# Should we tax spending instead of income? **URL:** \ **Category:** Great Debates\ **Created:** [September 24, 2012, 10:26pm UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720 "2012-09-24T22:26:11Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 25, 2012, 5:24am UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/21 "2012-09-25T05:24:34Z")
> [@Zebra](#): > > Well to make it more fair it would have to be a progressive tax, not by item but by annual purchases. > So the government would need to keep track of everything you buy so all transactions must be done by a bank card. > > The first $10,000 you spend, no tax. 10K+1 to 20k 5%, 20k+1 to 50K 15% > 50k+ 1 to 100K 30% 100k and up 40% Count me in favor - as long as the government publishes gay porn purchases by conservative Christians. 😃 ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [September 25, 2012, 6:44am UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/22 "2012-09-25T06:44:23Z")
> [@Zebra](#): > > Well to make it more fair it would have to be a progressive tax, not by item but by annual purchases. > So the government would need to keep track of everything you buy so all transactions must be done by a bank card. > > The first $10,000 you spend, no tax. 10K+1 to 20k 5%, 20k+1 to 50K 15% > 50k+ 1 to 100K 30% 100k and up 40% This particular fellow’s plan calls for 0% up to 20K and 10% from 20K to 80K (I suppose thats his definition of the band of middle class lifestyle spending) and then progressively up from there. But unless you are willing to get rid of cash, how do you enforce it? Its like asking people to keep their receipts but not so they can get a deduction but so you can tax them on it. How likely is that to work? > [@Voyager](#): > > Not to mention the stall in middle class incomes along with pressure to consume, funded in no small part from phantom home equity. > > Indeed. The retail industry thinks this is a terrible idea. > > In 1980 I was on the QE2, and was lucky enough to share my table with the QE2’s chief engineer - who I suspect was not poor. He bought all his family’s clothes in NY - even ones made in Europe - to avoid VAT. > Well, I suppose this plan would put the speedboat smugglers on the Great Lakes back in business, and let the coyotes from Mexico make extra money smuggling jewelry as well as immigrants. I don’t think smuggling will be necessary to skirt a national sales tax if it was high enough to fund our government. There have been studies that if we were to replace (not supplement) our income tax system with a sales tax system, then the rate would have to be around 40%+ to be revenue neutral (and provide a prebate to those below the poverty level) ---
**Author:** ![Zebra](https://avatars.discourse-cdn.com/v4/letter/z/c0e974/32.png) [@Zebra](https://boards.straightdope.com/u/Zebra)\ **Post date:** [September 25, 2012, 7:09am UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/23 "2012-09-25T07:09:01Z")
> [@Damuri\_Ajashi](#): > > This particular fellow’s plan calls for 0% up to 20K and 10% from 20K to 80K (I suppose thats his definition of the band of middle class lifestyle spending) and then progressively up from there. But unless you are willing to get rid of cash, how do you enforce it? Its like asking people to keep their receipts but not so they can get a deduction but so you can tax them on it. How likely is that to work? Like it said, all transactions would have to be done via card. The ranges are just an example. Not the result of study but just numbers pulled out of my ass to give a general idea. The idea is not to tax individual items at rates due to their relative costs, but spending on a yearly basis. If I’m a person who makes 35K a year, I may occasionally purchase a luxury item that costs a great deal of money. A wedding gown. A car. So instead of saying tax an individual item that costs x ammount. Look at the total spending for a year and tax that. Very wealthy people will purchase more. More food. So yes, food should be taxed. But only after you’ve reached certain amount in the course of a year. So person A is buying hamburger and tuna all year and person buys lobster and caviar all year long, well, they get taxed more. And why not get rid of cash? ---
**Author:** ![grude](https://avatars.discourse-cdn.com/v4/letter/g/e47774/32.png) [@grude](https://boards.straightdope.com/u/grude)\ **Post date:** [September 25, 2012, 7:14am UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/24 "2012-09-25T07:14:37Z")
> [@Damuri\_Ajashi](#): > > But unless you are willing to get rid of cash, how do you enforce it? Its like asking people to keep their receipts but not so they can get a deduction but so you can tax them on it. How likely is that to work? > ) State sales taxes and VAT are collected all around the world right now without anyone saving receipts and abolishing cash, hell it is one of the most anonymous taxes with no info collected at all. ---
