Wednesday, June 13, 2012

Taxes II: Consumption

Consumption taxes are beloved of the rich, mainly because they don't need to consume much of their income. There is a plausible rational: what they don't consume, they will invest, supposedly benefiting all. There is perhaps an underpants gnome or two in the logical chain from invest -> benefit all, but let's not worry about that. A real problem in the world right now is that the non-rich can't afford much, so there is little incentive to invest in production. Instead, the moneyed class wind up investing in lending money to finance consumption by those (persons and nations) that can't really afford it. In a purely competitive world, this would result in a sort of redistribution to their creditors, but in practice, today, in Europe and the US, it results in taxpayers getting stuck with the bad loans - so the redistribution takes place from taxpayers to the rich, and less directly, to the poor, while the whole economic system spins into recession and depression.

I think that consumption taxes need to be supplemented with wealth taxes of some sort, mostly to prevent the kind of accumulation of political power in the hands of a few super rich that currently dominates American politics. One modest step would be a large tax - say 400% - on political donations of any sort beyond a few thousand dollars. This would not prevent Sheldon Adelson and the Koch brothers from buying presidential candidates, but it would make it more expensive. Americans might even wake up and wonder what these guys are getting for their half a billion bucks (2.5 billion with my proposed tax).