Greenspan Touts Idea of a Consumption Tax

[toasty]

http://story.news.yahoo.com/news?tmpl=story&cid=509&e=3&u=/ap/20050303/ap_on_bi_ge/greenspan

Looks like Greenspan is looking into the idea of a consumption tax to take the place of at least part of the income tax. Anyone have any thoughts on this? I'm particularly interested to hear what non-US folks that live in countries that rely heavily upon VATs and the like think.

I think its an interesting idea, and one that could be structured poorly, or in a way that could make some sense. I tend to find Greenspan a pretty credible guy, and if he thinks it's worth looking into, I'm inclined to at least give it a listen.

Thoughts?

[Yao]

Isn't VAT already some kind of consumption tax?

That would double taxing on one item...maybe the income taxes could be lowered and the VAT raised on some products? And do you also have different rates according to the kind of product you're acquiring? Like, basic needs have a low tax percentage of 6%, luxury goods 19,5%. That kind of differentiation could favour the poor people if their income taxes are lowered, while big spenders automatically pay more into the system.

[toasty]

We don't have VAT here in the states. We have a sales tax that is set by state and local governments. Different states do it differently -- some states don't tax food, for example, but we don't have any sort of VAT per se...

[fishingnut]

what's VAT?

[toasty]

value added tax -- someone that lives with it can probably explain it better than I, but basically a tax is added to a product at each stage of the distribution chain. can someone more familiar with it help me out?

[Yao]

You said it spot on: a tax is raised on a product in every stage of it's production when it changes owner.

Raw material (example: cotton) has a price, when it is sold to a manufacturer, VAT is included in the price.

When manufactured, a tailor buys it: again, VAT is included in the selling price.

The tailor sells it to the shop: VAT included in the price.

You buy a sweater in the shop: VAT is again included in the price.

In all these stages there is a buyer and a seller: the buyer pays a tax, and usually raises the price of the product enough to make a profit from it. On top of that, comes again a tax for the next buying party in the chain, until it end with the ordinary customer, you and me.

So at every stage, the buyer pays a tax, a fixed percentage. In the end, when added together, the percentage is always the same in total from the selling price: basic goods usually do 6%, luxury goods 19,5% in my country.

The only problem with this country is: we have fucking high tax rates on our income too! In the end, you pay something like up to 50% in taxes, spread over different ways.

[mylexicon]

Re: Greenspan Touts Idea of a Consumption Tax

well one thing is for sure........we cannot allow for an income tax and a national
sales tax. Allowing both of those things under the constitution would certainly
lead to back breaking taxation.

Otherwise, I love the consumption tax. It would stop ridiculous class warfare
and it would stop people from using their votes as a weapon against other
people-----at least economically. Furthermore, it would allow Americans to
save more easily which would allow them to purchase income producing assets
and businesses more easily. Plus it makes tax collection more effecient
and will generally reduce the before tax cost of goods b/c companies will
no longer have to calculate gains with income tax estimation. They can simply
regulate the amount of tax they pay by controlling their purchases. And it
keeps getting better. The IRS could be downsized hugely b/c companies,
would be doing the tax collection and therefore would free up millions
of tax dollars. And finally, the nearly 1 trillion dollar blackmarket industries,
primarily pornography and other under-handed industries would go legit
because they wouldn't have to pay taxes on the income they made only
on the things they purchased----allowing the U.S. more GDP transparency.

There is only one major drawback-----retirees. People who have paid taxes
there entire lives and have been saving for the last 30 or 40 years would
see their nest eggs cut by the exact amount of the consumption tax. But
I'm sure we could come up with some sort of exemption for them.

Consumption tax really is the best thing since sliced bread in my opinion.
It allows us to save and invest easily. If you are in the upper class or the
lower class you don't have to worry about lobbyists trying to jack your tax
rates up; b/c they would have to pay the same tax. And we would save billions
by eliminating ineffecient tax codes and downsizing the IRS.

[HoneyBearKelly]

Re: Greenspan Touts Idea of a Consumption Tax

When did Greenspan's hackery start?
We need to ask our British friends how the VAT is working out for them? I'll hazard a guess and say not very well. I've even heard of something they call "booze cruises" to France for beer and cigarrettes.
But I'll let Big Media Matt explain it to you...

"On one of those awful cable news financial shows last weekend I saw a supply-sider making the argument that conservatives shouldn't support the idea of a VAT because it's too easy for politicians to raise VAT rates even if they start out low. That may well be correct, though I won't go into now. She then went on to argue that we ought to have a flat tax because it would make the tax code simple. Once upon a time, I was against the flat tax but accepted the CW that there's a tradeoff between simplicity and progressivity. Now that I've actually paid taxes, I'm baffled that any adult could possibly advance this argument.

