastrophe. it places blame on everyone when in fact it is not everyone creating the problem equally.  see below.

3) the bogeymen are real. and that's where the focus needs to be.

EXECUTIVE SUMMARY

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Rather than attribute emissions to nations, the study aggregates historical emissions according to carbon producing entities themselves. Heede concludes that nearly two-thirds of carbon dioxide emitted since the 1750s can be traced to the 90 largest fossil fuel and cement producers, most of which still operate. online

The research attributes 63 percent of the carbon dioxide and methane emitted between 1751 and 2010 to just 90 entities. Fifty are investor-owned companies such as Chevron, Peabody, Shell, and BHP Billiton. Thirty-one are state-owned companies such as Saudi Aramco and Statoil, and nine are government-run industries in countries such as China, Poland, and the former Soviet Union. The research also classified the 90 entities according to type of fossil fuel extracted and marketed.

1. Income Tax doesn't touch rich people properly.  Never has, never will.  Neither does a consumption tax. That is why I said that a wealth tax was a necessary component.  A consumption tax does not eliminate the ability of imposing other taxes (wealth taxes, carbon taxes).
2. Attacking individual sources of oil is pretty meaningless. Yes most of the carbon is input at the beginning.  So what.  The reason oil is produced is so it can be consumed. Like the war on drugs attacking a list of producers will not do anything but rearrange the players.  You have to eliminate consumption.
3. Yes I can come up with reasons for a truck.  Right now it is full of lumber I picked up on craigslist for free. Still if I had to pay a usury carbon tax as well as the marginal consumption tax it would be a consideration.  My Dad quit smoking because of the taxes.
4. A consumption tax punishes consumption and forces people to question their choices.  Income tax punishes production.  One deters waste the other deters work.  Moreover, there are other goals that can be attacked by wealth taxes, and targeted taxes (ie carbon), it is not a binary choice.