Quote:
Originally Posted by Roboman
Saying that consumption taxes, by their nature, do not collect enough revenue seems "iffy" to me. Couldn't the tax rate simply be increased (or decreased, ha) to meet the needs of the state?
That's like saying income tax, categorically, does not collect enough revenue. It's the responsibility of those setting the rates to make sure that it does, no?
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I'm not an economist and I don't have all the necessary information at the ready so forgive me if I'm wrong.
But just doing some numbers in my head it seems as though you'd have to tax people at a VERY high rate on consumption in order to make up the lack of an income tax. Think of it this way (numbers are guesstimates):
- Joe Blow makes $50,000 a year. His income is taxed at roughly 25%, so he pays the government about $12,500.
- Joe Blow makes $50,000 a year. He only spends $25,000 on taxable goods and services (the rest is for rent/mortgage, food, investments, savings, and anything else that isn't taxed). It would require an exceptionally high 50% consumption tax rate for the government to make the same amount of money from him. If this figure is a more reasonable 20%, then the government only gets $5,000.
Of course they can increase the amount of revenue by changing how things work, applying the consumption tax to more items or whatever, but the government is still basically starting with a smaller piece of the pie to work with.
EDIT: Oh, and yeah, it's horribly regressive as billybobsky pointed out. People who make tons of money can't and don't need to spend most of what they make. Yes, they spend more than people who make comparatively little, but unless you're making several hundred grand a year, you're going to be spending a significant portion of what you earn.