I love love LOVE this post, particularly this: "Cash grants are better than food stamps, and food stamps are better than government farms. Cash is better than rent vouchers, and rent vouchers are better than public housing projects. Tradable pollution permits are better than command and control regulation of utilities."
In general, paternalism might be the single most damaging intuition folks on the political left have. I think the other one is the intuition that incentives (particularly to work) don't matter.
In the future, is "wokeism" gonna be more damaging than those two intuitions? I doubt it.
Paternalism can be bad, but flat-out prohibitions aren't paternalistic.
And I'd like to see studies showing the public housing is materially worse than rent vouchers. I can see an argument for this case, but both the landlord and the government are acting as middlemen here between the construction companies and the people seeking housing. I can imagine some wild alternatives to these two types of middlemen, and want to know what actual friction is happening here.
In the marketplace, Hobson's choice is probably the original paternalism: take it or leave it, no negotiations allowed.
I just searched for "Left Right Paternalism" and got a 2003 paper titled "Libertarian Paternalism Is Not An Oxymoron". It makes an argument in favor of framing meant to guide people to the 'correct' decisions.
In this manner of paternalism, basically all politicians are paternalistic. Seeking to control and guide others is a basic instinct prevalent in pretty much all life. It becomes paternalistic when a power imbalance is involved.
I think I have seen that term used before in terms of "nudges." The government, for example, could auto-enroll people into a health or retirement plan. It's a "nudge" that isn't forced, but since most people aren't bothered to unenroll, it achieves the basic task.
Think of the tax code as a make-work program for white-collar professionals, and you'll understand why we're never going to see a flat tax on individuals and a gross receipts tax on businesses, despite the overwhelming advantages.
Preferences are a way of introducing regressiveness back into a progressive tax system. Far more benefit than white-collar professionals. Though it's possible the relative lack of CPAs in recent years may encourage the creation of a simpler tax system.
How to account for people’s demand for the fairness of equal outcomes, which links Nigeria’s fuel subsidies and New York’s traffic congestion? I venture that Nigeria’s middle class owns most of the motor vehicles and pays most of the taxes. For them, as the article notes, fuel subsidies may be the main (only?) tangible benefit of Nigerian citizenship. Fairness is important and the subsidies make everyone equal at the pump. New York area commuters’ preference for congestion over congestion pricing similarly highlights the popular demand for the fairness of equal outcomes. Drawbridges would be an easier sell.
"Fairness is important and the subsidies make everyone equal at the pump."
I'd push back on this in several respects. In Nigeria, most cars are owned by the elite, not average Nigerians. So spending all this government money on subsidizing the elite rather than improving health care and education doesn't count as "fairness". It's true that in a corrupt country like Nigeria the alternative might also not be fair, but it doesn't make this a fair policy. Also, everyone is equal at the pump in a country without fuel subsidies.
As far as NYC commuters, congestion pricing has proved to be surprisingly popular in the places where it has been tried (after initially being unpopular.). We just adopted toll lanes here in Orange County, and I love them. Traffic is much better.
“Also, everyone is equal at the pump in a country without fuel subsidies.” That’s why people in corrupt countries prefer fuel subsidies to alternative spending schemes.
Nigeria's fuel subsidies seem like an intractable problem. Once implemented they seem impossible to unwind - are there any plausible policy proposals that would do so that don't rely on shock therapy?
In my mind the vast majority of taxing and spending policies (both cut policies as well as increase policies), as well as some other laws, should have, at minimum, phase outs to end them. Some should also have phase ins.
I'm personally in favor of a mortgage interest tax deduction phase out. If said phase out took place over 30 or 40 years it would be barely noticeable.
You pretty much only need "shock therapy" for laws or lack-of-laws that are currently having serious, immediate, ongoing consequences (such as the death penalty, or policies which lead to an avoidable recession).
"shock therapy" is not a good thing at all. I lived through some of it during "Perestroika" back in Russia in 1991. Nothing good comes from shock events, just shocking outcomes.
