Most consumption taxes I've read about exclude
real estate sales. This is especially relevant to the
question of equitableness, since houses are big
ticket items, and high income earners tend to
splurge on bigger, more expensive houses. Why
should a low income earner be taxed on the
$20 tent he buys, to keep the rain off his head,
while the high-income earner is not taxed on the
$1M home he buys, for the same purpose? (I'm
not going to bring up sailboats, since I believe
they should be excluded from all tax, as a matter
of high principle.)
There's a related issue. Jeff neatly divides
income into consumption and investment. But
this consumption tax is not really a tax on
consumption. Rather, it is a sales tax. Or maybe
a transaction tax. A true consumption tax would
distinguish the purchase of an arc welder,
depending on whether its purpose was personal
or business use, i.e., consumption or investment.
The sales tax proposed does not distinguish
between the two. The blue collar worker who
invests in an arc welder to start his own business
is hit by the proposed tax. The investment banker
who buys stock in a welding company does not
pay the tax. This difference is not between
consumption and investment, but between two
different categories of goods: material goods
vs. stock.
A true consumption tax would distinguish not
categories of goods, but their use. The problem
with that, of course, is that it is hard to administer,
and people would push the boundary between
purchases for consumption and purchases for
investment, to avoid paying taxes. There are
lots of benefits to sales taxes vis-a-vis income
taxes. But in Jeff's personal moral calculus, he
is too quick to confound sales and consumption.
Regards,
Russell
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