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”?
Think of income as having two components: The portion that provides a very basic living, and the portion that can be saved and added to wealth. We actually don’t subject the first portion to income tax. So, the income tax either is a tax on the accumulation of wealth or, if it limits one’s ability to spend in excess of the amount needed for basic living expenses, a consumption tax.
Of course, the higher up the ladder you go, the more the income tax functions as a wealth accumulation tax rather than a consumption tax.
And it’s the folks at the top of the ladder who would benefit from abandoning the so-called income tax in favor of a so-called consumption tax.
If we spoke of the two alternatives as wealth accumulation taxes, on the one hand, and economic activity taxes, on the other, I doubt it would change where our conservative state legislators stand.
But it would make their priorities crystal clear: They rank further wealth accumulation by the already rich above the nurturing of the economic activity they purport to love.