The brief argument against consumption tax?

Can anyone provide it for me? I have a feeling that if Greenspan is for it, it is regressive and a bad idea. But can any economists/policy wonks give me the cogent, brief breakdown on just how bad an idea it really is? Thanks in advance.

PP

Sure, the rich can still afford everything they need - no problems there.

But there's a whole lot more of us than there are of them. We're the ones who power the economic engine - OUR purchasing. When there's a massive tax on just about everything you buy, people will *really* hold back on buying something new until they have no choice. The money being pumped into the economy in the form of consumer spending will go down, which will in turn hurt businesses, which will of course lead to higher unemployment. A vicious cycle.

it taxes consumption, which is regressive. People on the lower end of the economic spectrum spend a much larger portion of their income on the basics, like food and rent. Those on the higher end dont. All the money left over for investment and savings doesnt get taxed at all.

For me, that means I'll be taxed on 100% of my income. Rich people, however, will be taxed on the 2% or whatever of their income is spent rather than invested or saved.

And that tax would apply to everything (groceries, houses, gasoline, services, etc) we purchase? If so, then who can afford to pay that tax....the rich. Certainly not the poor.

everything, including rent and utilities, would be taxed.

but the rich would not pay tax on their homes that they own?

they would take basic necessities off of the table.

But the other side is how many government services would have to be eliminated because we couldn't afford to pay for them anymore.

Bryant
Check it out --> http://politicalcomment.blogspot.com

That's the briefest I can make it. Greenspan knows he'd be forcing the elderly to eat catfood with such a tax but he's the loyal servant of his master, Bush's, base.

Using the 'marginal propensity to consume' argument, you also find that the Bush tax cuts were useless since the few wealthiest 1 and 1/2 % of taxpayers (making more than $3 million/yr) benefitted the most and spent the least. With tax cuts going to the wealthiest and multinational globalizing corporations, capital is sucked out of the US along with outsourced jobs. The rich still have their hidden wealth and taxbreaks but the rest are on payrolls reported directly to the IRS ! The Race to the Bottom continues, Alan Greenspan commends it and promotes outsourcing. Insane !

Demand would have been spurred from bottom up if those tax cuts had been geared for those making less than $3 million /yr (the other 98.5% of us) but we're not Bush's base, are we ?

Regressive taxes DAMAGE the body politic and Greenspan knows this too. His support for Bush's idiotic economic policies while feining support for cutting deficits which cause the misery, just underlines Sen. Harry Reid's accusation that Greenspan is a political hack. In his own testimony and words it is proven QED.

Read commondream's article on him 'Greenspan Shrugged'
www.commondreams.org/views/041800-106.htm

1. It affects everyone's prices equally--I pay the extra 30c for a Big Mac, Bill Gates pays an extra 30c for a Big Mac, a single working mother making 14k a year pays an extra 30c for a Big Mac.

2. Since the poor spend a larger portion of their income, it's actually worse than a flat tax. Imagine if there were *only* a sales tax. Say I make 600k a year, and you make 18k. Of your 18k, nearly 18k will be taxed, because you will likely have to spend all of it to make ends meet. I, on the other hand, will spend 250k on my lifestyle, and will keep 350k of untaxed income.

1) As others have mentioned, it's highly regressive. Tax burden shifts to the lower echelons of taxpayers, since the bottom 60% or so of wage earners have to spend most of their income to live and get to work.

2) Would effectively eliminate taxes on the very wealthy and corporations, and on dividends and capital gains.

3) In the most proposed range of taxation (24-25%), proceeds from such a tax would present a serious shortfall, and at present spending levels, would only cover interest on the debt and defense/intelligence spending. Therefore it's also intended to drastically shrink the size of the rest of the government.

4) Since a significant portion of consumer spending is put on credit cards, a goodly amount of these taxes would be instantly converted to debt.

5) And, as others have mentioned, it would drastically curtail spending of disposable income. While in one sense, that's good--the overall US savings rate is near zero and we could use an increase in that--but in another, it's quite bad--fully two-thirds of US GDP is consumer spending.

6) It's not a solution to taxation problems. If we really wanted to solve the problems of chronic large deficits and bring more stability to the economy, we'd go back to a rate structure for income and capital gains similar to that in effect in the `60s and eliminate the egregiously large subsidies and tax breaks for corporations. That would both simplify the tax code and provide some fairness to the income-to-taxation ratio. But, that won't happen with legislators elected on the strength of donations from corporations and the wealthy.

I appreciate the cogent presentation of these points. Thanks again for proving that DU rocks.