The Economic Report of the President, published last month, argued that consumption taxes could increase personal savings by as much as 43 percent in the first year and ultimately lead to higher output and higher wages.
“By removing the tax on the return to savings and investment, a consumption tax would increase savings and investment,” the report contended. “With a larger stock of capital, workers would be more productive and output and wages would rise.”
Yeah, right. If there’s one thing Americans do not like to do, it’s save money!
Consumption tax is a regressive tax because the poor spend a larger percentage of their income than the rich. Now, assuming that we exempt necessities such as food and basic shelter, that would prevent it from being completely regressive. Instead it would hit the middle class the most (in terms of percentage) because the poor spend the largest percentage of their income on necessities (theoretically…) while the rich save a larger percentage of their income than other groups. The middle class would thus be paying the largest percentage of their income in taxes if we went to a consumption tax model. And, since the middle class is still a pretty large chunk of society, this would probably increase the overall budget of the government….
I guess the pentagon can afford SDI after all…