**Author:** ![grude](https://avatars.discourse-cdn.com/v4/letter/g/e47774/32.png) [@grude](https://boards.straightdope.com/u/grude)\ **Post date:** [September 25, 2012, 7:17am UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/25 "2012-09-25T07:17:32Z")
> [@Zebra](#): > > Like it said, all transactions would have to be done via card. The ranges are just an example. Not the result of study but just numbers pulled out of my ass to give a general idea. > > The idea is not to tax individual items at rates due to their relative costs, but spending on a yearly basis. If I’m a person who makes 35K a year, I may occasionally purchase a luxury item that costs a great deal of money. A wedding gown. A car. So instead of saying tax an individual item that costs x ammount. Look at the total spending for a year and tax that. Very wealthy people will purchase more. More food. So yes, food should be taxed. But only after you’ve reached certain amount in the course of a year. So person A is buying hamburger and tuna all year and person buys lobster and caviar all year long, well, they get taxed more. > And why not get rid of cash? You don’t need to get rid of cash OR have people collecting millions of receipts in a year. Lets take for example the person making 35K that purchases a few luxury items, let them pay the tax at point of sale and then apply for a refund with the receipts only for the luxury items, shouldn’t be a problem to hold on to one or two receipts in a year. Different food items should be taxed differently, milk and beans should not be. Lobster, caviar and kobe beef should be. ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [September 25, 2012, 8:05am UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/26 "2012-09-25T08:05:47Z")
> [@Palo\_Verde](#): > > In this article from CNN, [http://www.cnn.com/2012/09/24/opinion/mccaffery-romney-tax/index.html?hpt=hp\_c1](http://www.cnn.com/2012/09/24/opinion/mccaffery-romney-tax/index.html?hpt=hp_c1) the author argues that for the poor and middle class, the amount you spend is the same as, or preferably less than, the amount you earn. So if the tax rate stayed the same, taxing spending would end up being the same as an income tax. But it would hit the rich much harder. > […] > So basically since the really rich often don’t have ‘income’ they can legally not pay much in taxes. > […] > Would this work, or is he not taking something into acount? This is a trick, a scam, hogwash and humbug. Of course the rich have income, and they even pay taxes on it. They’ve just managed to get certain capital gains counted separately from their other income and taxed at a low rate. When he says they don’t have “income,” what’s really going on is that their income is taxed differently. But he’s trying to trick the public into voting for not taxing it at all, and then only taxing monies spent on “consumption,” when most spending by the rich is on, guess what, “investment.” This would of course make the regressive difference in effective tax rates much, much greater. Not to mention that the same types who claim that Mitt Romney’s pension is “capital gains” would find some way to count their expenditures as “investment.” Pure Grade-A USDA Prime Scamapalooza. ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [September 25, 2012, 8:11am UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/27 "2012-09-25T08:11:59Z")
> [@Invisible\_Chimp](#): > > Should we tax spending instead of income? No. Should we tax spending in addition to income? Maybe. I don’t see any advantage to replacing a progressive income with a slightly more regressive consumption tax. Adding the consumption tax might help balance the budget though. That’s the compromise they’re happy for you to take. Sorry, but progressive income tax is really one of the better and fairer systems possible. (Though adding in a tax on wealth would also be useful.) Those who want to change it are largely out to make a worse system for the bulk of society while getting away with something themselves. ---
