Greenspan Touts Idea of a Consumption Tax

barry2952

Dedicated LVC Member
Joined
Mar 25, 2004
Messages
1,774
Reaction score
0
Greenspan Touts Idea of a Consumption Tax

By JEANNINE AVERSA
WASHINGTON (AP) - Federal Reserve Chairman Alan Greenspan on Thursday said some form of a consumption tax - such as a national sales tax - could spur greater economic growth, but he cautioned that the government would face significant problems making the transition to such a system.

Switching from an income tax to a consumption tax would generate huge opposition from Democrats, who argue that taxing food and other goods would fall hardest on the poor.

Acknowledging those concerns, Greenspan told the President's Advisory Panel on Federal Tax Reform that policy-makers might want to consider a combination of an income tax and a consumption tax.

``I would suspect that probably that may be the best route to go. In other words, don't try for purity,'' Greenspan said in response to a question from a panelist. ``I would suspect that the opposition that would arise would probably make such a structure (a pure consumption tax) infeasible.''

Addressing concerns about increased taxes on food and other necessities, Greenspan said that policy-makers could design a consumption tax that would exclude products mostly consumed by the poor.

In his prepared remarks to the panel, the Fed chief said that ``a consumption tax would be best from the perspective of promoting economic growth'' because it would encourage saving and the capital formation that the economy needs to expand and modernize.

``However, getting from the current tax system to a consumption tax raises a challenging set of transition issues,'' he added.

Greenspan also said he supported tax incentives to encourage savings, despite what he called conflicting evidence about the incentives' success at increasing the national savings rate, because they enhance individuals' retirement accounts.

``And that, especially in the context of the discussions we've all been having the last couple weeks relevant to retirement funding and the like, is clearly something which is desirable,'' he said.

The Fed chief delivered his assessment to the panel a day after worrying aloud before a House committee about the buildup of budget deficits in recent years. The tax-reform panel is looking into ways to revamp the complex tax code, an important goal of President Bush.

Consumption taxes can take the form of national retail sales taxes or a value-added tax, imposed on the increased value of a good or service at each stage of manufacture and distribution and ultimately passed on to the consumer.

Bush's advisers have spoken favorably of the economic benefits that could be achieved by moving from a system that taxes income to one that taxes consumption.

While Greenspan did not specify what types of transition problems would be faced in moving toward a consumption tax in his prepared remarks, he did tell the panel he is concerned about the issue of taxing capital investments under the consumption tax. ``This is the issue that bedeviled the 1986 commission and ultimately led them to abandon the consumption tax idea,'' he said.

Bush's aides have pointed out that the current tax system is actually a combination of a system that taxes income and one that taxes consumption. They note the creation of individual retirement accounts and other tax-deferred savings accounts allows taxpayers to shelter some investment earnings from tax.

Greenspan told the panel members in his prepared comments that they will have to decide what type of system to use such as ``a comprehensive income tax, a consumption tax or some combination of the two, as is done in many other countries.''

The tax panel is responsible for coming up with recommendations to make taxes fairer and simpler. In addition to revamping Social Security, Bush wants to overhaul the nation's tax system - two centerpieces of his second-term economic agenda. Achieving both will be difficult politically and economically, especially against the backdrop of swollen budget deficits, analysts say.

Greenspan didn't offer a specific approach for policy-makers to follow as they consider an overhaul of the tax code.

But he did say that changes should be aimed at making the tax code easier for Americans to navigate, be fair and should contain an element of predictability so that businesses and consumers alike can look into the future and have a good idea what their tax obligations are - allowing them to plan ahead.

``A simpler tax code would reduce the considerable resources devoted to complying with current tax laws, and the freed up resources could be used for more productive purposes,'' Greenspan said.
 
What a bunch of ivory tower idiocy



Taxing consumpton will not make people save money so it's available for the finacial vultures to make whoopie with. If people were interested in saving money not a single SUV would be sold.

Plus any tax scheme preys on the "poor" as they must spend a larger pecentage of their income for the basics. Be very careful on how these people calculate who the poor are, you may find to your dismay that YOU are one of the rich! As a matter of experience I can pretty much guarantee that if you are married, and you and your wife work YOU ARE RICH!!!!!!, at least according to the government.

If they truly want you to save they would; stop taking money away from you, stop wasting tax monies so less is required, end entitlements, stop stealing money from estates, educate kids how to handle money, not condoms, regulate energy and utility rates, control health care cost, limit trial lawyers, and many other productive things.

Be this a carrot, or a stick, no one will save money they don't have to save, or don't feel is worth saving.
 
mach8 said:
Plus any tax scheme preys on the "poor" as they must spend a larger pecentage of their income for the basics.


