. . . 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.
READER COMMENTS
Steve Winkler
Oct 20 2020 at 8:25pm
Exactly why efforts to tax the incomes of the rich are as fruitless as trying to tax billionaire ducks: http://www.magnitudematters.com/2020/10/tax-policy-as-explained-by-ducktales.html
Fred Bollon
Oct 20 2020 at 9:20pm
I have thought about this. These types of changes would make for a more complex but fairer tax code. Putting all transactions under $50 or $100 consumption tax free would change the tax burden. I believe restoring taxes to the levels of the good ol days (60s and 70s), with plugging up the tax code (if you are ‘based’ out a tax haven we are going to tax you on revenue instead of income) could help restore balance on taxation.
robc
Oct 20 2020 at 10:33pm
In what ways is a progressive consumption tax superior to the single land tax?
I can think of many ways the latter is superior. The primary one being a moral argument.
Oscar Cunningham
Oct 21 2020 at 4:41am
As I see it, the advantage of a progressive consumption tax is the diminishing utility of money. It takes money from precisely the people who will be least affected.
Can you explain the moral argument for a land tax? To me, the amount of land a person owns seems uncorrelated with anything of relevance.
robc
Oct 21 2020 at 7:23am
It is more the immorality of every other form of tax, as they tax a person’s productivity. Both income and consumption taxes.
A land tax removes economic rents. As I don’t accept any of the standard natural law property rights arguments, I am okay morally with extracting those rents, I dont think anyone has a natural right to them. The fruits of their labor, on the other hand, it is, IMO, morally unacceptable to tax.
robc
Oct 21 2020 at 7:24am
I want to add I don’t think the government has any right to those economic rents either. I think they should belong to “society” or “humanity”, but the state is probably the best we can do.
Jonathan S
Oct 21 2020 at 9:35am
Possible rationale for a single land tax: If tax is like an HOA fee (or maybe rent?) then a single land tax best approximates the market (i.e., what an HOA would do). This also seems much simpler than a progressive consumption tax.
Since there are various motivations for different types of taxes it isn’t obvious which form is better without arguing what the goals of a taxation should be.
Lex Mantlo
Oct 25 2020 at 11:24am
Land tax is how a government ensures that the land remains productive. Otherwise half the land in a country could bought and just sit unused. People could go hungry or not have housing as a result of people just sitting on their land and not using it or at the very least being productive in some capacity to pay for it. Taxes make it so that land owners must be productive to retain ownership.
Scott Sumner
Oct 21 2020 at 1:41pm
A land tax has a lot of merit, and should be a part of any tax regime. I doubt a land tax alone would be sufficient, as the rates would be too high to be politically acceptable. Perhaps it would work in a libertarian country with low overall tax revenue (as a share of GDP).
robc
Oct 22 2020 at 9:57am
<em>I doubt a land tax alone would be sufficient, as the rates would be too high to be politically acceptable.</em>
The latter part isn’t a problem, the rates can only go as high as they are extracting economic rents and no higher. The cap would probably be about 3-4%. From a quick back on envelope calculation I did a while back, I think 3.5% would bring in revenue about 1/3 of total federal/state/local spending.
So total spending across all levels would have to be cut about 2/3rds. I am okay with that, I consider it a positive benefit of the SLT.
<em>Perhaps it would work in a libertarian country</em>
THATS THE IDEA!!!
For those not familiar with a land tax, it is only on the unimproved value of the land, it is not a property tax. So while the rate would be much higher than for a property tax, it is against a much smaller value, in most cases. I saw once an estimate that Manhattan Island and Iowa would pay about the same amount…despite Iowa having 2x the population (a common concern is that the tax would fall primarily on large farms, but that is not the case).
Shyam Vasudevan
Oct 21 2020 at 8:57am
Trump took advantage of dubious loss carryforwards to eliminate his earned income in some years. It seems to me the best way to contact this is by doubling the size of the IRS and investigating potential fraud cases like this instead of poor people claiming the EITC.
robc
Oct 21 2020 at 9:05am
Were they dubious? I haven’t followed that closely, I assumed he was a bad enough businessman to have legitimate losses.
I say that as someone who didn’t pay any income tax for 2016-18 due to my business closing in 2015. Its really not hard to pay $0 tax for a number of years. Painful, but easy.
Shyam Vasudevan
Oct 21 2020 at 9:45am
His golf courses have lost $150 million over the past decade. It’s possible that these are actual losses, but he could have also used some accounting tricks to deflate his assets for tax purposes. The original NYT article also points out instances of him passing off personal expenses as deductible business expenses, such as paying Ivanka consulting fees, which seems certainly worthy of an audit.
Steve
Oct 23 2020 at 2:42pm
The biggest issue that he is still being audited for is his “surrendering” of his ownership stake in the Atlantic City casino/hotel with his name on it. He chose the term surrender very carefully, as it allows him to claim it as a loss. This allowed him – in combination with some Great Recession-era legislation – to get a refund from the IRS for ~$72-ish million dollars for taxes he paid during the height of his Apprentice-era income.
It turns out he received something like a 5% ownership stake in whatever business was spun off from the Atlantic City casino. And the rules specifically state that for a business “surrender” he must receive nothing of value in return. The IRS is trying to claim that 5% equity stake was directly related to this deal, and that Trump did not meet the requirements of “surrender” that his $70+ million refund check depends on.
The business expense stuff is a grey-area for sure, but honestly Trump isn’t different from anyone else there. He’s just a more profitable target for the IRS to pursue.
Thomas Hutcheson
Oct 21 2020 at 10:30am
Bad as it is to to tax the income of rich people, creating deficits in order not to tax the income of rich people as with the “Tax Cuts for the Rich and Deficits Act of 2017” is even worse.
Indeed, I think that making income taxes more progressive by substituting partial credits for deductions, taxing real capital gains as income, imputing tax free corporate profits to owners whether distributed as dividends or not, could be good intermediate steps to introducing consumption taxation elements like tax credits for retirement savings. Financing social security, health insurance and child care subsidies, and unemployment insurance with a VAT instead of a capped wage tax would help, too
Scott Sumner
Oct 21 2020 at 1:39pm
I agree that the deficits were a bad idea.
jim carter
Oct 21 2020 at 6:01pm
The imposition of the income tax is the essence of your writing.
Liberty, as declared in the Preamble of the Constitution as a purpose of government, and again repeated in the Fifth Amendment as to be a Right of the Sovereign People, and specifically applied to the states in the Fourteenth Amendment, has been consistently held to include the Right to Pursue a Livelihood. You may find it difficult to accept, but there is no statute that imposes an income tax on a citizen. When you sign a tax form, under threat of perjury, over the line identified as ‘taxpayer’s name’, the courts will quietly assume you have acquiesced to the status of a taxpayer who owes a tax. The income tax on a citizen’s labor is a scam. Lawyers who aggressively pursue this concept are charged with bogus offenses and lose their license.
However, a corporation, as a creation of the state, is subject to an excise tax on the privileges granted by the state. Individuals who receive part of the profit of the corporation in the form of dividends would appear to be subject to a tax on that profit.
If we leave the income tax, would we conclude that all corporate taxes are included in the cost-of-goods-sold and therefore are paid by the ultimate [retail] consumer along with the sales tax ?
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