More on that point, I have suggested two additional reforms at Risk & Progress:
All, or almost all, laws and regulations should come with a sunset provision where they require re-approval after a certain number of years.
Second, we need a better mechanism for people to challenge regulations and law. Not merely on their constitutionality, but also on their merit and effectiveness.
On another note I'd like to make it harder for the courts to strip people of previously recognized rights by saying that the regulation of those rights is the purview of a particular government, or belongs to a particular person. A change in the legal philosophy of a court should not result in a rewriting of established laws. If stare decisis is going to be used as a legal concept under common law, then it should mean something. And it typically should be easier to grant rights than take them away. And so many of our laws and legal rulings are inconsistent hodge podges of principles. I'd rather they be more consistent in principles, so that the regular person can figure them out.
Yeah, talking about abortion. But such a philosophy would have also prevented the establishment of slavery.
They announced they were ending and the intervening year has stories about them being introduced and stories about the subsidies consuming ever larger portions of the Nigerian budget.
Trying to compress this into specific lessons...I'm afraid I didn't understand everything.
1. By default, let there be a market.
Whether it’s kidney sales or international employees, “try to let people be free to transact” is generally good advice.
You have a list of examples: “bans on direct sales of autos by manufacturers, rent controls, occupational licensing laws, the Jones Act, prohibition of kidney sales, sugar import quotas, nationalized air traffic control, residential zoning”
Those are, respectively, a ban on a certain type of transaction, limitations on types of contracts between owners and renters, ban on transactions without moderately controlled government approval, ban on a certain type of transaction, quota, I have no idea what your complaint is, and limitations on property rights (since zoning applies even if I do all the improvements myself).
2. Only subsidize something you want people to do more than they want to do it.
If the problem is that people can’t afford X, you’re probably better off making them wealthier. Yes, it’s sad that people in your country can’t afford gas. Do you want them to buy more gas, or do you want them to be able to buy more of whatever they desire?
3. Markets are ultimately enforced by violence.
The state enforcing the market by violence is generally better than non-state actors doing so. Prisons are violent in part because there is no ability to call on the state to enforce agreements (because many of the agreements are illegal)
Sometimes it is still worth outlawing activity, if it’s bad enough (murder).
Great post. The thing all economists know and that I have the most trouble with is that cash transfers are always better. I understand the efficiency argument in favor of cash. My trouble is that people requiring assistance are often very bad with money and to an extent need to be protected from themselves. For instance, I expect individuals receiving aide spend a larger than average share of their consumption on the lottery.
You'd hope that all economists know this, but I think that sometimes some of them forget it. Such as when they impute the cash 'value' of non-cash transfer benefits fully onto the recipient of said benefits. You can't do that, as many recipients of this kind of welfare would be far happier with the cash instead (if only to buy lottery tickets, as you mention).
This even happens to more well off people when the value of things such as dental or vision coverage is imputed to them, even when they never use it. Though the worst I've even seen is when pension payments are imputed to a new employee when a large percent of said payments are actually being used to make a deficit whole for prior employees.
Good post, and I agree with almost everything. But I am skeptical about this one:
"When it comes to living standards for the average person, growth is an order of magnitude more important than distribution."
Especially because you claim to "know" this to be true. Between cases where redistribution would materially benefit most citizens (like, in many cases/countries, a more progressive income tax) and cases where "growth" benefits are highly targeted (like, I fear, getting ChatGPT to do our writing for us, in a world in which writing is thinking), I would be less cavalier with this claim.
I will grant you that redistribution should be done using simple rules.
Think about two countries like Sweden and Switzerland, which are both highly developed. Sweden does far more redistribution than Switzerland, but I'd argue that living standards for the average person don't differ very much. In contrast, both countries have vastly higher living standards than a place with a less efficient economic model, say a country like Russia.
Another example is China. They are less equal than under Mao, but living standards for the average Chinese person rose dramatically due to fast economic growth.