Any consumption tax would need to not apply, or apply a low low rate, to things like rent, food, etc.

I like the idea in general. My only fear is that if it did encourage people to save, it would also mean less tax dollars in the process.

What I like about a sales tax is really 2 things. A tremendous amount of money can be saved by not having to deal with personal income taxes and returns needing to be filed every year.

I also like that you will catch many people who dont pay taxes, like drug dealers, who would have to pay taxes every time they buy that BLING BLING.

Like everything else, pros and cons to it.
 
If you don't tax things people must buy then you have, in effect a luxury tax, which again screws low income people, unless you link it to income levels, in which case it becomes an income graduated tax. hmmmmm.

When taxes are used for other purposes than simply raising $ things get messy. If the gov. wants to use taxation as a means to promote savings, do income redistribution, reward and punish certain things, etc. then it doesn't matter how they plot to extort money from the employed, it will always become complex and unfair.
 
mach8 said:
If you don't tax things people must buy then you have, in effect a luxury tax, which again screws low income people, unless you link it to income levels, in which case it becomes an income graduated tax. hmmmmm.

When taxes are used for other purposes than simply raising $ things get messy. If the gov. wants to use taxation as a means to promote savings, do income redistribution, reward and punish certain things, etc. then it doesn't matter how they plot to extort money from the employed, it will always become complex and unfair.


I agree with the second part. I dont like taxing some things like alcohol more heavily. Reality is we already have many consumpton taxes like on gas, alcohol, cigarettes, utilities, etc.

I would like a simpler system. Think of the savings if the income tax was removed. I wouldnt need an accountant to do my taxes, the feds wouldnt have 80% of the IRS, businesses wouldnt need 90% of their payroll departments, etc.

The other problem with income taxes, is that we are double taxed on many items. I have money taken from my check, and then tax added to my gas at the pump which I have to pay with my after tax funds.

We already have staggered consumption taxes in most states. Here, I pay 7% sales tax, except on food which is 2% (I think). Rent is excluded as is the purchase of services, except some like phone service, cable and other utilities. Alcohol and cigarettes are higher I think (never paid specific attention)

I think the answer is to simplify and reduce the burden of taxation.
 
mach8 said:
If you don't tax things people must buy then you have, in effect a luxury tax, which again screws low income people, unless you link it to income levels, in which case it becomes an income graduated tax. hmmmmm.

I don't see how a "luxury tax" will screw low income earners. Poor people are NOT the ones spending $3500 on a plasma TV, $50,000 on a H2, etc. However I'd agree that any "luxury tax" would have to be graduated, but you can do that as a function of the product, not income. For example:

Have an increased sales tax on TVs larger than 30" or costing more than $1000. Lets be real here, poor people are glad to get by on a budget TV and will never be in a position to drop big bucks on an expensive TV.

Entertainment tax: Add a small tax to DVDs, CDs, event tickets and other items that are not absolutely necessary for survival. Premimum services from cable / satellite could also be taxed. Boats, PWCs, motor homes, ATVs etc I believe already have essentially a luxury tax associated with them, either on their sale or licensing thereof.

DON'T tax food (unless it's a "luxury" item like caviar). DON'T tax clothes that are a "reasonable" cost (i.e.: "Wal-Mart" quality). Poor people are NOT spending $500 on dresses, suits or shoes. Most states already have a "sin tax" on alcohol and tobacco, nothing wrong w/ that.


In any case, taxing my money when I earn it, then again when I spend it, isn't fair. Pick one or the other. Taxing sales instead of income goes a LONG way towards encouraging people to put that $$ in the bank.
 
NO WAY then you would royally screw guys like me who would then get taxed on what they spend as opposed to what they make no way. i dont make all that much(on paper) but i spemd like a champ and i dont wanna pay no more than i gotta.
Eric
 
Eric,

You don't get it. The Sales Tax would be 25% or so, which is less than you are paying now and would replace the Income Tax. Think about it; You now start off with less money and you pay a sales tax with taxed dollars. If you deduct the difference and save that amount you'll end up with a big pile of money.

Remember the rule of 7's. Your money doubles at 10% growth in 7 years or your money doubles at 7% growth in 10 years.
 
barry2952 said:
Greenspan Touts Idea of a Consumption Tax

By JEANNINE AVERSA
WASHINGTON (AP) - Federal Reserve Chairman Alan Greenspan on Thursday said some form of a consumption tax - such as a national sales tax - could spur greater economic growth, but he cautioned that the government would face significant problems making the transition to such a system.

