This lonnnnng post was prompted by an email linking Michael Barone’s latest SF Examiner piece, which asks Republicans “Now what?” after assuming some strong gains in November. I have a few ideas on the “now what?” question, and I can’t think of a better place to post them than on this excellent blog.
First, I can’t thank you all enough for the excellent commentary and critiques on my recent “Swapping a VAT for failing income tax is Good Policy” post a week or so ago. I’ve commented on many of your ideas, and I think you’ve changed my mind on a thing or two, which you will notice below.
I wanted to follow up that post with another proposal that fixes the primary problem with going to consumption taxes, which is their impact on the working poor and middle class. One benefit of a consumption-based tax regime is that it captures money from every transaction, making every one a part of the solution to our fiscal mess. It is also far more stable than a highly skewed progressive system that only taxes the rich. (Social Security notwithstanding)
The most difficult political and policy problem preventing the adoption of a consumption based tax system is that it places a “burden” on the working poor and middle class. (burden being interpreted both in policy and political terms)
Simply put, in a consumption tax system, the lower end of the earning spectrum pays a much greater share of their income in taxes than the rich. Many will argue that this is “unfair.” Leaving that argument aside, it is fair to say that this problem MUST be resolved before any politician is going to risk moving the entire system away from income taxes.
I propose such a solution in this post, beginning with my answer to Barone’s “Now What?”