I'm not saying redistribution has no benefits, indeed I support tax progressivity. I just think that growth is far more important.
I was quizzical of this claim too, but the average person is, by definition, in the middle. I think GINI and similar distribution metrics *could* grow in skew enough to eliminate gains from growth, but I think this is unlikely in most diversified economies.
Growth frequently encourages economic diversification. So it's probable that growth is better than distribution in general.
If you have an absolute monarchy or other authoritarian state then you can have other constraints on living standards. But even in a place such as North Korea, where control of wealth and income are largely centralized, what little trickle down did occur from growth would necessarily increase living standards for the average person.
So growth really doesn't help the average person only in the unique circumstances where 100% or more of the gains from production, when adjusted for changes in population, go to the upper 49% of households. Even then you have to factor in increase in quality (e.g. more efficiency and power) or decrease in quality (e.g. fast fashion) of goods that end up being resold as used to the lower 51% of households.
Agree here 100 percent especially with the concept of simplicity.
Government should keep policy simple, to put this in metaphorical terms, because when it's simple there are fewer “ragged edges,” to get cut on, less “surface area” for contamination.
I had one larger comment, but enough people were already posting about some of it that it was worth splitting the comment up as replies. Here's what's left:
"Tradable pollution permits are better than command and control regulation of utilities."
If ending a particular kind of pollution is the most important thing, I think non-tradable fees or fines, or flat out prohibitions (with jailtime for knowing violations), would be better. Tradable permits seem to me would be really only helpful with remediation. If a company can afford to buy credits from a third-party, then they can also afford to hire a third-party directly to clean up their business. This would work even with automotives. Again, phase in the law to allow time for the companies to adapt, if it's important to keep them running in the meantime.
Why are thirty year UST yields rising even as oil prices, agricultural prices, and Dow Chemical remain weak? Do you agree with Priya Misra's emphasis on deficits?
Or is my alternative explanation closer to the mark: financial markets are anticipating a Trump election victory and therefore lower immigration and higher tariffs?
What also needs to be said directly is that economists are good and knowing what issues are important. Good luck convincing the average person that housing regulation is more important than abortion rights or gun control laws.
There are people who spend their entire lives traveling and thus don't give a fig for housing policy. Unless it's fate of the world stuff, every concern is parochial.
I want SALT restored becase SALT is not consumption. The personal tax should allow deductions of non-consumption to make it a progressive _consumption_ tax. I thought Sumner was in favor of that.
I think the idea would be that as long as there are non-consumption taxes, you don’t want to create further distortions by creating special ways for some of it not to be taxed while others still get taxed.
Where do you draw the line on SALT? Someone with a huge house in the Hamptons which is in a high tax area would have a very large SALT deduction. Those people who live in Florida have very little if any SALT and would be disadvantaged compared to a New York resident. My own preference as already stated is to get rid of all tax preferences and simplify the tax code. The abuses of the tax code in the real estate industry are particularly noxious (just look at our past and possibly future President who has used his inept real estate skills to rack up massive losses, so he doesn't pay income tax).
My idea is that non-consumption (SALT, saving, reinvested dividends, etc.) SHOULD be a deduction from "income" so that the progressive tax falls on consumption. If there are kinds of consumption that we wish to encourage, e.g. charitable contributions, they should be partial tax credits. I don't like the "standard deduction" at all. Just raise the zero tax level.
One of the problems with your approach is that reinvested dividends and accumulated wealth from investments is either not or undertaxed when the assets are transferred to heirs or charity. There are lots of loopholes with regard to how trusts can be structured to avoid taxes. While I have benefited from some of these in the past and will likely take advantage of them as long as they exist, I don't think that it is prudent policy. I do support a VAT in return for lower tax rates and making the corporate rate as low as possible while eliminating lots of the deductions/scams that corporations take advantage of.
Former WaPo correspondent, TR Reid, published a very good book some years ago "A FINE MESS: A Global Quest for a Simpler, Fairer, and More Efficient Tax System." Well worth readng.
