7 ms·

The problem with consumption taxes, as we have seen time and time again, is they disproportionately affect those with lower incomes.

by snuxoll 9mo ago

Saline9515 9mo ago
You can alleviate this by taxing less goods mainly consumed by lower income workers, and handling out social welfare.
gjsman-1000 9mo ago
Do people with lower incomes have the entitlement to all benefits of the state without paying a fair share of their own? If anything, there’s plenty of literature showing that social programs and tax exemptions on the poor make underpaying them possible to begin with. Walmart couldn’t pay $12/hr. if tax exemptions and SNAP and other aid didn’t fill the gap.
- magicalist 9mo ago
  This seems like an overly complicated phrasing of the much simpler "are progressive taxes and social safety nets actually bad?"
- AuthAuth 9mo ago
  Yes, all members of the state should benefit from state programs. There is little value in adding an exclusionary check to state programs.
- snuxoll 9mo ago
  We don't have go go to the extremes of employers that pay what is effectively poverty wages relative to cost of living. The household that brings home $80K/yr would always spend a larger percentage of their income on taxable consumption, than an executive that takes home multiple million per year. Progressive income tax brackets are a better tool for making sure those who are able to pay a larger share of the common good, do so. Unfortunately, we still have not come up with a realistic way to deal with the hoarding of wealth - both by individuals, as well as corporations like Apple with massive warchests. Even some more broadly accepted ideas like a LVT have some issues if the future really does trend towards "AI" displacing people from their jobs. One way or another, the reality is that the tools we have right now have persisted because they do their job well when politicians act in good faith and don't implement poor fiscal policy emphasizing short-term gains that result in long-term pain. But, they're still fundamentally flawed, and something is going to have to change if we do see dramatic changes to society in the coming decade due to developing technologies.
  - AnthonyMouse 9mo ago
    > The household that brings home $80K/yr would always spend a larger percentage of their income on taxable consumption, than an executive that takes home multiple million per year. Progressive income tax brackets are a better tool for making sure those who are able to pay a larger share of the common good, do so. "Progressive income tax brackets" don't actually do this. The people with so much money they can't spend it all use various tax shelters as it is. They typically manage to not even pay tax on the amounts they do spend, because they borrow money and spend it instead of recognizing it as income first. So they would be paying more under a flat consumption tax than they do under the status quo. The "progressive income tax system" doesn't actually work the way it's claimed to. On top of that, the problem is essentially fake. People absolutely can and do spend millions of dollars a year. Cardiologists making seven figures buy huge houses with multi-car garages full of exotic makes etc. It's spending billions of dollars a year that nobody is really going to do, but that's such a tiny percentage of people that it's ridiculous to design a tax system being imposed on everybody else on the basis of that, and those are the exact people who aren't paying the high rates under the existing system anyway. Here's a proposal: Have a flat consumption tax, and then have an income tax where the rate is 0% up to the 99.9th percentile income and only the top 0.1% even have to file a tax return. The latter is going to be avoided in the same ways it is now, but at least then you can't say the billionaires don't have a higher nominal rate, right?
    - twoodfin 9mo ago
      The problem with a consumption tax is not the steady state, but the transition from the current state. How do you take a retiree couple whose main income-earning days are far behind them, and ask them to pay 25% or more on their consumption? Not an impossible problem, but it’s THE problem.
      - AnthonyMouse 9mo ago
        Is it though? Both social security and 401k withdrawals are taxed under the existing income tax, so they'd just be paying it as consumption tax instead. Also, aren't people with an enormous amount of stored wealth "the rich"?
- wahern 9mo ago
  > If anything, there’s plenty of literature showing that social programs and tax exemptions on the poor make underpaying them possible to begin with. That literature is playing fast & loose with terminology to justify a preexisting conclusion. Anyhow, we know what life was like before Great Society programs, and it wasn't higher wages for the poor, we've just forgotten because it's been so successful. That memory hole oddly works in favor of both those who promote expanding welfare and those who oppose it. > Walmart couldn’t pay $12/hr. if tax exemptions and SNAP and other aid didn’t fill the gap. From a basic macro economic standpoint, most welfare programs push wages up by marginally reducing the labor pool. In a free market, how would Walmart be forced to pay a "livable wage" if entitlements didn't exist? Do you really think people would just choose not to work and starve if their wages didn't cover all their expenses? Out of spite? It doesn't make sense, and it certainly doesn't comport with history. It makes even less sense when people buy this argument yet also support minimum wage laws. The counterexample is the Earned Income Tax Credit (EITC). EITC increases as your wages increase, theoretically incentivizing work, rather than diminishing as you earn more. This would increase labor supply. What tends to happen to prices (i.e. wages--price of labor) when supply increases but not demand? Presumably the more cogent literature bemoaning Walmart's labor practices is primarily relying on EITC while hoping the reader glosses over the distinction.
  - AnthonyMouse 9mo ago
    > Anyhow, we know what life was like before Great Society programs, and it wasn't higher wages for the poor, we've just forgotten because it's been so successful. That doesn't tell you the answer because the programs were instituted prior to the productivity increases in the 20th century. Are people better off now than they were before the general availability of electric light or mechanized transportation? Probably, but that doesn't mean you can trace the development of modern agriculture to the existence of SNAP. > In a free market, how would Walmart be forced to pay a "livable wage" if entitlements didn't exist? People frequently have choices between jobs that are easier or otherwise more pleasant and jobs that pay more. For example, long-haul truck drivers get paid significantly more than short-haul drivers, but they also sleep in their trucks and don't get to see their families most nights. Likewise, a lot of jobs require you to get a degree or certification, which can be a lot of work, which people may not be willing to do if they don't need to. If you give them "benefits" then they take the easier job over the better paying one. Which allows the employer offering the easier job to pay less and still get applicants. It also creates a poverty trap if the benefits are contingent on not making more money, because then the compensation advantage of the higher-paying job is much smaller -- in some cases negative. > EITC increases as your wages increase, theoretically incentivizing work, rather than diminishing as you earn more. Except that it does diminish as you earn more, because it has an aggressive phase out. For a single person with no dependents, the phase out kicks in below federal minimum wage. If you had a minimum wage job at 30 hours a week and wanted to work 40 hours, increasing your hours would cause you to receive a smaller EITC. There is a reason the EITC represents ~0.1% of the federal budget, and it's not because it's a bad idea, it's because it's implemented in a way that prevents people from getting much from it.
nightski 9mo ago
Yes but ideas exist like FairTax which directly address this issue in some fashion. It's easy to come up with reasons why something won't work, it is a lot harder to find solutions.

