By Arnold Kling
Pejman Yousefzadeh makes the case for a consumption tax.
A consumption tax such as the one contemplated by H.R. 25 and S. 1493 will reduce transaction costs to a minimum, eliminate the need for concerns about loopholes and exemptions, and save people the time and expense of having to consult tax experts for the payment of taxes — or lawyers for advice on how to defend against audits. This, in turn, will dramatically reduce the need for an expanding bureaucracy in the IRS, thus allowing for a dramatic reduction in the size of government through the elimination of unnecessary government personnel positions, along with substantial savings to the economy…compliance costs could be reduced by as much as 95% via the implementation of a consumption tax.
I also suggested a consumption tax in Bleeding-Heart Libertarianism.
For Discussion. Typical sales taxes do not tax “consumption” as defined by economists. For example, the economic definition of consumption includes the consumption of housing services, in the form of rent paid on apartments as well as the implicit rent on owner-occupied housing. Also, the consumption of durable goods, such as cars, is spread out over time rather than expensed as purchased. Would taxing consumption by the economic definition give rise to new problems of lack of clarity in the tax code, new potential for loopholes, and so forth?