I don't want to overclaim about consumption taxes, but I think we coud have a better shot at plugging "loopholes" (discussing what IS consumption) in a consumption tax than the income tax "loopholes." Many income tax loopholes are gestures toward avoiding double taxation, i.e. toward taxing only consumption.
What percent of my rent isn't consumption? And how do I find this out? Am I required to go to the city/county to figure out the percent of my rent that's paying for taxes? Do I pay more in consumption tax if my landlord increases the rent? This seems pretty regressive as ownership is cheaper than rent when factored out over a life.
If rent isn't consumption, does this make renting a fully-furnished apartment cheaper on a tax basis than renting the same apartment for less money but "consuming" through purchases of durable goods to furnish it?
Why would rent not be consumption? My idea is to make consumption the residual of identifiable "non-consumption" expenditures. (I'm assuming business income is imputed to owners.)
So homeowners who own outright aren't consuming the value of their home, since they're only "consuming" upkeep and renovations, but landlords (especially those with mortgages) and renters are consuming the value of the rentals?
This is straight up regressive on two fronts: Landlords are encouraged to increase rents, compared to their own home, to pay for the additional taxes. And the greater the rent increase the more the renter has to pay in taxes. And it's more regressive the greater percent of one's income that goes to rent. So it hits rent burdened people the hardest.
I love love LOVE this post, particularly this: "Cash grants are better than food stamps, and food stamps are better than government farms. Cash is better than rent vouchers, and rent vouchers are better than public housing projects. Tradable pollution permits are better than command and control regulation of utilities."
In general, paternalism might be the single most damaging intuition folks on the political left have. I think the other one is the intuition that incentives (particularly to work) don't matter.
In the future, is "wokeism" gonna be more damaging than those two intuitions? I doubt it.
Paternalism can be bad, but flat-out prohibitions aren't paternalistic.
And I'd like to see studies showing the public housing is materially worse than rent vouchers. I can see an argument for this case, but both the landlord and the government are acting as middlemen here between the construction companies and the people seeking housing. I can imagine some wild alternatives to these two types of middlemen, and want to know what actual friction is happening here.
To be fair, the right wing is engaging in the same kind of paternalistic behavior. With tariffs, for example.
In the marketplace, Hobson's choice is probably the original paternalism: take it or leave it, no negotiations allowed.
I just searched for "Left Right Paternalism" and got a 2003 paper titled "Libertarian Paternalism Is Not An Oxymoron". It makes an argument in favor of framing meant to guide people to the 'correct' decisions.
In this manner of paternalism, basically all politicians are paternalistic. Seeking to control and guide others is a basic instinct prevalent in pretty much all life. It becomes paternalistic when a power imbalance is involved.
I think I have seen that term used before in terms of "nudges." The government, for example, could auto-enroll people into a health or retirement plan. It's a "nudge" that isn't forced, but since most people aren't bothered to unenroll, it achieves the basic task.
And not meaning to deluge you with replies, but here's Trumpist paternalism: https://www.theguardian.com/us-news/2024/oct/24/tucker-carlson-speech-trump-spanking
Excellent post!! Another simple rule that I like, "End All Tax Preferences" so the tax code is simple.
Think of the tax code as a make-work program for white-collar professionals, and you'll understand why we're never going to see a flat tax on individuals and a gross receipts tax on businesses, despite the overwhelming advantages.
Preferences are a way of introducing regressiveness back into a progressive tax system. Far more benefit than white-collar professionals. Though it's possible the relative lack of CPAs in recent years may encourage the creation of a simpler tax system.
Scott's very good list leaves off some biggies:
Immigration restrictions (viewed as import of human capital)
Mispricing of surface and subsurface water especially in the US West
Command and control instead of taxing negative externalities, net CO2 emissions being the most important single one.
Restriction on doing business with foreigners.