**Author:** ![Grumman](https://avatars.discourse-cdn.com/v4/letter/g/43a26b/32.png) [@Grumman](https://boards.straightdope.com/u/Grumman)\ **Post date:** [September 25, 2012, 8:39am UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/28 "2012-09-25T08:39:33Z")
Making “essentials” sales tax-free, like they do here in Australia, is a fine idea. Trying to replace the income tax entirely with sales tax is a bad idea. Implementing a cumulative tax-free threshold is an incredibly stupid idea. If you want to increase tax rates on the rich, the smart method is to look at the tax deductions and alternate tax rates that cause a differential between the theoretical tax rate and the actual tax rate, and work out whether the increased revenue is worth destroying the benefits that justified the creation of these exceptions in the first place. Anyone talking about punitive sales taxes on anything that isn’t actively harmful or a cumulative tax-free threshold doesn’t know what they’re talking about. ---
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [September 25, 2012, 9:33am UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/29 "2012-09-25T09:33:45Z")
Under a flat consumption tax, the wealthy taxpayers would not be providing 90% of the revenue base anymore… they can’t possibly do that much consuming, not even if you strapped them to a board and force-fed them foie gras. A consumption tax could only be revenue-neutral if it only with an elaborate layered system of progressive brackets and exemptions. Then it would look like what we have now, we’d just curse the horribly complicated outgo tax instead of the income tax. Spare the poor by exempting a certain minimum amount from taxation? Of course! There’s no reason we should force the poor to pay for a huge tax cut on the rich when a deluded middle class seems historically willing to swallow it, though they really don’t seem to understand what they’re biting off in this case. ---
**Author:** ![WhyNot](https://avatars.discourse-cdn.com/v4/letter/w/c77e96/32.png) [@WhyNot](https://boards.straightdope.com/u/WhyNot)\ **Post date:** [September 25, 2012, 9:37am UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/30 "2012-09-25T09:37:12Z")
> [@Voyager](#): > > Remember the increase in the middle class saving rate at the height of the recession? How did that do for the economy? Dunno. I’m not an economist, and they all seem to disagree what the numbers are, much less what they mean. I can say that my family and friends (mid-to-late 30’s, low to middle income, for the most part) are doing much better today that we were 4 years ago. None of us are homeless anymore, educations have been obtained, everyone who wants a job finally has one and we’re paying down our debt, if not all of us quite yet to the saving part… > [@Grumman](#): > > If you want to increase tax rates on the rich, the smart method is to look at the tax deductions and alternate tax rates that cause a differential between the theoretical tax rate and the actual tax rate, and work out whether the increased revenue is worth destroying the benefits that justified the creation of these exceptions in the first place. Anyone talking about punitive sales taxes on anything that isn’t actively harmful or a cumulative tax-free threshold doesn’t know what they’re talking about. This does seem to be a sensible notion. The problem is that is requires cost-benefit analysis and when you’re looking at nebulous criteria in a complex system, who gets to decide what’s worth it? Me, the almost entirely ignorant? Of course not. Economist A, sponsored by the Really Rich Dudes Association of America? Economist B, backed by not for profits and environmental groups? No one’s without bias. And even if you could get a group of 5 economists to come up with fewer than 6 plans, you’ve got a viciously partisan Congress who won’t implement a damn thing without so sharply pruning it that every rosebush comes out a battered stem with one shriveled leaf left… ---
**Author:** ![Untoward\_Parable](https://avatars.discourse-cdn.com/v4/letter/u/51bf81/32.png) [@Untoward\_Parable](https://boards.straightdope.com/u/Untoward_Parable)\ **Post date:** [September 25, 2012, 10:20am UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/31 "2012-09-25T10:20:06Z")
Uh, asset tax, gets people to spend, and try to outrace the wealth tax, 10% a year covers basically everything in gov spending, and keeps trust fund brats who don’t do anything actually have to work for a living, maybe. ---
