A consumption tax does have the advantage of being relatively value-neutral so you don't get distortions like subsidies for making certain purchases.
The difficulty is always in the transition or implementation scheme. Much like UBI sounds like a great idea until it's clear it will be *in addition to* the existing welfare state because the government unions aren't going to let you fire all the people administering those programs, a consumption tax sounds great in theory but in practice it is likely to be an addition to rather than replacement for our existing tax regime and if implemented as a VAT its operation is opaque and not easily understood.
> I would not say that consumption is a bad thing. But it is less virtuous than work, thrift and risk-taking investment.
Why bring virtue into it at all? It would be silly to say someone who spends an hour painstakingly sweeping a floor instead of ten minutes using a vacuum is being virtuous. Or to celebrate the thrift of the 80 year old who goes hungry to stuff an extra couple bucks under their mattress. There's nothing fundamentally virtuous or vicious about these things.
Better to think in terms of utility. Consumption is the economic activity from which we derive utility. All the others (work, saving, and investment) force us to forego utility in the hope of gaining more down the road.
Taxing consumption, then, is better, because it's the most inelastic. People already want to consume (and usually too much), so throwing up an obstacle to something they want to do is, on the whole, somewhat beneficial. We already don't enjoy work, saving, and investment, and taxing these things creates a further disincentive.
Governments where all power is concentrated* selected by voting + universal suffrage + redistributive tax system = Giant slush-fund for the elected/would-be elected to use to bribe the electors for their votes + elections which are auctions wherein the electors sell their votes to the highest bidders.
The behaviour being taxed is bribery and corruption.
*This is the polar opposite of democracy where power is distributed equally among all in society so no person or group can use it to impose their will on others. Democratic Government is an oxymoron.
Curious that governments are quite willing to tax tobacco at exorbitant levels in the name of public health, but have not touched alcohol taxes for decades. Alcohol contributes mightily to death and injury....both to the drinker and to others near and far. No traffic deaths are attributed to tobacco, but thousands are attributed to alcohol. No cases of spousal or child abuse arise from tobacco, but drinking is a major contributor.
Why the difference in taxation? Why is smoking stigmatized and not drinking?
But bad behavior is popular, thus there's a popular push to keep the taxes on it low.
Sin taxes, on alcohol & cigarettes (& rec drugs?) & gambling are less socially bad than other taxes, but the poor pay far more of their non-food income in such taxes already. They're often poor BECAUSE of their indulging in the "sins", aka "sub-optimal actions", which are being taxed. Too high a tax is both unpopular and turns those who indulge too much to look for cheaper, illegal alternatives.
Taxing consumption is better long term, for the future, but has similar problems. Only taxing "the rich" is popular - often too popular, based on the lousy zero-sum idea that the rich have immorally gotten that way thru uncaring greed.
And then cutting taxes to increase company investment, then employment and/or productivity gets somewhat dishonestly labeled (by e.g.Thomas L. Hutcheson) as "upward redistribution". There is clear and negative envy about the rich, and wanting them to do badly or suffer extra taxes because they were successful in the past is not good.
Still, income inequality is a real problem when the bottom 20% or 40% or median 50% income level is not rising. We need a better metric than gini co-efficient to track it. I'd prefer a top over bottom ratio that becomes known, and used to try policies to reduce it. Top 90% or 99% (10% or 1%) over the 40% or 20% (quintile boundary less than median 50%).
Thus, while I mildly oppose a carbon tax, I prefer it to boondoggle gov't spending, mostly to friendly (ie donating) companies for green tech. A carbon tax would likely be far more popular if it was graduated, so those who use a LOT pay at a higher rate.
But nobody should be climate alarmed into supporting any tax or gov't program until the UN and most government agencies switch to on-line Zoom meetings, without the need for CO2 polluting jet set meetings and conferences. Especially any and every "climate change" conference. Kids need in-person schools far more than bureaucrats need face-to-face meetings. Many companies are doing fine, meeting wise, on-line rather than f2f.
Economists also favor taxing things with very inelastic supply or demand, because then the taxes have low distortions (basically, the collect revenue without distorting behavior). Most famously this includes taxing land and staple goods, but the arguments apply to taxing sillier things like height.
A consumption tax does have the advantage of being relatively value-neutral so you don't get distortions like subsidies for making certain purchases.
