| >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. |