**Author:** ![Grumman](https://avatars.discourse-cdn.com/v4/letter/g/43a26b/32.png) [@Grumman](https://boards.straightdope.com/u/Grumman)\ **Post date:** [September 25, 2012, 11:12am UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/32 "2012-09-25T11:12:36Z")
> [@Untoward\_Parable](#): > > Uh, asset tax… Another stupid idea from the peanut gallery. A good tax is one that is easy to implement. A GST or VAT, for example, uses hard data that any adequately organised business already collects for their own use - at worst they need to keep four running tallies of sales and purchases instead of just two. Even if I agreed with your goals, a tax that relies on honest, accurate appraisals not just of a single year’s income but the proceeds of all income you and your ancestors have ever earned means too much work is wasted on a purely parasitic industry. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [September 25, 2012, 4:02pm UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/33 "2012-09-25T16:02:35Z")
> [@Zebra](#): > > Like it said, all transactions would have to be done via card. The ranges are just an example. Not the result of study but just numbers pulled out of my ass to give a general idea. > > The idea is not to tax individual items at rates due to their relative costs, but spending on a yearly basis. If I’m a person who makes 35K a year, I may occasionally purchase a luxury item that costs a great deal of money. A wedding gown. A car. So instead of saying tax an individual item that costs x ammount. Look at the total spending for a year and tax that. Very wealthy people will purchase more. More food. So yes, food should be taxed. But only after you’ve reached certain amount in the course of a year. So person A is buying hamburger and tuna all year and person buys lobster and caviar all year long, well, they get taxed more. I understand that you want to make the consumption tax progressive but the notion of getting rid of cash means that every man woman and child needs one of these cards and if you lose your card, you can’t buy anything until you get another one. Every tourist would need to get a card. Everyone would need a card reader (how does my kid get paid for mowing lawns?). Some very fast transactions like paying for a cab goes from taking 10 seconds to however long it takes to dial up and verify payment. Thats just off the top of my head. > [@](#): > > And why not get rid of cash? Because cash serves a useful purpose. How do I stick a dollar in a G string without cash. I guess I could buy some in house funny money but then there is a record of my spending money in a strip bar. > [@grude](#): > > State sales taxes and VAT are collected all around the world right now without anyone saving receipts and abolishing cash, hell it is one of the most anonymous taxes with no info collected at all. Not if you want to have a progressive consumption tax that taxes people at higher and higher rates as their consumption increases. If you don’t do that then a consumption tax becomes regressive. > [@grude](#): > > You don’t need to get rid of cash OR have people collecting millions of receipts in a year. Lets take for example the person making 35K that purchases a few luxury items, let them pay the tax at point of sale and then apply for a refund with the receipts only for the luxury items, shouldn’t be a problem to hold on to one or two receipts in a year. > > Different food items should be taxed differently, milk and beans should not be. Lobster, caviar and kobe beef should be. Once you start applying different consumption tax rates on different items you have reinjected one of the problems that consumption taxes are supposed to get rid of. Tax preferences. You are turning the consumption tax into a luxury tax, you can’t fund a government on that, especially if you only tax people who buy a LOT of luxury items.. > [@Grumman](#): > > Making “essentials” sales tax-free, like they do here in Australia, is a fine idea. Trying to replace the income tax entirely with sales tax is a bad idea. Implementing a cumulative tax-free threshold is an incredibly stupid idea. I would be more careful about calling others or their ideas stupid. It is very easy to implement a cumulative taxfree threshhold and if you had a consumption tax, it is probably a good idea to have an exemption threshhold. Its called a prebate. You give people check equal to the sales tax on the poverty level of spending (or whatever level you want to make tax free). Its one of the best ideas from a fellow by the name of Milton Friedman, most people didn’t think he was stupid. > [@](#): > > If you want to increase tax rates on the rich, the smart method is to look at the tax deductions and alternate tax rates that cause a differential between the theoretical tax rate and the actual tax rate, and work out whether the increased revenue is worth destroying the benefits that justified the creation of these exceptions in the first place. Anyone talking about punitive sales taxes on anything that isn’t actively harmful or a cumulative tax-free threshold doesn’t know what they’re