How to account for people’s demand for the fairness of equal outcomes, which links Nigeria’s fuel subsidies and New York’s traffic congestion? I venture that Nigeria’s middle class owns most of the motor vehicles and pays most of the taxes. For them, as the article notes, fuel subsidies may be the main (only?) tangible benefit of Nigerian citizenship. Fairness is important and the subsidies make everyone equal at the pump. New York area commuters’ preference for congestion over congestion pricing similarly highlights the popular demand for the fairness of equal outcomes. Drawbridges would be an easier sell.
"Fairness is important and the subsidies make everyone equal at the pump."
I'd push back on this in several respects. In Nigeria, most cars are owned by the elite, not average Nigerians. So spending all this government money on subsidizing the elite rather than improving health care and education doesn't count as "fairness". It's true that in a corrupt country like Nigeria the alternative might also not be fair, but it doesn't make this a fair policy. Also, everyone is equal at the pump in a country without fuel subsidies.
As far as NYC commuters, congestion pricing has proved to be surprisingly popular in the places where it has been tried (after initially being unpopular.). We just adopted toll lanes here in Orange County, and I love them. Traffic is much better.
“Also, everyone is equal at the pump in a country without fuel subsidies.” That’s why people in corrupt countries prefer fuel subsidies to alternative spending schemes.
Nigeria's fuel subsidies seem like an intractable problem. Once implemented they seem impossible to unwind - are there any plausible policy proposals that would do so that don't rely on shock therapy?
In my mind the vast majority of taxing and spending policies (both cut policies as well as increase policies), as well as some other laws, should have, at minimum, phase outs to end them. Some should also have phase ins.
I'm personally in favor of a mortgage interest tax deduction phase out. If said phase out took place over 30 or 40 years it would be barely noticeable.
You pretty much only need "shock therapy" for laws or lack-of-laws that are currently having serious, immediate, ongoing consequences (such as the death penalty, or policies which lead to an avoidable recession).
I am very sympathetic to the idea of phaseouts.
"shock therapy" is not a good thing at all. I lived through some of it during "Perestroika" back in Russia in 1991. Nothing good comes from shock events, just shocking outcomes.
More on that point, I have suggested two additional reforms at Risk & Progress:
All, or almost all, laws and regulations should come with a sunset provision where they require re-approval after a certain number of years.
Second, we need a better mechanism for people to challenge regulations and law. Not merely on their constitutionality, but also on their merit and effectiveness.
On another note I'd like to make it harder for the courts to strip people of previously recognized rights by saying that the regulation of those rights is the purview of a particular government, or belongs to a particular person. A change in the legal philosophy of a court should not result in a rewriting of established laws. If stare decisis is going to be used as a legal concept under common law, then it should mean something. And it typically should be easier to grant rights than take them away. And so many of our laws and legal rulings are inconsistent hodge podges of principles. I'd rather they be more consistent in principles, so that the regular person can figure them out.
Yeah, talking about abortion. But such a philosophy would have also prevented the establishment of slavery.
But they were removed -- they were removed last year.
They announced they were ending and the intervening year has stories about them being introduced and stories about the subsidies consuming ever larger portions of the Nigerian budget.
https://www.thecable.ng/after-denying-subsidy-reintroduction-nnpc-confirms-payments/
Absolutely extraordinary
Trying to compress this into specific lessons...I'm afraid I didn't understand everything.
1. By default, let there be a market.
Whether it’s kidney sales or international employees, “try to let people be free to transact” is generally good advice.
You have a list of examples: “bans on direct sales of autos by manufacturers, rent controls, occupational licensing laws, the Jones Act, prohibition of kidney sales, sugar import quotas, nationalized air traffic control, residential zoning”
Those are, respectively, a ban on a certain type of transaction, limitations on types of contracts between owners and renters, ban on transactions without moderately controlled government approval, ban on a certain type of transaction, quota, I have no idea what your complaint is, and limitations on property rights (since zoning applies even if I do all the improvements myself).