What makes doing your taxes complicated is, very clearly, the part of the process where you need to calculate your taxable income. This is complicated, primarily, because we tax different kinds of income (dividends, interest, capital gains, wages, etc.) differently, and because the rules for things like business expenses and so forth are complicated. Once you have that figure calculating what you actually owe -- the part where having different brackets factors in -- is very simple. Of course it would be somewhat complicated to do this if you had to do it by hand, but a little computer assistance (TurboTax, say) makes it very simple. Computers can do division -- even complicated division -- very easily and automatically. What they can't do is calculate all your deductions and expenses for you. Those of us in the journalism trade tend to have a lot of miscellaneous income and a lot of small-bore business expenses that add up. It's complicated. There are things we can and should do to simplify the situation. But progressivity has nothing to do with it.

Indeed, if you want to talk about the relevance of the information age to policy, there's a strong case to be made that the brackets should be made more complicated, since we now have computers that can easily do the math for you. Instead of discrete brackets, we could have infinitessimal brackets, such that going from taxable income to taxes owed would require the use of calculus. In 1935 that would be totally unworkable, but in 2005 it would be no harder than implementing a flat tax. It's the deduction and unequal treatment of income that are the sole source of complexity and I would think this would be obvious to anyone who'd actually paid taxes. Perhaps TV pundits just hand stuff over to accountants and don't understand where the complexity comes from.

The oddest thing about this, really, is that this simplicity business isn't even what the supply-side case for a flat tax is. The case is supposed to be that progressive taxation leads to high marginal rates on high income earners, that this discourages high-earners from working longer hours, and that since high-earners have above-average productivity this has a disproportionately bad impact on national output. I don't think that's a compelling argument by any means, but it at least makes sense. Indeed, if you don't care about anything besides national output it may well even be correct. Instead we get this bogus simplicity spiel."

http://yglesias.typepad.com/matthew/2005/03/flat_tax_simple.html

[toasty]

http://www.theonion.com/wdyt/index.php?issue=4110

[fishingnut]

Re: Greenspan Touts Idea of a Consumption Tax

When did Greenspan's hackery start?
We need to ask our British friends how the VAT is working out for them? I'll hazard a guess and say not very well. I've even heard of something they call "booze cruises" to France for beer and cigarrettes.
But I'll let Big Media Matt explain it to you...

http://yglesias.typepad.com/matthew/...ax_simple.html

they do this now in the US but instead of booze and cigs, we go to mexico and canada to buy prescription drugs.

[DJkeithrace]

Re: Greenspan Touts Idea of a Consumption Tax

The one thing about a consuption tax that makes it really unfair for those in lower income tax brackets, is that they are paying taxes at the same rate as people who are more wealthy. People who are more wealthy can really afford to pay the taxes-poor people might not be able to. So it's unfair if a poor person can't afford to buy a loaf of bread because the tax makes it too expensive, for example.

[superdave]

Re: Greenspan Touts Idea of a Consumption Tax

Consumption tax is an interesting thought in place of a income tax. But, it has some real drawbacks already mentioned here.

Most with low income don't pay an income tax. They get what tax they pa back in a refund and a consumption tax would force them to pay a tax.

Also, some areas charge high sales tax rates. For example, I live in Houston, TX where the sales tax rate is already at 8.25%. If you add say another 5%, then I could see people discouraged from buying big ticket non-essential items.

Many families would miss out on getting child care, education, or mortgage interest credits. Also, think of the many deductions for charitiable organizations, religious, and other tax deductible donations that would be eliminated.

[geddon]

Re: Greenspan Touts Idea of a Consumption Tax

i agree that a consumption tax would be detrimental to the poorer people.

its a flat tax, a poor person pays $1 out of his $10. a rich person pays $1 out of his million or $100k.

there are millions of citizens that are poor but are not living on the government 'dole.' why should they be paying a significantly larger portion of their income to support a government that is used just as much (if not more) by the richer citizens (who actually have money to make their candidates win and make the government even more favorable to themselves)?

there is already sales tax in most states and that is a flat tax (although rich persons buy more it is unquestionable by statistics that sales tax affects lower income citizens more).

rather than a flat tax it makes more sense to me to reduce the cost of government. cutting things like stupid wars based on lies, corporate bailouts etc.

shrink the government and force it to spend less and we can have lower income taxes.

our current president likes to cut taxes and bill up the biggest deficit we've ever had. he clearly has selfish interests for himself and his special interest groups that fund his causes. this strategy makes no sense when taken in the 'big picture' except as a political move to pass the debt on to a democratic president to pay back.

[Jenks]

Re: Greenspan Touts Idea of a Consumption Tax

Where did all these people go that used to post in here?

[thesightless]

Re: Greenspan Touts Idea of a Consumption Tax

the americans started standing up for our country and subterfuse brought in a right wing POV, and as usual the lib's couldnt handle it.