talking about. They seem to be talking about a luxury tax. And I agree, we need to reexamine whether the capital gains rate is justified. A cumulative taxfree threshhold is a good idea. Economists don’t agree whether a consumption tax is a good idea but most of them agree that if you are going to have a consumption tax, then you want to have an exemption threshhold. A progressive consumption tax is not stupid just impracticable. > [@Untoward\_Parable](#): > > Uh, asset tax, gets people to spend, and try to outrace the wealth tax, 10% a year covers basically everything in gov spending, and keeps trust fund brats who don’t do anything actually have to work for a living, maybe. A 10% asset tax would be disastrous. Even 1% would be pretty bad. If you want to prevent the dynastic accumulation of wealth, we have an app for that. Its called the estate tax. > [@Grumman](#): > > Another stupid idea from the peanut gallery. A good tax is one that is easy to implement. A GST or VAT, for example, uses hard data that any adequately organised business already collects for their own use - at worst they need to keep four running tallies of sales and purchases instead of just two. Even if I agreed with your goals, a tax that relies on honest, accurate appraisals not just of a single year’s income but the proceeds of all income you and your ancestors have ever earned means too much work is wasted on a purely parasitic industry. Most wealth tax is targetted at passive investments, not the value of a privately held active business. But generally speaking, there are better ways to raise revenue equitably. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 25, 2012, 4:36pm UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/34 "2012-09-25T16:36:49Z")
> [@WhyNot](#): > > Dunno. I’m not an economist, and they all seem to disagree what the numbers are, much less what they mean. > > I can say that my family and friends (mid-to-late 30’s, low to middle income, for the most part) are doing much better today that we were 4 years ago. None of us are homeless anymore, educations have been obtained, everyone who wants a job finally has one and we’re paying down our debt, if not all of us quite yet to the saving part… In general we are far better off - no argument there. And no argument that paying down debt was the right thing to do. But it did wreak havoc on consumption and thus on employment. It was the hangover from the Bush era bender. > [@](#): > > This does seem to be a sensible notion. The problem is that is requires cost-benefit analysis and when you’re looking at nebulous criteria in a complex system, who gets to decide what’s worth it? Me, the almost entirely ignorant? Of course not. Economist A, sponsored by the Really Rich Dudes Association of America? Economist B, backed by not for profits and environmental groups? No one’s without bias. And even if you could get a group of 5 economists to come up with fewer than 6 plans, you’ve got a viciously partisan Congress who won’t implement a damn thing without so sharply pruning it that every rosebush comes out a battered stem with one shriveled leaf left… The problem is not finding loopholes it would make sense to close. The problem is getting the political will behind doing so. Why do you think Romney and Ryan are so reticent about telling us what loopholes they want to eliminate in order to lower taxes? The Republicans know this. I think their deal is to lower taxes, which is easy, and then when the loophole cutting fails, say too, bad, time to cut spending some more. Anyone honest would eliminate loopholes first and think about cutting taxes later. It’s not like we don’t need the revenue. ---
**Author:** ![Inigo\_Montoya](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/inigo_montoya/32/124_2.png) [@Inigo\_Montoya](https://boards.straightdope.com/u/Inigo_Montoya)\ **Post date:** [September 25, 2012, 5:22pm UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/35 "2012-09-25T17:22:21Z")
So much dancing around wealth redistribution, trying to disguise it all as “more fair” taxation. The 99% should just cut to the chase: Identify the 1%ers, lop off their heads in a public torchlight ceremony, and redistribute their wealth to the bottom 30%. If times are still tough, identify the next 1% and repeat the exercise. No sense waiting until we are suffering massive peasant starvation–let’s get proactive. Details may be found in my newsletter. You’re welcome. ISTR what really fouls up an economy is money hoarding. Taxing income dissuades, to some extent, earning high income. Taxing spending dissuades spending. So what can we do to stimulate the economy and promote reasonable consumption? How about taxing net worth. Every year. This would generate stupid amounts of very predictable revenue, some of which can be funnelled into Social Security which can, in turn, be beefed up to provide a living income for retirees who felt forced to spend down their savings to pay taxes, eat, put kids through college, etc. Only half-joking here. Is there anyone here willing to argue that the vast majority of Americans have sufficient savings/retirement to allow them to live meaningfully after an age 65 retirement? They’re gonna need something or else they’re gonna start littering up the streets in the next few years with their emaciated corpses. ---
