Paul L. Caron

Thursday, March 23, 2006

Weisbach on The Case for a Consumption Tax

Weisbach_3 Tax_analysts_290 David A. Weisbach (Chicago) has published Claims of Right:  The Case for a Consumption Tax, 110 Tax Notes 1357 (Mar. 20, 2006), also available on the Tax Analysts web site as Doc 2006-4988, 2006 TNT 54-30:

The debate over the choice between income and consumption taxation has been ongoing since the beginning of the modern economy, seemingly without end. Those who argue for an income tax usually claim that taxing capital income is central to a fair tax system because those with capital income appear to have a higher ability to pay. Moreover, reducing taxes on investment income would seem to reduce the progressivity of our tax system, a result that is particularly worrisome at a time of growing inequality.

I will show here, through a simple example, that those arguments are wrong. They miss a basic point: A tax on investment income is implicitly a tax on labor earnings because it reduces the amount that can eventually be purchased with those earnings. By replacing that implicit tax on earnings with an equivalent explicit tax, such as a consumption tax, we can make everyone better off.1 Equally progressive consumption taxes that raise the same revenue as an income tax would have the same effect on incentives to work but would not distort savings decisions. They retain progressivity but are more efficient. Indeed, because the tax system would be more efficient, we could actually increase its progressivity. That should be a tantalizing prospect for those concerned about progressivity and the poor -- those who paradoxically seem to most favor taxing investment income.

Scholarship, Tax Analysts | Permalink

TrackBack URL for this entry:

Listed below are links to weblogs that reference Weisbach on The Case for a Consumption Tax:

» The Case for a Consumption Tax from
David Weisbach:The debate over the choice between income and consumption taxation has been ongoing since the beginning of the modern economy, seemingly without end. Those who argue for an income tax usually claim that taxing capital income is central t... [Read More]

Tracked on Mar 23, 2006 4:56:52 AM

» Income Software Tax from Income Software Tax
Integrates with Quicken, spreadsheets and offers state by state electronic filing. To learn why so many companies rely on our tax... [Read More]

Tracked on Apr 3, 2006 7:05:14 PM

» Federal Income Tax from Federal Income Tax
Brownback said the District is perfect for theCorporate Income Tax Court Fines (indirect taxes) Dog ... [Read More]

Tracked on Apr 4, 2006 5:55:04 AM


here is my idea on the Consumption Tax and how the republicans can get there mojo back
do you do the right thing - not smoke, eat right, go to school, not break the law, try to recycle
if you do these things and are poor that a problem for me
ask the average joe and the American people do the go to work and pay taxes to support people
who smoke, don’t eat right (see the movie supersize me - think of the extra heath cost (soon under obama
tax cost),dont go to school,etc
its time for people and American people to pay based on results and stop living beyond there means and having the
average hard working American pay for it
my plan
keep the income tax on people above 125,000 or so - that’s just a number i picked it can be debated and go up or down
then get rid of all other taxes - people and corp
then have a consumption tax on bad things
no tax on non processed food and recycled items, other good things that society can decide on.
tax fast food, smoking the most (i personally would legalize drugs (expect under 21, get caught selling or giving to kids life sentence) and taxes them the highest (call it the new death tax - to pay for there death and heath care cost) and require you to show you have 40 hr a week job to support the habit - because you never going to stop someone from using that wants to)
tax the rest of products a normal rate
instead of having a jail system like today for nonviolent offenders have weekend workcamps - if you steal or have a dui work weekends for a couple years (like 10 to 15) on a farm - that will have end illegals - if the farms and other low paying jobs are done by lawbreakers than the demand for illegals will dry up and stop both it and crime.
industry that provide high paying jobs (like auto that make high mpg cars) that we want here in the USA - don’t tax what they sell or what the buy to make the product
from the taxes from smoking, fast food, other consumption products give a reward for completing school or training for a new job
you the average Joe that does not smoke, eats rights, recycles and goes to school will pay less and have a better life
the coming baby boomers that are going to live the work force is going to mean either we start rewarding for recycle and doing the right things or lower are stardered of living

Posted by: james | Nov 8, 2008 12:30:06 PM