It's a giant pet peeve of mine when people post a link that very superficially backs their argument, but then when you go and read it, it directly contradicts their point. Critical sentence from point 4: "Instead, impose a consumption tax, designed to be progressive to protect lower-income households."
Tariffs are the exact opposite of that, they're highly regressive.
> How do you design a progressive consumption tax? Tax only private jets and yachts?
There are lots of ways to design a progressive consumption tax, but yes, one way is to tax luxury goods at a higher rate than essentials. This is already done in many states, for example, where groceries (or at least "basic" groceries like bread, milk and produce but not prepared foods) are exempt from sales tax.
Another way is a sales tax rebate, e.g. where everyone can file for a rebate of sales tax of, say, the first $10000 of goods in a year. So poorer people with lower expenditures end up having a much lower effective tax rate.
Another way is to put some sales tax revenue towards funding UBI. This is progressive because people who consume more than average will pay more into it, and people who consume less than average will get more out of it, and busy people don't have to spend their time organizing receipts to claim their sales tax rebate.
It can would just like the sales tax deduction you can already get for income taxes: you can track them individually, or you can take a lump estimate based on your income (with exemptions for large purchases).
> Wondering why raising higher-bracket income tax is such a problem
Economists don’t love income taxes, and they really don’t love investment/capital gains taxes (see the NPR article I linked).[1]
The bigger problem is what you mean by “higher-bracket income tax.” 60% of all income is earned by the top 40% outside the top 1%: https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr.... To have the kind of welfare state the U.S. has, you need to raise taxes on those people a lot. But that’s politically impossible. In 40 years, we never managed to undo the bulk of Reagan’s tax cuts.
If you’re not willing to raise the rates on more than half your potential tax base, then you’ll need to do very steep hikes on the top 1%. Or you need to explore things like wealth taxes and taxing unrealized capital gains, which economists really hate.
The European countries realized that in a globalized economy, you have to be competitive on business and investment taxes. That’s why they heavily tax the middle class, including with consumption taxes.
[1] They don’t love tariffs either. But tariffs implicate concerns about foreign relations that are basically outside the scope of economics. The economic models simply don’t factor in the political risk of outsourcing all your steel production to a potential enemy. That’s why nearly every developed country ignores the economic consensus when it comes to things like agricultural subsidies. The political risk of not being food sufficient simply outweighs the economic downside.
> How do you design a progressive consumption tax? Tax only private jets and yachts?
I mean, at the extreme, yes (some countries do have sin taxes on those sorts of things). But for a more basic example, take EU VAT. EU countries usually have three or four VAT rates; basic essential goods are often VAT-exempt.
(This occasionally leads to fun disputes; for instance see the famous Jaffa Cake court case, or the more recent determination by the Irish Supreme Court that Subway's bread was not bread.)
[2] is only really relevant if you're in the US or Canada (most other places ban it in food, though not yoga mats) but if you are then the bad news is that while Subway may have gotten rid of it, a _lot_ of other companies still use it.
> (This occasionally leads to fun disputes; for instance see the famous Jaffa Cake court case, or the more recent determination by the Irish Supreme Court that Subway's bread was not bread.)
The FT's been having fun investigating whether Tesco's Birthday Cake or M&S's Strawberries and Cream sandwiches are subject to VAT. The answer seems to be no but maybe they should (although nobody cares, probably). Quality journalism at its best.
Even then the argument made in the article is a pretty bad one.
> Taxes discourage whatever you're taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax...
So discouraging consumption is somehow better? I mean maybe it is, but if that's the underlying argument they need to actually make it.
No, the point about the economic efficiency of consumption taxes is the main point. Making them progressive is just a way to address the perceived downside of being regressive. The fact that consumption taxes are better than investment taxes remains whether or not you do that. (Trump has floated the idea of rebates to address this.) There’s a ton of literature on this, and it led to european countries widely adopting VAT in the 20th century.
That’s also why the European countries like France have much higher consumption taxes than the U.S., while having similar corporate taxes. They want to discourage consumption.
Tariffs are the exact opposite of that, they're highly regressive.