Switching from an income tax to a consumption tax would generate huge opposition from Democrats, who argue that taxing food and other goods would fall hardest on the poor.

Acknowledging those concerns, Greenspan told the President's Advisory Panel on Federal Tax Reform that policy-makers might want to consider a combination of an income tax and a consumption tax.

``I would suspect that probably that may be the best route to go. In other words, don't try for purity,'' Greenspan said in response to a question from a panelist. ``I would suspect that the opposition that would arise would probably make such a structure (a pure consumption tax) infeasible.''

Addressing concerns about increased taxes on food and other necessities, Greenspan said that policy-makers could design a consumption tax that would exclude products mostly consumed by the poor.

In his prepared remarks to the panel, the Fed chief said that ``a consumption tax would be best from the perspective of promoting economic growth'' because it would encourage saving and the capital formation that the economy needs to expand and modernize.

``However, getting from the current tax system to a consumption tax raises a challenging set of transition issues,'' he added.

Greenspan also said he supported tax incentives to encourage savings, despite what he called conflicting evidence about the incentives' success at increasing the national savings rate, because they enhance individuals' retirement accounts.

``And that, especially in the context of the discussions we've all been having the last couple weeks relevant to retirement funding and the like, is clearly something which is desirable,'' he said.

The Fed chief delivered his assessment to the panel a day after worrying aloud before a House committee about the buildup of budget deficits in recent years. The tax-reform panel is looking into ways to revamp the complex tax code, an important goal of President Bush.

Consumption taxes can take the form of national retail sales taxes or a value-added tax, imposed on the increased value of a good or service at each stage of manufacture and distribution and ultimately passed on to the consumer.

Bush's advisers have spoken favorably of the economic benefits that could be achieved by moving from a system that taxes income to one that taxes consumption.

While Greenspan did not specify what types of transition problems would be faced in moving toward a consumption tax in his prepared remarks, he did tell the panel he is concerned about the issue of taxing capital investments under the consumption tax. ``This is the issue that bedeviled the 1986 commission and ultimately led them to abandon the consumption tax idea,'' he said.

Bush's aides have pointed out that the current tax system is actually a combination of a system that taxes income and one that taxes consumption. They note the creation of individual retirement accounts and other tax-deferred savings accounts allows taxpayers to shelter some investment earnings from tax.

Greenspan told the panel members in his prepared comments that they will have to decide what type of system to use such as ``a comprehensive income tax, a consumption tax or some combination of the two, as is done in many other countries.''

The tax panel is responsible for coming up with recommendations to make taxes fairer and simpler. In addition to revamping Social Security, Bush wants to overhaul the nation's tax system - two centerpieces of his second-term economic agenda. Achieving both will be difficult politically and economically, especially against the backdrop of swollen budget deficits, analysts say.

Greenspan didn't offer a specific approach for policy-makers to follow as they consider an overhaul of the tax code.

But he did say that changes should be aimed at making the tax code easier for Americans to navigate, be fair and should contain an element of predictability so that businesses and consumers alike can look into the future and have a good idea what their tax obligations are - allowing them to plan ahead.

``A simpler tax code would reduce the considerable resources devoted to complying with current tax laws, and the freed up resources could be used for more productive purposes,'' Greenspan said.


Don't you have ANY OPINIONS of your own, if not, I think you should get a life!!!!
 
Now now now cubster - lets not start fightin here.

Barry has expressed many opinions over time.
 
Joeychgo said:
Now now now cubster - lets not start fightin here.

Barry has expressed many opinions over time.
You mean like when he says "you're an idiot"?
 
Please, please, please. Keep it friendly.
icon7.gif
Comments can be tough, but they also should be respectful at all times.


Cubster, I am asking with the utmost respect to please keep it civil.
icon9.gif
Your comments need to be less personally directed so we can ALL enjoy the give and take. No pissing contests are allowed.
icon10.gif
 
"Excluding property-type income from the tax base would shift the burden of taxation from the rich to the poor." Dale W. Jorgenson, from the article cited above by Monstermark.


There it is in black and white, from one who has studied the subject in more depth than the majority of us.

A "luxury" is somewhat relative to your income level. As a college student many things were luxuries. When does a car become a luxury? Is a $18k car a luxury when you can buy a car that does the same thing for $12k? Obviously in some countries any car that runs is a luxury and you must be "rich" to own and operate a new car. So who decides what is a luxury, for YOU?

Everyone living in a country has an obligation to help pay for the benefits they recieve from a stable govenment, good roads, safety from banditos and such. BUT, once those with the power to levy taxes exceed the parameters taxes were established for and use their power for their own agendas we need to start defending our selves from them.
 

Members online

Back
Top