AZBlueMeanie’s post, Despite economic forecasts, Arizona Lege is drafting a bill for a flat tax that transitions into a consumption tax to eliminate the state income tax, has me wondering:
If we renamed the income tax the “wealth accumulation tax” and renamed the category “consumption taxes” as “economic activity taxes” if views would change.
Conservatives like the concept of a “consumption tax” because consumption seems like it’s the most morally appropriate activity to tax. Even Bill Gates, one of the supposedly “good billionaires” (he’s not) believes in the evils of consumption. And it’s an ugly term, right? It even used to be the name for a horrible disease, tuberculosis. Which makes it feel like a great thing to tax.
But my consumption is your income. So a consumption tax actually is an income tax, although it’s a tax on gross income rather than net income. We’ve been trained to think of it as a consumption tax because it is collected from the consumer. I buy a bicycle for $100 and the retailer collects $8.00 in tax from me. But we just as easily could charge the retailer $8.00 of tax on every $108 of gross receipts and achieve the identical economic result. In fact, in Arizona, the tax actually is imposed on retailers. They’re just permitted to collect it from consumers.
What consumption taxes really tax is economic activity. You know, the thing that makes our economy grow.
And the term “income tax”?