It's true that when you tax a form of income then people will shift their income to another form if at all possible. It is also true that if you tax consumption of a certain kind (final retail) you'll get less of it.
More importantly if one visibly taxes all final consumption including services, (not just a certain kind) and do not tax savings or investment, the incentives to earn and to invest our earnings increase.
A sorely need change regarding the dangerous trends we have been on since the early 80's:
| http://mwhodges.home.att.net/family_a.htm#Saving From the Grandfather Economic Report Rate of Personal Saving Plunges 100% - to new record low - $985 Billion missing
The chart at the left shows a 45 year trend of that part of disposable income that has been saved - - called 'personal savings rate'. Note: prior to 1970 the rate of personal savings was rising smartly - - as were family incomes per the first chart above - despite most families then having but one wage earner while also living without increasing debt ratios (chart below). Then, family incomes stagnated - - and the saving ratio stopped rising as seen in the left chart - - then started falling rapidly - - plummeting since 1992. As of June 2005, savings were at an all-time record low of zero percent !! $985 Billion in savings missing in 2004 compared to savings ratio of 2 decades ago. (realized capital gains, not calculated in the savings rate, mitigate this chart somewhat if one wishes to call such savings - - but the trend with and without is at all-time record lows). |
If families have less inflation-adjusted income, despite mother working, then family personal savings must suffer as a consequence - unless, of course, families reduce their consumption. But, families increased consumption spending and, to cover this, they reduced savings to historic lows and increased household debt to historic highs. Dangerous Trend !!!