Friday, September 17, 2004
I was reading about Bush's consumption tax in Business Week. When I think of consumption tax I think of the VAT (value added tax) that we have in the UK - which, much like the local sales taxes in the US, is collected at the register, but way less complicated because it is one rate nationally (set by the government).
That would seem to be a nightmare to implement here. Imagine all the cash registers and online stores that would suddenly need to cope with it, and the infrastructure necessary for businesses to claim refunded on raw materials and services they bought (the assumption is that VAT will be collected on the goods that company produces).
Anyway, one section in the BW article was on the idea of "consumed income tax", which made me think ...
If I think about what it would mean to me directly, it would probably mean I would be trying to save the maximum possible every month, and I'd only spend what I needed to. I'd have direct transfers set up with my bank to move the money the day I got paid so I never even see it.
Now, lets say Apple releases some new gadget, but I don't have the money in my current account to buy it right now. Before I would have kept a float in my current account (because it didn't cost me anything except maybe a few dollars a year in lost savings interest) and I could afford to buy it.
Even today, if money is in Savings I really don't like moving it back to Current, even though I can do it electronically. It just doesn't feel right. With a consumed income tax, I can see myself keeping almost nothing in my current account and cutting down on spending on frivolous stuff.
Another example is cars. Right now I'm taking a long hard look at $55K worth of Infiniti's 2006 M45 (due here next spring), but if I thought I'd end up paying 30% consumption tax on it, I can see me getting something like an Acura TL instead. And you have to think it would be death to vehicles like the Hummer H2, where you'd pay 30% tax up front, and then get killed again at the pump to feed the 6mpg engine.
I don't doubt that over time this reduced consumption effect would wear off, and folks would continue to buy a bunch of stuff they don't need, but I can't help thinking that years 1 and 2 would be pretty hard on companies making cars, computers and other deferable products or luxury goods like $1500 purses. And of course, if everyone decided to save to the max, the government wouldn't pull in enough money to meet their budget...
... which if nothing else, would put the government's incredible military spending into sharp focus.
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That would seem to be a nightmare to implement here. Imagine all the cash registers and online stores that would suddenly need to cope with it, and the infrastructure necessary for businesses to claim refunded on raw materials and services they bought (the assumption is that VAT will be collected on the goods that company produces).
Anyway, one section in the BW article was on the idea of "consumed income tax", which made me think ...
Think of an unlimited individual retirement account. You would simply list your income - including, possibly, your fringe benefits and other goodies that are currently excluded - the subtract everything you save and invest and calculate tax on what is left.This seems like an interesting way to do it, not only because its a darn sight simpler than the current system of exemptions and loopholes, but because of the social effect I think it would have.
If I think about what it would mean to me directly, it would probably mean I would be trying to save the maximum possible every month, and I'd only spend what I needed to. I'd have direct transfers set up with my bank to move the money the day I got paid so I never even see it.
Now, lets say Apple releases some new gadget, but I don't have the money in my current account to buy it right now. Before I would have kept a float in my current account (because it didn't cost me anything except maybe a few dollars a year in lost savings interest) and I could afford to buy it.
Even today, if money is in Savings I really don't like moving it back to Current, even though I can do it electronically. It just doesn't feel right. With a consumed income tax, I can see myself keeping almost nothing in my current account and cutting down on spending on frivolous stuff.
Another example is cars. Right now I'm taking a long hard look at $55K worth of Infiniti's 2006 M45 (due here next spring), but if I thought I'd end up paying 30% consumption tax on it, I can see me getting something like an Acura TL instead. And you have to think it would be death to vehicles like the Hummer H2, where you'd pay 30% tax up front, and then get killed again at the pump to feed the 6mpg engine.
I don't doubt that over time this reduced consumption effect would wear off, and folks would continue to buy a bunch of stuff they don't need, but I can't help thinking that years 1 and 2 would be pretty hard on companies making cars, computers and other deferable products or luxury goods like $1500 purses. And of course, if everyone decided to save to the max, the government wouldn't pull in enough money to meet their budget...
... which if nothing else, would put the government's incredible military spending into sharp focus.
