Abolishing income tax--would this work?

[Staale_Nordlie]

@Voyager

Let’s look at the link. The first two paragraphs say

[…]

Here inflationary means an increase in the rate of change in the price level, not the absence of a one time increase.

Yes. Now read the rest of the article. He then goes on to discuss the possibility of a one-time increase. The conclusion is what I quoted - “no impact on the aggregate price level”.

@Voyager

As I mentioned, the retail industry, who should have good models about this, are deadset against it.

Cite?

Link to those models/studies?

@Voyager

BTW, his link mentions that several countries, Norway in particular, found they had to set up price controls after the introduction of the VAT in order to avoid inflationary pressures.

That’s not true. He does not say they “had to” set up price controls. Like I said earlier, it’s one possible way to make the transition easier. Price controls can not work in the long run if you try to fight the natural market prices.
If anyone wants to debate the possibility of a long term price increase directly caused by the tax further they will have to come up cite from a credible source explaining why practically every economists is wrong. I am not going to keep harping on a basic fact of economics.

@Voyager

Not if it goes to people who would not be paying the tax under the system by being too poor, and getting their rebate.

You don’t understand. Everybody gets the prebate. Everybody. Bill Gates gets the prebate (if he bothers to apply for it). There is no special bureaucracy to measure your spending and dole out rebates accordingly.

Your scenario makes no sense.

@Voyager

As Thaler notes, inheritances go into the savings mental account, so it is not true that inheritances get spent.

What? People never spend their inheritances?

Cite that wealthy heirs don’t spend money and accumulate vast fortunes while living like ascetics?

The money is always spent eventually. That’s just common sense. If it’s never used it’s taken out of circulation and effectively taxed 100% through inflation.

(If you stash away $1000 and never touch it again, the government can print another $1000 with no harm to the economy. And trust me - they will…)

@Voyager

Inheritance taxes in the US today apply only to the very wealthy, and their heirs are precisely the kind of people who will not spend the inheritance. Thus the rather large amount of revenue from these will be gone.

Let’s assume for the sake of argument that the rich mainly manage wealth in society, spending relatively little of that wealth to make their own lives better.

Why is that a bad thing? Why is it important to discourage it though taxes?

@Voyager

Actually, a big part of the problem is the reduction in the percentage of revenue coming from the far more stable property tax.

Of course it’s part of the problem. But the biggest part of the problem is the drop in revenue from the progressive income tax. (The dot-com bust hit California revenues hard for the same reason.)

I don’t understand why you’re even bringing this up. Did you look at the graph I linked to? Are you disputing that consumption is more stable than income over time? If so, what data are you basing that on?