[clikker]

In fact, everyone in America will have more money. This will unleash the greatest prosperity America has ever known.

Can a resident economist from around here help me out here? Wouldn't a sudden infusion of cash into the economy creat lots of inflation rather than prosperity? Or wouldn't it? (I'm honestly not sure.)

[Satadru]

Inflation is caused by printing new money. If you go into a consumption tax system, the amount of money stays the same, only there is more money in people's hands. That is different from printing money, where you are artificially injecting something into the economy. Having said that, I think people's taste and preferences may change, which may or reflect in the prices. But, I am positive that there are so many substitutes for any good, there will be no net effect.

A great thing about the consumption tax is that it will discourage consumption and encourage investment. Hence, interest rate will be extremely low because everyone will be saving. The neat thing is that once you put a tax only on the point of purchase, then you remove all the double and triple taxation that goes into making a product. For example, the lumberjack has to pay tax on the lumber, the carpenter has to pay tax on the lumber, and finally you have to pay taxes to buy the table. Because of triple and quadruple taxation, prices are already high and once you are only taxing something at the end point of purchase, then you reduce the price already.

Having said all this, I oppose a consumption tax system. It is such an efficient way to raise money, that the federal govt will collect a lot more in tax revenues which will increase the size and scope of the federal government. As such, it is a bad idea, unless the rate is very small.