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Monday, May 25, 2009

FiveThirtyEight: Politics Done Right: The Ultimate Tax on Harmful Activity?

Should the progressive income tax be switched to a progressive consumption tax?:

"Under a progressive consumption tax, each family would report its income to the IRS and also its annual savings, much as many now document their annual contributions to 401(k) and other similar accounts. A family's income minus its annual savings is its annual consumption, and that amount minus a large standard deduction—say, $30,000 for a family of four—would be its taxable consumption. Rates would start low, perhaps 20 percent, then rise gradually with total consumption. For example, a family that earned $60,000 and saved $10,000 would have annual consumption of $50,000, which, after subtracting the standard deduction, would mean taxable consumption of $20,000. It would owe about $4,000 in tax, about the same as under the current income tax."

I like pigovian taxes (taxing bad things to pay for good things), so I'm curious how this might compare to a carbon tax, for example.

Frank at fivethirtyeight follows up this post with more on the reaction and implications, one of the latter perhaps being a de-escalation in the "keeping up with the Joneses" that takes place in America. Sounds good to me.

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