**Author:** ![MLS](https://avatars.discourse-cdn.com/v4/letter/m/919ad9/32.png) [@MLS](https://boards.straightdope.com/u/MLS)\ **Post date:** [September 25, 2012, 5:33pm UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/36 "2012-09-25T17:33:36Z")
Taxing assets or spending is a huge problem for many retirees and others with a mostly fixed income. A good example is someone in New Jersey who has worked hard all his life and owns a home and is now living off his savings, investments and Social Security. The value of his home is taxed and that tax increases year after year. If it were all income tax he would be able to plan appropriately instead of having to fear losing his home some day when the property tax became higher than his income will allow. For example, my home (fully paid for) is taxed at over **seven thousand dollars** a year. ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [September 25, 2012, 5:51pm UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/37 "2012-09-25T17:51:45Z")
I’m not a really rich dude, but I am a fairly well off dudette… We make quite a bit of money (most of it ordinary income) and pay quite a bit in income taxes. And we live a pretty middle class lifestyle, we save in excess of 40% of our income. So what switching from income to consumption tax does for me is significantly lower my tax burden without me having to make a single lifestyle change. As a result, I can afford to save more, increasing my wealth more. Eventually, me and my wealth could move to Mexico and escape U.S. consumption taxes. Rich people don’t become rich people by spending what they earn. Poor people aren’t stuck at being poor because they have plenty to save. ---
**Author:** ![Blaster\_Master](https://avatars.discourse-cdn.com/v4/letter/b/cab0a1/32.png) [@Blaster\_Master](https://boards.straightdope.com/u/Blaster_Master)\ **Post date:** [September 25, 2012, 7:21pm UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/38 "2012-09-25T19:21:25Z")
I think the tax system needs a lot of work, particularly in terms of simplification, but I don’t think that going to a consumption tax over an income tax really does anything to solve the problem, it just shifts it. Consider, a big part of the reason wealthy people pay relatively less taxes is because of capital gains, and another reason is because of the cap on social security. Thus, if you consider this a problem and you want to fix it, the first thing you need to do is consider all forms of income the same and tax them all under one progressive system. Second, you need to get rid of all of the incentivizations in taxes. People shouldn’t be getting married, or buying houses or whatever that otherwise wouldn’t be a good idea for them because there’s tax incentives. The purpose of tax should be to raise money for the cost of government. If we want to engage in any sort of social engineering or incentivization, we should create other government programs to handle that so they can be properly itemized and accounted for and not have government revenue or people’s taxes complicated by that. That said, despite removing incentives from taxation, tax still necessarily has a way of discouraging whatever we tax, so we need to try to choose what we tax based on how they affect that behavior in terms of the economy and the general well fair. That’s where I think the argument that we need to not tax income, because income is good for the economy, but it’s ultimately spending and investing that creates economic activity, simply making money doesn’t really do anything. Consider, if I make a lot of money, but shove most of it under my mattress (actually or simply saving it), it’s not circulating in the economy. I’m more likely to purchase goods or services if it’s less expensive and by putting that extra burden at the point of purchase, I think it will discourage some economic activity. However, with income, people will always benefit from making more money, even