Thursday, October 13, 2011

A Progressive Consumption Tax

You tax experts out there, would this work?

Many economists have called for a consumption tax to replace the income tax. Invested money that is never spent promotes economic growth and has been compared to indiscriminate charity.

The problem is that it is difficulty to make a consumption tax that is simple and progressive. One way to achieve this goal would be to allow a person to put as much money as they want, pre-tax, into an IRA. Then allow people to take as much as they want out of their IRA at any time but pay taxes on all of the withdrawals.

You would tax income not put in an IRA plus any withdrawals from the IRA at a progressive rate. You could also allow people to buy cars and homes in their IRA and rent them at market rates.  The result would be a progressive consumption tax.

You would also want to end the Corporate profits tax.



Anonymous said...

Makes sense.

Clay said...

consumption isn't a negative externality, so there's no reason to tax it.