December 14, 2007

Is It Fair? Do You Like It?

Ezra's got a post up about the possibility of switching from an income tax to a consumption tax. He makes the point that a consumption tax has positives and can indeed be made progressive if that's what you wanted from it. This is, of course, spawning out of Mike Huckabee's support for such a tax. Link.

Ok, I'm not an economist, but it seems to me that you could make any tax more progressive and fair, but that's now why Gov. Huckabee is supporting the change. Like so many calls for altering the tax system, Steve Forbes' Flat Tax proposal came to my mind, the argument is always that the change should be made because it's simple. We're told that the current tax code is over complicated and taxing in a different manner will eliminate such confusion. This is simply wrong. There's no reason an income tax *must* be complicated, but there is a very good reason why *ours* is: time. Any system of taxes can be very simple if you refuse to add any exceptions or modifications of the original tax assessment. But what invariably happens is that over a few decades the tax system is used for a variety of noble and not-so-noble goals and the system gets cluttered. If you're really interested in simplifying the tax code a committee could review the Code looking for unneeded sections to be eliminated or multiple sections to be combined into more uniform and readable language.

But conservative calls for a change to the tax code are rarely about actual simplification; they're about shifting the tax burden. As Ezra says, a consumption tax could have higher tax rates for higher levels of consumption and as the comments say you could pair that up with exceptions/incentives to help people with specific issues. That'd be fine. What we should be wary of any attempts to reduce the proportion of income paid by the affluent in taxes.

Incidentally, I can't watch at work, but here's Warren Buffett supporting a consumption tax. Link.

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