Scrap It All For A Consumption Tax
Published September 12, 2023
A uniform consumption tax would allow the government to raise revenue with minimal impact on the economy. It would replace personal, corporate, and estate taxes, operating as either a national sales tax or a value-added tax. The tax would simplify the tax code, incentivize savings and investments, eliminate complex tax maneuvers, and promote transparency in politics.
Discussion Questions
- Why do some people believe that a consumption tax is unfair? Are they right or wrong?
- Assuming a tax is needed, which form of taxation has the least harmful effect? Which one has the most harmful effect? Why?
Additional Resources
- Read “A Consumption Tax Is the Shock Our Broken System Needs,” by John Cochrane via the Wall Street Journal.
- Watch “Does Government Debt Matter Anymore?” with John Cochrane on PolicyEd.
- Read “Myths of Economic Inequality” by David Henderson.
- Read “‘Trickle Down’ Theory and ‘Tax Cuts for the Rich’” by Thomas Sowell.
- Watch “How Government Policy Inflates Health Care Costs: The Curse of Cross-Subsidies” with John Cochrane on PolicyEd.
Taxes are necessary to finance needed government spending.
But taxes can be made a lot simpler and more efficient.
A uniform consumption tax is the best way for the government to raise revenue with the least damage to the economy.
This tax would replace personal, corporate, and estate taxes.
It could operate as a national sales tax or a value added tax.
Under a consumption tax, people only pay taxes when they spend money, rather than on their income or assets.
People who spend more, pay more.
Earnings that are saved, invested, used to expand businesses, produce products, or employ people are left alone.
A consumption tax would massively simplify the tax code. The corrosive feeling that wealthy people use fancy lawyers to game the system would end. Businesses could focus on making better products rather than complex tax maneuvers and garnering subsidies.
The most common complaint about a consumption tax is that it falls equally on everybody, and thus does not transfer enough resources from better off to worse off.
But a consumption tax can easily be progressive. There could be an exemption up to a specified dollar amount of consumption, or equivalently, the government could send everyone a check for that amount.
And if a flat consumption tax funds transfers and social programs, then the whole system can be as progressive voters like.
A consumption tax would simplify the tax code, promote economic efficiency, and increase political transparency.