With wealth inequality rising the case for raising revenue via a consumption tax is compelling
Is it time for the US to consider switching from income tax to a progressive consumption tax as a way of addressing growing wealth inequality? Many economists have long favoured a consumption-based tax system for raising revenue on the grounds of efficiency and simplicity. However, despite occasional vocal adherents, it has never gained political traction. Is it time to think again?
One of the main objections is that switching systems would require a potentially complex transition to avoid penalising existing wealth holders, who would be taxed when they try to spend accumulated savings on which they had already paid income taxes. Yet, in an environment where wealth inequality is rising inexorably, that drawback may be a virtue. Moreover, a great strength of a consumption tax system is that it does not tax saving and also gives firms more incentive to invest.
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by kenneth rogoff
september 5, 2019