[rayiner]

I’m not classifying it as the best solution. I’m quoting an NPR article describing the consensus view of economics experts.

But as I understand it, the reason is that consumption taxes have the least distortion in terms of deviating from the efficient behavior in the no-tax scenario: https://www.weforum.org/stories/2019/09/using-tax-to-tackle-...

[dpark]

That article spends most of its time explaining why a progressive consumption tax is obviously the right choice, then basically decries liberals as too dumb to understand it and conservatives as too evil to want it, but spends zero words to explain how a progressive consumption tax might possibly be implemented.

[hollerith]

>spends zero words to explain how a progressive consumption tax might possibly be implemented.

The implementation could consist of a tax on personal income, but any re-investment of that income is deductible, plus a tax on luxury items and products whose main purpose is status-signaling.

[dpark]

You’ve gotta squint each hard to call an income tax with deductions a consumption tax. That’s what we have in the US right now.

[satvikpendem]

Not really especially for W2 employees as they have very few deductions. In contrast, I have an LLC for my work and I can pay basically zero tax by reinvesting it into business expenses (which are consumption like new office equipment or client meals) or even funneling it into my 401k. That's the model they mean, not the current W2 deduction model.

[hollerith]

>That's the model they mean

You have incorrectly summarized the position of Rayiner and me.

Let us oversimplify and assume all spending by individuals is either consumption or investment.

Rayiner and I advocated for taxing consumption, but leaving investment untaxed. (And then I suggested that a tax on consumption could be implemented as a tax on income where any spending on any investment is fully deductible.)

You seem to be advocating something different.

For the sake of completeness, we should include a third category of spending, namely, spending necessary to earn money. If we don't leave that untaxed, then an individual can get himself in a situation in which he owes more taxes than he actually earned, which is an undesirable property for any tax system.

But there is a lot of spending, particularly by high-income people, that is not investment and is not spending necessary to earn money. Examples: expensive country-club memberships, yachts, $5000 dresses. Rayiner and I are calling that consumption.

Some spending is necessary just for the average person (i.e., almost everyone who doesn't have rich parents or a rich spouse) to maintain life. The tax system should refrain from taxing this kind of spending (and the US system approximately does in that individuals earning less than about 40K per year almost always owe zero federal income tax).

401Ks would be yet another category of spending that should probably remain untaxed / deductible.

[satvikpendem]

You're right. I mentioned above but having the opposite of a consumption tax would be interesting, in that solely saving without consuming ie stimulating the economy via circulation of money would be what would be taxed, and investments remain untaxed.

[dpark]

> Not really especially for W2 employees as they have very few deductions

Right. Individuals are taxed on income and not consumption. Taxes don’t go down if they save instead of spend (in fact they go up as they are taxed on the interest earned). There’s nothing about this that’s consumption based so a replacement system that looks basically the same but with more deductions is also not a consumption tax.

Businesses are weird already and are taxed on profit rather than income. Anything that reduces profit on paper reduces tax, whether it’s actually consumption or not (e.g. stock buy backs).

[satvikpendem]

Hence allowing individuals to not have income tax but instead have deductions based on consumption as that stimulates the economy.

[rayiner]

> basically decries liberals as too dumb to understand it and conservatives as too evil to want it

Yes, that’s the expert consensus.