[nwj]

Progressiveness is a function of both taxes and benefits. A consumption tax scheme can be made more progressive by paying benefits in a more progressive manner.

For example, Exampleville institutes a consumption tax of 15%. Such a tax is regressive because consumption is usually a smaller proportion of a wealthy person's income than a poor person's income. To counteract this, Exampleville pays a monthly cash grant to all citizens and adjusts the payment level so that the cash grant is larger for the poor and smaller (or non-existent) for the wealthy.

See https://tax.purpleplans.org for an example of a real proposal that mimics this scheme.

[mdorazio]

But this assumes that the revenue from the consumption tax will 1) be the same as for the income tax, and 2) hit wealthy people enough that the lower benefit payout will balance it.

I don't really see how these can be true given that, as you state, wealthy people spend a smaller portion (a lot smaller) of their income than do poor people.

To toss out some numbers, let's say the wealthy person makes $1M per year at a 35% effective income tax rate and the poor person makes $50K per year at an effective 10% income tax rate. Let's further suppose the wealthy person spends half their after-tax income, and the poor person spends all of it. Total tax revenue in this case would be $355K under the income scheme, but if we switch to a consumption tax, the tax revenue drops to $55,500. There's no amount of benefit allocation you can do to make up the difference. On top of that, the tax burden for the wealthy person (after offsetting for the benefit allocation) is still massively lower than under the income scheme, even if they get $0 in benefits. You'd have to raise the consumption tax ridiculously high (33% !) to get close, which will effectively discourage expenditures and encourage savings, pretty much destroying the US consumption-based economy.

I just can't see a realistic scenario where this setup isn't regressive or generally a bad idea. If you want to keep a progressive system but also eliminate income tax, we need to consider a wealth tax.

[smnrchrds]

> You'd have to raise the consumption tax ridiculously high (33% !)

I don't think 33% is ridiculously high. VAT is 25% in Norway, Sweden, and Denmark, 27% in Hungary; and their economies are doing well.

[burntoutfire]

Interestingly, the Nordics also have super-high income taxes. I wonder what the VAT there would have to be to abolish income taxes. 50%? 60%?

[patricius]

Just checked the Danish national budget. Danish VAT brought in (or was estimated to bring in) 212 billion DKK in 2018. In comparison, tax levied on personal income brought in 562 billion.

[mdorazio]

That's fair. However, the proposal in the parent comment's link (and other proposals like it) is asking for a 17.5% consumption tax, which would be an absurd gift for the wealthy. Even for not-wealthy people like me, it would be a huge boon, while the middle class would get hosed.

[perl4ever]

Well, you may not think 33% is ridiculously high, but you just wrote that it is in the second sentence. You say that 33% is 1/3 higher than Sweden, which is proverbial as an example of a highly taxed locale.

[Ididntdothis]

Where is that money supposed to come from? To make this work people have to pay enough consumption tax so there is money for the payouts. Also, if you make these payments dependent on income level you pretty much have the problem of determining a taxable income which we have now.

Personally I think there is almost no way to make this work without being highly regressive.

[perl4ever]

I don't think it makes any sense to tax everything and give back the money in the same proportions.

However, if you just tried the experiment, then to the extent it redistributed resources, it would be taking more money from those who consumed more at a given level of income, and giving it to those who consumed less.

So it would probably reduce consumer activity, and I don't know if that would be good for the economy in the long run. I don't think it would be a null-op though. It doesn't seem like a logical or mathematical contradiction.