Tax policy should be about collecting the minimun necessary revenue to run Government.
what i mean is, if you're going to tax, you may as well tax in such a fashion as to maximise economic growth.
all income is by definition saved or consumed; so therefore consumption taxes will create a substitution bias toward saving. in turn, consumption taxes on goods only (and not services) will create a substitution bias toward services, etc. so we can make a couple of mutually agreeable conclusions:
1) taxes should be levied only on consumption, not on income or on capital gains or land or whatever. the rationales for this are many and endless but suffice it to say that consumption taxes create a substitution bias away from consumption... tax something and you will get less of it.
2) so we're at consumption taxes. if you tax some things (say, goods) and not other things (say, services) you will create a substitution bias toward the relatively cheaper item (that without taxation). So, if a country wants to implement a consumption-tax-based tax system - and I recommend such a system with the highest praise possible - they should tax ALL consumption (i.e. services as well) and equally (i.e. same rate on everything).
with that, they can then proceed to scrap all income and capital gains taxes post haste!
Well, I should really have been in bed about 4 1/2 hours ago but, let me take another stab at this.
Your conclusions are right (mostly). I just principaly dissagree with taxing service (labor). I wish the Government good luck in making me into a tax collector every time I fix someone's sink or build them a garage. Taxing 'service' begs for a black market or another IRS type agency (yikes!).
And secondly, I do see that goods will suffer to services initially but, goods are "goods". They just can't all be replaced with "services" and many are necessities. If the government finds themselves short on cash under a consumption model, they should darn well look at reducing the rate to enduce consumption or cut back on government.
Never the less, I dream of a day when income, capitol gains, estate taxes and the like are all replaced.
Also, if you mean things like phone, cable and water service when you say "services" we could be closer to the same page.