I understand asking why multi-millionaires pay a small percent of their income than people making less. However, this writer on cnn.com is proposing something that would not help. cnn.com
First off, I don’t pay the same effective rate that the Romneys do. I pay less. Five kids and charitable contributions.
Secondly, two million is still a lot of money. It’s a lifetime worth of income for a lot of people.
Now, to get to the gist of things, the writer wants to shift from an income tax to a consumption tax. Consumption taxes tend to be regressive, rather than progressive. The reason is that even if you put higher taxes on luxury items, you only really need so much, and luxury items can be skipped, as we saw in the 1990’s, when a tax on things like yachts failed to yield much revenue.
Right now the poorest part of our society does not pay the income tax. They will pay a consumption tax, because they have to buy shoes for their kids. Even if you exempt food, as a lot of places do, they will still pay more than they do now, which is often a negative percent after you factor in the Earned Income Credit. A consumption tax would raise taxes on the poorest. They would go from a negative percent to a positive percent.
Next, as I said before, there really is only so much you have to have. The rich can choose not to spend, or spend outside the country, an option that the poor don’t have. How would you effectively track and raise taxes on the purchases of the wealthy? Make everyone carry an ID card that would have your personal sales tax rate on it? We’ve already learned that luxury taxes can backfire, so singling out certain items just depresses those industries.
We’ve chosen to tax income that is capital gains at a different rate? Why? I’m not being hypothetical; it’s an important question.
We’ve chosen to exempt charitable deductions. Why? Again, not hypothetical, but a very real question.
Before we tinker with the tax code, we should fact human nature, and the ability of people to make decisions into our laws. Laws that don’t take into account human nature usually fail.