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Well if the problem is general excessive consumption, then a tax on consumption will help. But consumption tax is not necessarily progressive (or at least not s
by a_humean 11y ago
Well if the problem is general excessive consumption, then a tax on consumption will help. But consumption tax is not necessarily progressive (or at least not sufficiently progressive enough to warrant the label) as its impacts on the poor (as a matter of marginal welfare as opposed to % of income/consumption) are usually much greater than on the most wealthy.
See this 2009 IFS report for the nuance in the context of UK VAT - in particular figure 10.1 and 10.2 (http://www.ifs.org.uk/budgets/gb2009/09chap10.pdf http://www.ifs.org.uk/budgets/gb2009/09chap10.pdf).
Often VAT regimes will not tax certain basic good such as bread, eggs, or essential household products, but in the UK most goods including many that you may consider basic have 20% VAT.
Someone being taxed say 20% on their consumption when their typical yearly consumption is $1 million has a much smaller impact to their marginal welfare than someone with a typical expenditure of $10k taxed at 10-15%. If someone has an income and consumption of $10k, then you probably don't really want tax them much or anything at all (you probably want to give them money/job/training/something!).
Provided you offset the increased taxation by consumption with increased services and benefits to the poorest, then you can mitigate most of the worst regressive effects.
- humanrebar 11y agoNote the POVERTY_LEVEL constant in there. And the tax rate itself could be progressive. I didn't say anything about a flat consumption tax.
- a_humean 11y agoAh sorry. Consumption tax is usually understood to mean a tax collected at the moment of transaction based on the value and type of product/service, not as a yearly calculation that is more akin to a variant of an income tax.
- deleted 11y ago[deleted]