Peter Schiff recently posted this video supporting a consumption tax in place of the income tax:
He made what sounded to me like a fairly convincing argument, but before I go around voicing my support of such a position, I would like to know what the official Austrian take on the consumption tax is, keeping in mind of course that there should be as little taxation of the economy as possible. Thanks.
It is surely preferable to a tax on labor. If it is only a choice between one or the other I have little doubt almost all here would prefer the consumption based tax. I don’t particularly like either myself but like I said if it had to be one of the two…
All taxes are a tax, inevitably, on production but it is better than a progressive income tax because it is more friendly to capital accumulation. Sweden replaced progressive income tax with consumption tax and that proved to be better for them.
I wholeheartedly agree with most everything Rothbard says in that article but Murray, like me, was an ancap and therefore supports no taxation. We should absolutely focus on spending more than the actual form of taxation, and I believe we do. But, is one superior to the other? Absolutely. Rothbard himself acknowledges as much himself in that article when he notes that:
“The third type of consumption tax is the familiar percentage tax on retail sales. Of the various forms of consumption tax, the sales tax surely has the great advantage, for most of us, of eliminating the despotic power of the government over the life of every individual, as in the income tax, or over each business firm, as in the VAT. It would not distort the production structure as would the VAT, and it would not skew individual preferences as would specific excise taxes.”
Both are theft but one is a marginally less offensive form is all.
All taxes are essentially income taxes. Taxes in all forms are always imputed backwards to fall on wages. This can be easily deduced from subjective theory, despite the fact that nearly everyone, including most economists, have been fooled to believe that there are differences.
So to answer your question, the consumption tax is a myth! There is no such thing. All taxes are income taxes. So it really doesn’t make any sense for anybody who understands this to play along with these political tricks and support any particular tax in favor of another tax. The only agenda should be to eliminate taxes, period!
I disagree that there is no difference between forms of taxation as to the way they affect incentives and production. We share the same goal of total elimination of taxes but I’ll take elimination of the IRS as a step along the way to that goal any day.
Right, but I think part of the argument for a flat tax is that it is simpler, and has fewer or zero deductions. So, while taxes are taxes, some are more efficient than others.
If you feel bad about taxes then remember this:
“…in this world nothing is certain but death and taxes.”
Ben Franklin
I would recommend looking at a few of Lawrence Vance’s articles on the Fair Tax and Flat Tax:
I have a problem with Rothbard’s analysis though, because, if it were 100% true, you’d see this happening–widget X sold in store X in county X with a tax rate of 7% would cost (after taxes) $10. The same widget in store Y in county Y with a tax rate of 8% would also cost (after taxes) $10, with the difference made up in an ever so slight reduction in wages at store Y. That said, in the real world, this doesn’t seem to be the case; there are plenty of items that do cost slightly more or less in different counties because of the tax rate.
expounding a bit, if the government were to introduce (on top of all current taxation…let me make it clear I’m not advocating this, this is purely an example) at 10% flat sales tax on all goods, you’d see, collectively a 10% reduction in all wages (though, I supposed in some cases that 10% reduction could also come from fringe benefits, less investment in R&D, advertising, etc).
It’s time we realize that the State will always squeeze as much as it can. If the tax code became more efficient, then the State would simply milk those savings. It’s really naive to think that you can make the government more “efficient” so that you can enjoy some relief. The government is never satiated. It aways wants more and more and it will always be a matter of national security, health care crisis, education, or whatever…
Let’s not make the State more efficient. Let’s eliminate it.
That’s not an argument. Since the tax still ends up taxing income, then nothing changes. You’re only argument is how much more simple it will be for the gov’t to do the taxing. And I don’t even know if that’s true or not. And none of this has anything to do with how much a person gets taxed I remind you. [edit]
Also, as Peter Schiff mentioned (although I don’t think it sticks with many), he would only support it if it lowered the tax burden. It won’t happen… the tax burden would either stay the same, or rise. Government never passes on the savings due to efficiency to the “customers”, they would just waste that money elsewhere.
not that I think it makes much of a difference, but I think that part of the argument is if the revenue flowing in to the government is the same, then it would make more sense to use a system that would take up less time and money.
Even assuming that’s correct, that makes gov’t intervention only the more efficient. Meaning time and money for the gov’t, mind you, can be used in other gov’t ventures. A well oiled gov’t intervention leads to socialism only the more efficiently.
I definitely would prefer a flat tax of somewhere between 10 and 20 percent. It would be much simpler to understand and it would still be progressive because high earners would pay more. Additionally, if the tax base is allowed to grow then it’s easier to collect more revenue over time. However, if you really want to collect a lot of revenue all at once, you just tax the hell out of people. But that has long term consequences.
This is true, but depending on where you tap into that income stream, you provide different incentives.
Tap it at the source(before the wage earner gets it through the withholding of wages) and you discourage people from working, full stop.
Tap it when people consume, through a consumption tax, and you discourage people from consuming, but not from working. This rewards those who work and save.
Tap it when people save(capital gains taxes etc.) and you discourage saving, and encourage consumption.
It’s not all that complicated, and we know what Austrian theory tells us is the main driver behind economic growth - an increase in savings and thus in investment.
This is the only reason why I favor a consumption tax, if we are to have any taxation at all - not because it’s in any way more moral than any other form of taxation, but because it does the least amount of economic damage. It’s all fine and good to have strong principles, but even doctors, dedicated to the preservation of human life sometimes have to practice triage.
The form of taxation only changes what industries bear the brunt of the deadweight loss. Taxes originated in plunder and tribute. Plunder is a property tax and all taxes ultimately boil down to seizure of an individual’s property. How and where it is taken does not change the degree of evil. If anything, the modern democratic state’s “more efficient” taxes, running 5 to 10 times the levels that pertained under monarchy, are worse. Clayton -
Flat taxes are ultimately impossible. Tax codes must be complex because any human activity which is not taxed automatically becomes a “loophole” and capital begins flowing into that activity if for no other purpose than to escape taxation. Clayton -