The problem with consumption taxes, as we have seen time and time again, is they disproportionately affect those with lower incomes.

by snuxoll 9mo ago

The problem with consumption taxes, as we have seen time and time again, is they disproportionately affect those with lower incomes.

Saline9515 9mo ago

You can alleviate this by taxing less goods mainly consumed by lower income workers, and handling out social welfare.

gjsman-1000 9mo ago

Do people with lower incomes have the entitlement to all benefits of the state without paying a fair share of their own? If anything, there’s plenty of literature showing that social programs and tax exemptions on the poor make underpaying them possible to begin with. Walmart couldn’t pay $12/hr. if tax exemptions and SNAP and other aid didn’t fill the gap.

magicalist 9mo ago
This seems like an overly complicated phrasing of the much simpler "are progressive taxes and social safety nets actually bad?"
AuthAuth 9mo ago
Yes, all members of the state should benefit from state programs. There is little value in adding an exclusionary check to state programs.
snuxoll 9mo ago
We don't have go go to the extremes of employers that pay what is effectively poverty wages relative to cost of living. The household that brings home $80K/yr would always spend a larger percentage of their income on taxable consumption, than an executive that takes home multiple million per year. Progressive income tax brackets are a better tool for making sure those who are able to pay a larger share of the common good, do so. Unfortunately, we still have not come up with a realistic way to deal with the hoarding of wealth - both by individuals, as well as corporations like Apple with massive warchests. Even some more broadly accepted ideas like a LVT have some issues if the future really does trend towards "AI" displacing people from their jobs. One way or another, the reality is that the tools we have right now have persisted because they do their job well when politicians act in good faith and don't implement poor fiscal policy emphasizing short-term gains that result in long-term pain. But, they're still fundamentally flawed, and something is going to have to change if we do see dramatic changes to society in the coming decade due to developing technologies.
- AnthonyMouse 9mo ago
  > The household that brings home $80K/yr would always spend a larger percentage of their income on taxable consumption, than an executive that takes home multiple million per year. Progressive income tax brackets are a better tool for making sure those who are able to pay a larger share of the common good, do so. "Progressive income tax brackets" don't actually do this. The people with so much money they can't spend it all use various tax shelters as it is. They typically manage to not even pay tax on the amounts they do spend, because they borrow money and spend it instead of recognizing it as income first. So they would be paying more under a flat consumption tax than they do under the status quo. The "progressive income tax system" doesn't actually work the way it's claimed to. On top of that, the problem is essentially fake. People absolutely can and do spend millions of dollars a year. Cardiologists making seven figures buy huge houses with multi-car garages full of exotic makes etc. It's spending billions of dollars a year that nobody is really going to do, but that's such a tiny percentage of people that it's ridiculous to design a tax system being imposed on everybody else on the basis of that, and those are the exact people who aren't paying the high rates under the existing system anyway. Here's a proposal: Have a flat consumption tax, and then have an income tax where the rate is 0% up to the 99.9th percentile income and only the top 0.1% even have to file a tax return. The latter is going to be avoided in the same ways it is now, but at least then you can't say the billionaires don't have a higher nominal rate, right?
  - twoodfin 9mo ago
    The problem with a consumption tax is not the steady state, but the transition from the current state. How do you take a retiree couple whose main income-earning days are far behind them, and ask them to pay 25% or more on their consumption? Not an impossible problem, but it’s THE problem.
