This doesn't seem to make sense to me as it almost seems a reverse progressive tax. People earning just enough to get by will be spending almost 100% of their income on goods, thus having a very high VAT tax as a proportion of their income, while people in the very high income brackets tend to spend far less on actual "goods" as a percentage of their income.
My family, for example, puts far more money in the stock market than they do in groceries every month.
The Rockafeller and Walton families come to mind. My sister and I know a half-dozen families that have kept millions in inheritance over the course of about 100-150 years. Remember that America isn't that old and "modern" America is even younger.
My family tends to put a fair share of its yearly spending into family vacations, also, which wouldn't generate any taxes for the United States. This isn't really about my family though, it just doesn't make sense that you would rely on "eventual" wealth dissipation in order to collect taxes. Also, would you seek to tax different items differently? It seems like it would be more difficult to find and tax luxury items differently than simply using a progressive income tax. Would you have to establish VAT for items imported to the country? Would this be double taxation if you bought a good which has a VAT tax in another country?
The Rockefeller family is unusual in that the money is locked in a trust, but when it expires there are over 150 family members who will split the money.
The Walton is just now reaching it's 3rd generation, so isn't that old.
If this part really bothers you, you can have a sales tax plus estate tax, but no income tax.
BTW, you are asking me a bunch of questions on the details, when none of this is my idea. I'm just parroting what the proponents of the "Fair tax" say.
Fair enough. For what it's worth, according to the President's Advisor Panels and the Brookings institute, this would raise taxes for the bottom 90% of taxpayers and drop taxes for the top 10%. http://www.brookings.edu/papers/1998/03taxes_gale.aspx
Reading his paper it seems like this idea has some merit but this implementation is also fairly suspect.
The right, even obligation, of the sovereign is to dip a straw in the stream of commerce and extract revenue. Tax farming was the way to do this in olden days, a highly inefficient and grossly unjust means. Today the income tax is the predominant means, and it is sold as the socially just alternative. I don't want to argue the social justice aspect. I pointed out some contradictions in another comment.
I will argue for an alternative that is far more efficient and retains progressive elements.
In the U.S. the tax collection points number in the 100s of millions. This incurs cost on the sovereign, reducing the value of the collected revenue, and on the taxpayers, increasing the burden of the tax. It makes much more sense to switch to a system where the tax collection points number in the 10s of thousands, and the rules are transparent.
Public utilities are already extremely efficient tax collectors. Take a close look at your utility bill. The taxes may have confusing names, but they are there, and the utility collects them and remits them to the sovereign with very small staffs implementing very simple rules (compared to the IRS tax code).
Bear with me, I am now getting to the meat. Think of an energy transformation tax. Whenever energy is transformed (in most cases combusted), it is taxed. Somewhat like a value added tax, but only for energy. For instance, coal at the electrical generator: taxed; natural gas to heat a building: taxed; gasoline or diesel pumped into a vehicle:taxed; electricity at a meter: taxed.
Utilities are already set up to do this. Just bring on oil and coal companies and a few others. Those are your tax collectors.
Social justice / progressive tax? The utilities are also already set up to do this. So-called life-line or base-line rates on bare minimum consumption don't get taxed. Likewise a minimum level of gasoline and diesel consumption could be tax free to individuals.
Energy consumption underpins virtually all economic activity. There is no escaping taxes in the underground economy. Energy theft can be made a special case of crime with appropriately draconian punishment.
And do you really want to soak the rich? What do you think their energy footprint looks like compared to the common man's? Even when all they do is clip coupons.
Concerned about rising CO^2 levels? Tax hydrocarbon conversion higher than others. That which you tax you get less of. That which you subsidize you get more of.
The economic analysis of tax rates on different fuels is very feasible compared to analyzing the entire economy. I don't underestimate the capacity of elected politicians to complicate and demagogue anything, but an annual debate on energy conversion rates would be far more transparent than the budget process.
Of course it would be a big shock to jump to such a system in a single year, and this has only been a brief outline of such a plan. Better to implement over several years and dedicate the IRS to catching tax cheats from the old (income-based) system while it is mostly phased-out.
The correlation between energy use and ability to pay large tax bills is at best, loose. Alaskans on average consume >5x the amount of energy New Yorkers, which certainly doesn't reflect their respective per capita incomes
http://www.census.gov/statab/ranks/rank30.html
On average the rich use energy more than average people, but the proportional difference isn't huge, and it's pretty safe to assume the top 1% of earners aren't consuming anywhere close to 20-30% of household energy.
Replacing income tax with a levy on energy would be regressive beyond belief, to the point where I don't think it would be possible to match the returns generated by the current system and maintain a minimum tax-free level of fuel consumption that would allow the average person in some states to stay warm and be able to travel to work on a daily basis.
And this is coming from someone who gets by comfortably paying approx 4x the fuel tax Americans do...
Every qualifying person (citizen, legal resident, TBD) would have a baseline exemption. As you point out energy requirement varies by geography, and the exemption would also have to be geographic sensitive.
More importantly, such an energy based tax system would result in the vast majority of tax being remitted by business and institutions, not individuals. Businesses would not be able to avoid taxation through accounting tricks, but at the same time the cost to business of paying tax would be eliminated because it requires no bookkeeping. Like all taxes on business, this reflects in cost of products and services. Less energy intensive products and services become more competitive on cost.