2. Only subsidize something you want people to do more than they want to do it.
If the problem is that people can’t afford X, you’re probably better off making them wealthier. Yes, it’s sad that people in your country can’t afford gas. Do you want them to buy more gas, or do you want them to be able to buy more of whatever they desire?
3. Markets are ultimately enforced by violence.
The state enforcing the market by violence is generally better than non-state actors doing so. Prisons are violent in part because there is no ability to call on the state to enforce agreements (because many of the agreements are illegal)
Sometimes it is still worth outlawing activity, if it’s bad enough (murder).
Well thought out and said post!
Great post. The thing all economists know and that I have the most trouble with is that cash transfers are always better. I understand the efficiency argument in favor of cash. My trouble is that people requiring assistance are often very bad with money and to an extent need to be protected from themselves. For instance, I expect individuals receiving aide spend a larger than average share of their consumption on the lottery.
You'd hope that all economists know this, but I think that sometimes some of them forget it. Such as when they impute the cash 'value' of non-cash transfer benefits fully onto the recipient of said benefits. You can't do that, as many recipients of this kind of welfare would be far happier with the cash instead (if only to buy lottery tickets, as you mention).
This even happens to more well off people when the value of things such as dental or vision coverage is imputed to them, even when they never use it. Though the worst I've even seen is when pension payments are imputed to a new employee when a large percent of said payments are actually being used to make a deficit whole for prior employees.
I was surprised to see nationalized air traffic control in that list. What are its harms?
Great post, Can't wait to read the the next one.
Good post, and I agree with almost everything. But I am skeptical about this one:
"When it comes to living standards for the average person, growth is an order of magnitude more important than distribution."
Especially because you claim to "know" this to be true. Between cases where redistribution would materially benefit most citizens (like, in many cases/countries, a more progressive income tax) and cases where "growth" benefits are highly targeted (like, I fear, getting ChatGPT to do our writing for us, in a world in which writing is thinking), I would be less cavalier with this claim.
I will grant you that redistribution should be done using simple rules.
Think about two countries like Sweden and Switzerland, which are both highly developed. Sweden does far more redistribution than Switzerland, but I'd argue that living standards for the average person don't differ very much. In contrast, both countries have vastly higher living standards than a place with a less efficient economic model, say a country like Russia.
Another example is China. They are less equal than under Mao, but living standards for the average Chinese person rose dramatically due to fast economic growth.
I'm not saying redistribution has no benefits, indeed I support tax progressivity. I just think that growth is far more important.
I was quizzical of this claim too, but the average person is, by definition, in the middle. I think GINI and similar distribution metrics *could* grow in skew enough to eliminate gains from growth, but I think this is unlikely in most diversified economies.
Growth frequently encourages economic diversification. So it's probable that growth is better than distribution in general.
If you have an absolute monarchy or other authoritarian state then you can have other constraints on living standards. But even in a place such as North Korea, where control of wealth and income are largely centralized, what little trickle down did occur from growth would necessarily increase living standards for the average person.
So growth really doesn't help the average person only in the unique circumstances where 100% or more of the gains from production, when adjusted for changes in population, go to the upper 49% of households. Even then you have to factor in increase in quality (e.g. more efficiency and power) or decrease in quality (e.g. fast fashion) of goods that end up being resold as used to the lower 51% of households.
Great write up Scott.
Agree here 100 percent especially with the concept of simplicity.
Government should keep policy simple, to put this in metaphorical terms, because when it's simple there are fewer “ragged edges,” to get cut on, less “surface area” for contamination.
I had one larger comment, but enough people were already posting about some of it that it was worth splitting the comment up as replies. Here's what's left:
"Tradable pollution permits are better than command and control regulation of utilities."
If ending a particular kind of pollution is the most important thing, I think non-tradable fees or fines, or flat out prohibitions (with jailtime for knowing violations), would be better. Tradable permits seem to me would be really only helpful with remediation. If a company can afford to buy credits from a third-party, then they can also afford to hire a third-party directly to clean up their business. This would work even with automotives. Again, phase in the law to allow time for the companies to adapt, if it's important to keep them running in the meantime.
