Sunday, September 27, 2015

Consumption Tax vs Income Tax

Scott Sumner's recent blog entry begins with... "It's difficult to think of a more bizarre and foolish policy than the practice of taxing capital"...  and ends with...

A simpler and fairer solution would be to abolish all taxes on capital, and start over. Think about what the tax system is trying to achieve, and implement a tax system that achieves those goals in the fairest and most efficient way possible. In my view that would be a progressive consumption tax.

Taxing capital is more bizarre and foolish than allowing congresspeople to spend everybody's taxes?

Let's say that Sumner believes that congresspeople are omniscient.  This belief of his would explain why he has no problem with congresspeople spending his taxes.  Congress would know Sumner's preferences/circumstances and spend his taxes accordingly.  He would benefit from their spending decisions.  Of course he would have to assume that congress is actually interested in his benefit.

Let's say that Sumner does not believe that congresspeople are omniscient.  Then he either believes 1. that congress can adequately discern his preferences/circumstances or 2. that his preferences/circumstances are irrelevant.

I'm pretty sure that Sumner doesn't believe that his preferences/circumstances are irrelevant.  Therefore, he must believe that congress can adequately discern his preferences/circumstances.  Why does his believe this?  Because he can vote?

Sumner votes for Elizabeth Warren and she somehow knows his preferences/circumstances.  Not because she's omniscient... but because she has a drone follow Sumner around everywhere.  If Sumner is mugged then Warren decides how much of his taxes to give to the police.  Not exactly sure why the drone didn't just electrocute the mugger.

I can't figure out Sumner's beliefs.  Can you?  Why should we have to guess?  Is it really that difficult for him to share his beliefs on the topic of preference revelation?  Maybe he's embarrassed of his beliefs?

In the X-Files... Mulder isn't embarrassed to share his beliefs.  This often embarrasses his partner.  For some reason I derive quite a bit of utility from her embarrassment.  Probably because it reminds me of Linus sharing his belief in the Great Pumpkin.  I'd probably be embarrassed if I had a friend that believed in the Great Pumpkin.

Maybe Sumner's friends encourage him not to publicly share his beliefs in the efficacy of congress spending everybody's taxes?

Yesterday I spent $18 dollars for an orchid.  The orchid is a drought tolerant epiphyte.  My decision to purchase the orchid communicates something about my preferences/circumstances.  Sumner believes that this exchange should be taxed.  And I suppose we could pretend real hard that congress looks at everybody's purchases and aligns expenditures accordingly.  The supply of orchids depends on certain public goods.  So the supply of orchids can be improved by improving the supply of the relevant public goods.  But if congress can adequately improve the supply of the relevant public goods... then why can't they adequately improve the supply of the relevant private goods?

From my perspective... we should eliminate every tax but the income tax.  With a pragmatarian system, the income tax would simply indicate that people are legally obligated to spend a certain percentage of their income in the public sector.  I'm pretty sure that everybody's preferences/circumstances are just as relevant for public goods as they are for private goods.  And spending is better than voting at communicating preferences/circumstances.

How much better is spending at communicating preferences/circumstances?

No comments:

Post a Comment