The difficulty is always in the transition or implementation scheme. Much like UBI sounds like a great idea until it's clear it will be *in addition to* the existing welfare state because the government unions aren't going to let you fire all the people administering those programs, a consumption tax sounds great in theory but in practice it is likely to be an addition to rather than replacement for our existing tax regime and if implemented as a VAT its operation is opaque and not easily understood.
> I would not say that consumption is a bad thing. But it is less virtuous than work, thrift and risk-taking investment.
Why bring virtue into it at all? It would be silly to say someone who spends an hour painstakingly sweeping a floor instead of ten minutes using a vacuum is being virtuous. Or to celebrate the thrift of the 80 year old who goes hungry to stuff an extra couple bucks under their mattress. There's nothing fundamentally virtuous or vicious about these things.
Better to think in terms of utility. Consumption is the economic activity from which we derive utility. All the others (work, saving, and investment) force us to forego utility in the hope of gaining more down the road.
Taxing consumption, then, is better, because it's the most inelastic. People already want to consume (and usually too much), so throwing up an obstacle to something they want to do is, on the whole, somewhat beneficial. We already don't enjoy work, saving, and investment, and taxing these things creates a further disincentive.
I'm a growing fan of Georgian Land Value Taxes - what behavior do you see that taxing?
Governments where all power is concentrated* selected by voting + universal suffrage + redistributive tax system = Giant slush-fund for the elected/would-be elected to use to bribe the electors for their votes + elections which are auctions wherein the electors sell their votes to the highest bidders.
The behaviour being taxed is bribery and corruption.
*This is the polar opposite of democracy where power is distributed equally among all in society so no person or group can use it to impose their will on others. Democratic Government is an oxymoron.
Curious that governments are quite willing to tax tobacco at exorbitant levels in the name of public health, but have not touched alcohol taxes for decades. Alcohol contributes mightily to death and injury....both to the drinker and to others near and far. No traffic deaths are attributed to tobacco, but thousands are attributed to alcohol. No cases of spousal or child abuse arise from tobacco, but drinking is a major contributor.
Why the difference in taxation? Why is smoking stigmatized and not drinking?
Yes taxes are an incentive for certain kinds of behavior but they also alter after tax incomes. Both effects need to be kept in mind.
But bad behavior is popular, thus there's a popular push to keep the taxes on it low.
Sin taxes, on alcohol & cigarettes (& rec drugs?) & gambling are less socially bad than other taxes, but the poor pay far more of their non-food income in such taxes already. They're often poor BECAUSE of their indulging in the "sins", aka "sub-optimal actions", which are being taxed. Too high a tax is both unpopular and turns those who indulge too much to look for cheaper, illegal alternatives.
Taxing consumption is better long term, for the future, but has similar problems. Only taxing "the rich" is popular - often too popular, based on the lousy zero-sum idea that the rich have immorally gotten that way thru uncaring greed.
And then cutting taxes to increase company investment, then employment and/or productivity gets somewhat dishonestly labeled (by e.g.Thomas L. Hutcheson) as "upward redistribution". There is clear and negative envy about the rich, and wanting them to do badly or suffer extra taxes because they were successful in the past is not good.
Still, income inequality is a real problem when the bottom 20% or 40% or median 50% income level is not rising. We need a better metric than gini co-efficient to track it. I'd prefer a top over bottom ratio that becomes known, and used to try policies to reduce it. Top 90% or 99% (10% or 1%) over the 40% or 20% (quintile boundary less than median 50%).
Thus, while I mildly oppose a carbon tax, I prefer it to boondoggle gov't spending, mostly to friendly (ie donating) companies for green tech. A carbon tax would likely be far more popular if it was graduated, so those who use a LOT pay at a higher rate.
But nobody should be climate alarmed into supporting any tax or gov't program until the UN and most government agencies switch to on-line Zoom meetings, without the need for CO2 polluting jet set meetings and conferences. Especially any and every "climate change" conference. Kids need in-person schools far more than bureaucrats need face-to-face meetings. Many companies are doing fine, meeting wise, on-line rather than f2f.
Doesn't diminishing marginal returns (of utility from money) mean that economists should focus on both these things?
Economists also favor taxing things with very inelastic supply or demand, because then the taxes have low distortions (basically, the collect revenue without distorting behavior). Most famously this includes taxing land and staple goods, but the arguments apply to taxing sillier things like height.