Yes, but it's not always optimal to reduce a given type of pollution to zero.
Dear smart people,
Why are thirty year UST yields rising even as oil prices, agricultural prices, and Dow Chemical remain weak? Do you agree with Priya Misra's emphasis on deficits?
https://x.com/SquawkCNBC/status/1849047457939833289
Or is my alternative explanation closer to the mark: financial markets are anticipating a Trump election victory and therefore lower immigration and higher tariffs?
Off-topic, I know. Apologies.
How about excessive NGDP growth?
I should add that rising prospects of a Trump victory have also pushed yields higher.
What also needs to be said directly is that economists are good and knowing what issues are important. Good luck convincing the average person that housing regulation is more important than abortion rights or gun control laws.
There are people who spend their entire lives traveling and thus don't give a fig for housing policy. Unless it's fate of the world stuff, every concern is parochial.
I want SALT restored becase SALT is not consumption. The personal tax should allow deductions of non-consumption to make it a progressive _consumption_ tax. I thought Sumner was in favor of that.
I think the idea would be that as long as there are non-consumption taxes, you don’t want to create further distortions by creating special ways for some of it not to be taxed while others still get taxed.
Where do you draw the line on SALT? Someone with a huge house in the Hamptons which is in a high tax area would have a very large SALT deduction. Those people who live in Florida have very little if any SALT and would be disadvantaged compared to a New York resident. My own preference as already stated is to get rid of all tax preferences and simplify the tax code. The abuses of the tax code in the real estate industry are particularly noxious (just look at our past and possibly future President who has used his inept real estate skills to rack up massive losses, so he doesn't pay income tax).
My idea is that non-consumption (SALT, saving, reinvested dividends, etc.) SHOULD be a deduction from "income" so that the progressive tax falls on consumption. If there are kinds of consumption that we wish to encourage, e.g. charitable contributions, they should be partial tax credits. I don't like the "standard deduction" at all. Just raise the zero tax level.
One of the problems with your approach is that reinvested dividends and accumulated wealth from investments is either not or undertaxed when the assets are transferred to heirs or charity. There are lots of loopholes with regard to how trusts can be structured to avoid taxes. While I have benefited from some of these in the past and will likely take advantage of them as long as they exist, I don't think that it is prudent policy. I do support a VAT in return for lower tax rates and making the corporate rate as low as possible while eliminating lots of the deductions/scams that corporations take advantage of.
Former WaPo correspondent, TR Reid, published a very good book some years ago "A FINE MESS: A Global Quest for a Simpler, Fairer, and More Efficient Tax System." Well worth readng.
I don't want to overclaim about consumption taxes, but I think we coud have a better shot at plugging "loopholes" (discussing what IS consumption) in a consumption tax than the income tax "loopholes." Many income tax loopholes are gestures toward avoiding double taxation, i.e. toward taxing only consumption.
Thanks for the reading recommendation!
What percent of my rent isn't consumption? And how do I find this out? Am I required to go to the city/county to figure out the percent of my rent that's paying for taxes? Do I pay more in consumption tax if my landlord increases the rent? This seems pretty regressive as ownership is cheaper than rent when factored out over a life.
If rent isn't consumption, does this make renting a fully-furnished apartment cheaper on a tax basis than renting the same apartment for less money but "consuming" through purchases of durable goods to furnish it?
Why would rent not be consumption? My idea is to make consumption the residual of identifiable "non-consumption" expenditures. (I'm assuming business income is imputed to owners.)
So homeowners who own outright aren't consuming the value of their home, since they're only "consuming" upkeep and renovations, but landlords (especially those with mortgages) and renters are consuming the value of the rentals?
This is straight up regressive on two fronts: Landlords are encouraged to increase rents, compared to their own home, to pay for the additional taxes. And the greater the rent increase the more the renter has to pay in taxes. And it's more regressive the greater percent of one's income that goes to rent. So it hits rent burdened people the hardest.