Gravel just endorsed the ‘Fair Tax’, saying that it’s great because it taxes what people spend rather than what they earn. I guess that’s the kind of thing that sounds great if you a) don’t know anything about tax policy or b) don’t care about progressive taxation. Really rich people spend a low proportion of their money; poor and middle income people spend a lot. It’s a really stupid idea.
Late Update: TPM Reader TD says …
Consumption taxes are not stupid.
If we all started from no wealth, it consumption and earnings taxes would be equivalent. Gravel drew the wrong distinction. Consumption taxes are efficient
because they do not distort savings/consumption choice, which is a big problem with our income tax.The benefit of our income tax is that it allows wealth taxation, since we are not starting from equal endowments. But I think most liberal economists would say cut taxes on savings, raise taxes on estates/inheritances, since some bequests are accidental.
Most important, it is not at all true that consumption taxes can’t be progressive. Just pay a progressive tax on income – qualified savings and you’re all set. Not so easy — how to treat housing, e.g. but probably a big improvement over what we have. If sufficiently simple, possibly more progressive than what we have.
I didn’t say that consumption taxes were stupid. I’m saying having a consumption tax be the primary mode of raising revenue is a really bad idea. And that’s what Gravel’s saying he’s for.