    - AnthonyMouse 9mo ago
      Is it though? Both social security and 401k withdrawals are taxed under the existing income tax, so they'd just be paying it as consumption tax instead. Also, aren't people with an enormous amount of stored wealth "the rich"?
wahern 9mo ago
> If anything, there’s plenty of literature showing that social programs and tax exemptions on the poor make underpaying them possible to begin with. That literature is playing fast & loose with terminology to justify a preexisting conclusion. Anyhow, we know what life was like before Great Society programs, and it wasn't higher wages for the poor, we've just forgotten because it's been so successful. That memory hole oddly works in favor of both those who promote expanding welfare and those who oppose it. > Walmart couldn’t pay $12/hr. if tax exemptions and SNAP and other aid didn’t fill the gap. From a basic macro economic standpoint, most welfare programs push wages up by marginally reducing the labor pool. In a free market, how would Walmart be forced to pay a "livable wage" if entitlements didn't exist? Do you really think people would just choose not to work and starve if their wages didn't cover all their expenses? Out of spite? It doesn't make sense, and it certainly doesn't comport with history. It makes even less sense when people buy this argument yet also support minimum wage laws. The counterexample is the Earned Income Tax Credit (EITC). EITC increases as your wages increase, theoretically incentivizing work, rather than diminishing as you earn more. This would increase labor supply. What tends to happen to prices (i.e. wages--price of labor) when supply increases but not demand? Presumably the more cogent literature bemoaning Walmart's labor practices is primarily relying on EITC while hoping the reader glosses over the distinction.
- AnthonyMouse 9mo ago
  > Anyhow, we know what life was like before Great Society programs, and it wasn't higher wages for the poor, we've just forgotten because it's been so successful. That doesn't tell you the answer because the programs were instituted prior to the productivity increases in the 20th century. Are people better off now than they were before the general availability of electric light or mechanized transportation? Probably, but that doesn't mean you can trace the development of modern agriculture to the existence of SNAP. > In a free market, how would Walmart be forced to pay a "livable wage" if entitlements didn't exist? People frequently have choices between jobs that are easier or otherwise more pleasant and jobs that pay more. For example, long-haul truck drivers get paid significantly more than short-haul drivers, but they also sleep in their trucks and don't get to see their families most nights. Likewise, a lot of jobs require you to get a degree or certification, which can be a lot of work, which people may not be willing to do if they don't need to. If you give them "benefits" then they take the easier job over the better paying one. Which allows the employer offering the easier job to pay less and still get applicants. It also creates a poverty trap if the benefits are contingent on not making more money, because then the compensation advantage of the higher-paying job is much smaller -- in some cases negative. > EITC increases as your wages increase, theoretically incentivizing work, rather than diminishing as you earn more. Except that it does diminish as you earn more, because it has an aggressive phase out. For a single person with no dependents, the phase out kicks in below federal minimum wage. If you had a minimum wage job at 30 hours a week and wanted to work 40 hours, increasing your hours would cause you to receive a smaller EITC. There is a reason the EITC represents ~0.1% of the federal budget, and it's not because it's a bad idea, it's because it's implemented in a way that prevents people from getting much from it.

nightski 9mo ago

Yes but ideas exist like FairTax which directly address this issue in some fashion. It's easy to come up with reasons why something won't work, it is a lot harder to find solutions.