Thursday, March 27, 2008

The Progressive Consumption Tax

The Democracy Journal is hosting an orgy of ideas. The one I found most interesting was Robert Frank's progressive consumption tax. In general, I think implementing some form of a consumption tax in conjunction with an income tax is a good idea. Such a hybrid system would to some degree mitigate the problem of taxing "goods" as opposed to taxing "bads". By incorporating both systems, though, you can also address concerns about progressivity. Well, Robert Frank doesn't want a stinking hybrid system, he goes big. I don't think relying excessively on either a consumption tax or an income tax is sensible. I tend to think you want to have a variety of different revenue sources so as to provide revenue stability.

What interested me about Frank's proposal was the underlying motivation. Frank seems less concerned with negative aspects of taxing work but rather consumed with deterring status or positional competition. He thinks that Americans suffer from an consumer arms race where we are all spending ourselves into debt just keep up with the joneses. I have heard this view advanced a decent amount in the liberal blogosphere (prominently by Ezra Klein) and I of two minds on the subject. My basic reaction is: so what? I am unsure why the government need intervene wielding its power to tax because some people are spiteful, envious, or have poor self esteem. Instead of taxing those that consume maybe we should tax those who envious of others' consumption. We could embed monitors on every soul and monitor envy emissions and wire this machine up to their bank account and conduct continuous withdraws as appropriate and transfer those moneys to people whose personal fulfillment is not fueled by spite. Though, this seems all a bit invasive. And I don't know if the technology exists (though we could do another Manhattan project). But, as much as I hate to admit it, I do think there is something to Frank's point of view. I can't accept it whole hog. Not gonna do it. BUT, I do think that in fact, sometimes people do consume purely to show that they can consume, and maybe there is some harm in this. And maybe in narrow instances, there is a way to harness certain folks prediliction for cupidity for the public good. In Virginia we have a car tax which is progressive. It could be made steeply progressive so that once you exceed $50 k for a non-business purchase the tax rate doubles.

In concluding this wet bag of shit post, I like Frank's idea, I am not a fan of his motivation.

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