If you are not taxing consumption . . .
By Scott Sumner
. . . then you are not taxing who you think you are taxing. I was reminded of this point by a recent tweet I saw:
Progressives tend to favor higher income tax rates on the rich. I prefer a progressive consumption tax. It might be worth noting that if the top rate of income tax were increased, President Trump still would have paid roughly $750 in income taxes in 2016. In contrast, he probably would have paid much more in taxes with a progressive consumption tax, at least if his lifestyle is as lavish as has been reported.
Just to be clear, I don’t believe that tax policy decisions should depend on how it impacts Trump—that would be absurd. My point is that when people get outraged about what they see as a gross inequity, it’s important not to just lash out blindly, rather one should think clearly about who actually bears the burden of different types of taxes. In general, it’s NOT the person (or company) that writes the check.
There are technical problems with taxing consumption. But there are often even bigger technical problems in taxing income, wealth and other alternatives. For instance, there is the question, “Is X a consumer or an investment good?” But the exact same dilemma crops up with income taxes.