Greenspan Touts Idea of a Consumption Tax

ABC News/AP ^ | March 3, 2005 | JEANNINE AVERSA

[FairOpinion]

WASHINGTON Mar 3, 2005 — Federal Reserve Chairman Alan Greenspan on Thursday embraced the notion of overhauling the nation's tax system and said that some form of a consumption tax such as a national sales tax could spur greater economic growth.

"As you know, many economists believe that a consumption tax would be best from the perspective of promoting economic growth particularly if one were designing a tax system from scratch because a consumption tax is likely to encourage saving and capital formation," Greenspan said.

[FairOpinion]

The time to go to national retail sales tax, aka faitax is NOW!

I think the climate is right for it to actually pass.

[FairOpinion]

TAX PING

[FairOpinion]

Russia is going to National Retail Sales Tax. Why shouldn't we be able to?


VAT may be scrapped in 2007 – Kremlin adviser

http://www.freerepublic.com/focus/f-news/1354856/posts

MOSCOW - VAT may be abolished two years from now and be replaced with a sales tax in Russia. The news came from Arkadiy Dvorkovich, chief of the presidential administration experts department, telling reporters that officials were studying the policy switch and its consequences.

“Obviously, this would be impossible in 2006, but it could be introduced beginning in 2007,” he said, adding that a sales tax of ten to fifteen percent should be introduced along with VAT’s disappearance.

[CT CONSERVATIVE]

I can hear all the RATS shouting now..."Unfair, regressive, class-less warfare!", LOL

[scott7278]

You're right -- it's time to get this thing done so that we have more economic freedom.

If we eliminated withholding, there would be no debate.

[FairOpinion]

More detail on what he said:

http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=7798367

In remarks prepared for a panel appointed by President George W. Bush to mull tax changes, Greenspan backed the goal of simplifying the tax code and said previous overhauls, including the most recent revamp in 1986, could provide guidance on how to proceed.

"Since the exemplary 1986 reform, the tax code has drifted back to be overly complicated and burdened by higher marginal rates and by many special provisions that have undesirably narrowed the tax base," the Fed chief said.

"A defining feature of the 1986 reform was the broadening of the tax base and the lowering of tax rates, and it is widely believed that these changes enhanced economic efficiency," he added.

Bush has instructed the panel to offer recommendations to the Treasury Department by July 31 on ways to simplify the code and make it more conducive to economic growth. The Treasury Department will then distill the proposals before forwarding its ideas to Bush by the end of the year.

Greenspan backed the main aim of the effort, saying a simpler tax code could help the economy.

"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," he said. "Thus, greater simplicity would, in and of itself, engender a better use of resources."

Greenspan said a move away from the current income tax to a tax on consumption could be the best way to promote economic growth. He said, however, a wholesale shift would raise "a challenging set of transition issues" and noted such a move was considered, and discarded, in 1986.

[Sarastro]

A huge problem with any major change in tax strategy -- e.g., a shift from taxing income to consumption -- is the transition problem. Specifically, in the case of this proposed shift, the generation nearing retirement plus all the retired folks would get hit twice: they paid taxes on their incomes for their whole working lives (i.e., when they produced more than they consumed), then would have to pay on their consumption during their retirement (i.e., when they consume more than they produce).

Legislators wanting to avoid such inequities generally wind up adding transitional provisions to the law, and these are necessarily complex and unwieldy. Moreover, once enshrined as benefits to certain classes, they become sacrosanct and permanent features of a too-complex tax code.

I favor tax reform, but despair of Congress's finding a way that simultaneously simplifies the tax code, creates pro-growth incentives, and preserves generational equity.

[lone star annie]

A sales tax is the best way to go. We have way too many people living in this country who do not pay a dime of tax--Pimps, Hoes, drug dealers, welfare queens, illegals, people who work in cash businesses, etc.

People who are honest and pay by the rules get screwed everyday while the freeloaders get a pass. No matter what your economic status, everyone should pay something to live in America.

[Blue Collar Christian]

Let's go for it. On top of the black market growth(privatization of business)the gov't will have far less money to spend, thus having to cut entitilements to maintain strong national defense. I would love to have a bunch of layed off social workers applying for work at my place of business just so I could tell them to hit the road.

[taxcontrol]

As a small reminder, taxing is only 1/2 of the equation. The other half is spending, which also needs to be controlled.

[FairOpinion]

Most retired people has their assets in 401K-s and pensions (which they are either receiving, or rolled over into an IRA), so most do NOT have assets, on which they already paid taxes. Their other asset is the equity in their house, on which they didn't pay taxes either.

Very few people accumulate significant after tax savings.

[FairOpinion]

I hope you are not proposing that we wait with tax reform until after Congress cuts spending significantly...

[Adder]

"Pimps, Hoes, drug dealers, welfare queens, illegals, people who work in cash businesses, etc."

How will that change? Most models envision a tax credit for low income folk. Those in the underground economy just have to show their real income to be low and they get the credit or stipend.

[Principled]

ping

[jiggyboy]

Thank God. I'm almost retired after a lifetime of working and paying taxes, and sure was growing apprehensive about not having the government take 20% of every dollar that passed through my hands. Just in time for me and tens of millions of baby boomers who can proudly continue to feed the spending beast. Imagine the coincidence.

[dmz]

You forgot corporations that move their headquarters off shore, or to a state with no income taxes for the sole reason of being able to avoid taxes.

Mentioning only those in the underground economy is short sighted IMO.

[taxcontrol]

No - just the opposite.

I propose an amendment that requires a higher percentage for a passing vote as the spending increases. For example, if spending is less than last years, simple majority. If spending increases over last years but is less than or equal to last years rate of inflation 54%. If greater than the rate of inflation 57%. And if the budget is not balanced, then an additional 3%.

[Zon]

Specifically, in the case of this proposed shift, the generation nearing retirement plus all the retired folks would get hit twice: they paid taxes on their incomes for their whole working lives (i.e., when they produced more than they consumed), then would have to pay on their consumption during their retirement (i.e., when they consume more than they produce).

Due to emended taxes they are already double taxed. Among several other benefits of the fairtax embedded taxes are removed and replaced with a consumption tax.

[Sarastro]

If there were no international trade, then VAT and sales tax would be nearly equivalent, both in total amount and incidence and burden of the tax. However, VAT is conceptually superior in several ways:

• More efficient to administer (tax is simply a percentage of a company's sales less non-labor purchases rather than being computed on myriads of detailed transactions)

• Collects the tax sooner (i.e., as the value is added rather than when the product or service is finally retailed)

• Most of the tax is collected from highly reliable and auditable taxpayers (a few thousand manufacturers and members of the distribution chain) rather than unreliable and unauditable taxpayers (millions of retail businesses, many of which can switch to a cash basis and avoid the entire tax). E.g., if your roofer quotes you a price of $2,000 cash or $3,000 check and you pay cash, the government would lose 100% of the sales tax but only that portion of the VAT representing the value that the roofer added (i.e., his labor and profit).

But, of course, the U.S. is a huge international trader. In this case, the question is considerably complicated as to the incidence and burden of the two types of tax. Moreover, under WTO rules, the way a country imposes taxes must not be discriminatory (e.g., a tax policy designed to shift the burden to other countries, or, for that matter, to shift it to your own country to gain a pricing advantage against other countries).

[Polyxene]

This is a great idea, but I want to make darn sure that the income tax is repealed before another tax is levied. I sure don't want to have this sales tax on top of withholding! How will this impact the state's income tax? Will that still be in place? And real estate taxes? I just don't trust the congresscritters (can you tell??)