What would a progressive consumption tax look like?

DevilFin13 · Aug 5, 2010

http://voices.washingtonpost.com/ezra-klein/2010/08/research_desk_explains_what_wo.html#more

Currently, the personal income tax applies, as its name suggests, to all income. Salaries, wages and so forth are taxed whether or not they are being used to buy goods and services or to save. Heavy consumption, financed largely by debt, helped fuel the economic bubble over the past decade, and more sustainable consumption patterns are probably needed. One way to produce those is to not tax income but only consumption, which would encourage savings and discourage spending.
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The most prominent of these comes from the economist Robert Frank. His proposal would work like the personal income tax, with taxpayers tallying up their income on a return, only Frank would exempt all savings from taxable income, leaving consumption as the base to be taxed. To generate the same amount of revenue as the personal income tax, much higher rates would be needed, but one of the main disadvantages of higher rates--that they discourage savings and investments among high earners--would not be relevant, so steeply progressive rates would be less economically harmful. Frank would also include a large standard deduction, so very basic consumption--food, non-luxury rent, etc.--would end up not being taxed.
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I find this concept interesting. So I wanted to get some different thoughts on it since I was just recently exposed to it.

DevilFin13 · Aug 6, 2010

http://modeledbehavior.com/2010/08/06/what-is-to-be-done-tax-edition/

An income tax on the wealthy explicitly takes more from those who have shown the best skill at employing resources. This doesn’t matter for consumption, because there is no reason to value one person’s consumption over another. However, it does matter for investment because some people are clearly better entrepreneurs than others. For uber-nerds I’ll address Modigliani-Miller at the bottom.
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In short, the results of reducing the tax on savings can only be parsed out to two sources. Either an increase in the total amount of investment, which will raise wages or an increase in the consumption of the saver which will then be taxed.
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