if it’s taxed at higher rates as you make more of it. You can’t spend it if you don’t earn it, so barring rates that are just too high, I don’t really see how you can discourage the activity of earning it. So I just don’t see why we’d be any better off taxing spending rather than income. On top of that, we add other problems. How do we put in any sort of progressive taxation in spending? Do we charge some sort of a flat rate and offer rebates? Do we expect people or businesses or some branch of government to dynamically determine some sort of adjusted rate people should pay at each point of purchase? Or does the government calculate the tax someone would pay at poverty, rebate it up front? This is where a vastly simplified tax system on income just makes the whole system a lot easier. The employer has the context of all the money someone makes, they get the effective tax rate based on some formula, and they just pay it to the government. It’s hardly any burden on them and it’s the same for each employee. What is making income tax such a burden is how damned complicated the code is with all the exceptions and incentives. Cut that out and it’ll work a lot better. ---
**Author:** ![emacknight](https://avatars.discourse-cdn.com/v4/letter/e/3ec8ea/32.png) [@emacknight](https://boards.straightdope.com/u/emacknight)\ **Post date:** [September 25, 2012, 7:48pm UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/39 "2012-09-25T19:48:55Z")
> [@Hampshire](#): > > Don’t the rich save a larger % of their income than the middle class? And the middle class save a larger% than the poor? > So if you’re taxed on spending rather than income then the poor who spend every paycheck because they don’t make enough to have any savings are paying tax on 100% of their income. That is a very flawed way of looking at it. Most of what the poor are buying with that 100% is rent and food which isn’t typically “taxed” as spending. If the poor then want to buy a tv they have a choice, buy a modest tv, pay almost no tax, and save the rest. Or they can blow their savings on a big tv and pay a tax. I think we’re all fine with the regressive nature of tax on cigarettes and alcohol, even if that can amount to a huge portion of a person’s income. If a guy only makes $14k a year, buys 2 packs a day, he could be paying $1 per pack in taxes. That would be $730 in taxes a year or 5% of his income. That’s almost what Warren Buffett pays! > [@Hampshire](#): > > The rich who make $10 million a year, spend $1 million, throw the other $9 million into savings, are paying tax on 10% of their income? Sure, but they are paying tax on that $1mil. And everyone that spends $1mil will pay the same amount of tax. > [@Hampshire](#): > > Seems like it’s built to benefit those who accumulate wealth but don’t spend it. Those living paycheck to paycheck will never benefit. Isn’t that a good thing? People shouldn’t live paycheck to paycheck, and those that choose to can pay more in taxes than those that don’t. Keep in mind that normally there is some offset/credit for poor people, so the poor that save will be better off than the poor that spend. Also keep in mind that this is supposed to be a means of reducing income tax, so people right now living paycheck to paycheck to actually have more cash in hand, and hence have the option to save. If they choose not to save they can be taxed. ---
**Author:** ![emacknight](https://avatars.discourse-cdn.com/v4/letter/e/3ec8ea/32.png) [@emacknight](https://boards.straightdope.com/u/emacknight)\ **Post date:** [September 25, 2012, 8:03pm UTC](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720/40 "2012-09-25T20:03:46Z")
> [@Clothahump](#): > > The answer is absolutely yes, we should tax spending. That is why I support the [Fair Tax.](http://www.fairtax.org) > > But it won’t work unless the 16th Amendment is repealed and the income tax goes back to being unconstitutional. It works better if you include it with a reasonable income tax structure. Otherwise you end up with such a high consumption tax that avoidance becomes too highly incentivized. That usually means the tax has to go up, which makes the incentive even higher. I’ve been to enough shit-hole countries to see this in action. Having both taxes be lower makes the incentive to avoid them lower. It’s usually easy to hide some income, but then you’re going to get taxed when you spend. If you avoid spending you’ll at least pay something through income tax. [Previous page](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720.md?page=1) [Next page](https://boards.straightdope.com/t/should-we-tax-spending-instead-of-income/635720.md?page=3)