Greenspan Touts Idea of a Consumption(regressive) Tax

[RedEarth]

WASHINGTON - Federal Reserve (news - web sites) Chairman Alan Greenspan (news - web sites) on Thursday said some form of a consumption tax — such as a national sales tax — could spur greater economic growth, but he cautioned that the government would face significant problems making the transition to such a system.


"Many economists believe that a consumption tax would be best from the perspective of promoting economic growth," Greenspan said, "particularly if one were designing a tax system from scratch — because a consumption tax is likely to encourage saving and capital formation." "However, getting from the current tax system to a consumption tax raises a challenging set of transition issues," he added.


The Fed chief delivered his assessment to the President's Advisory Panel on Federal Tax Reform a day after worrying aloud before a House committee about the buildup of budget deficits in recent years. The tax-reform panel is looking into ways to revamp the complex tax code, an important goal of President Bush (news - web sites).


Consumption taxes can take the form of national retail sales taxes or a value-added tax, imposed on the increased value of a good or service at each stage of manufacture and distribution and ultimately passed on to the consumer.


Bush's advisers have spoken favorably of the economic benefits that could be achieved by moving from a system that taxes income to one that taxes consumption. However, Democratic critics contend such a consumption tax would hit low-income Americans the hardest. But Greenspan, during a question and answer period, said Thursday that policy-makers can design a consumption tax that would exclude products that are mostly consumed by the poor.



http://news.yahoo.com/news?tmpl=story&cid=509&u=/ap/20050303/ap_on_bi_ge/greenspan&printer=1

[prodigal_green]

1. yeah, making it harder

for the majority of people to purchase necessities is the way to spark economic growth.

How about a damn luxury tax--items over $1000 (cars and homes exempted) have an additional tax on them.

[aden_nak]

2. Which will work until companies start billing multiple invoices of $999.

And you KNOW it'll happen. :P

[Warpy]

5. I remember the last time they tried that

Yacht builders screamed bloody murder about having to lay off their production teams. It didn't happen, of course, because corporations just picked up the tab for the yachts, tax and all, and wrote them off as business entertainment expenses.

Greenspan is a rich old fuck who seems to be convinced he can take it with him when he finally drops dead of pure meanness. All he is focused on is how to fatten himself and the rest of his class. He doesn't care if the rest of us are destroyed financially. He doesn't care if we're killed by his policies. He only cares about how many numbers he has to his name.

Don't expect anything else out of that man's mouth. He is the enemy of all but the richest 0.5% of Americans.

[Zenlitened]

9. That was my first thought too. What kind of economy will we have...

... when huge masses of people are too poor to buy new electronics, for example, or to travel? Our entire economy is based on consumerism -- why are these people trying to turn off the spigot?

I really am coming to believe that our government has been infiltrated by people who want to destroy America. That they do so while wrapping themselves in the flag -- and while cheered on by the very flag-waving simpletons who will suffer the most -- just makes it all the more staggering to consider.

[Skidmore]

43. Consumers need "turn off the spigot" and refuse to

purchase any item beyond nonessentials until these corporations get the message that they need consumers to exist. We could all live without some of the crap that have come to be considered "essential" in this day. We don't "need" cell phones that take pictures. We don't "need" the newest game machine that comes out. We don't "need" vacuum cleaners with $40 filters--unless you have a health condition, of course. We don't "need" a collection of 25-30 wristwatches to complement our wardrobes.

We "need" a movement that gets us back to basics--as consumers, as citizens, and as people.

[EVDebs]

3. Warren Buffett Urges Higher Corporate Taxes

http://www.commondreams.org/headlines04/0306-01.htm

"Corporate income taxes in fiscal 2003 accounted for 7.4% of all federal tax receipts, down from a post-war peak of 32% in 1952. With one exception (1983), last year’s percentage is the lowest recorded since data was first published in 1934. Even so, tax breaks for corporations (and their investors, particularly large ones) were a major part of the Administration’s 2002 and 2003 initiatives. If class warfare is being waged in America, my class is clearly winning."

Oh Greenspan, you got some 'splaining to do !

Just review "Perfectly Legal" by David Cay Johnston or "Wealth and Democracy" by Kevin Phillips and you realize how top heavy our economic situation is.

As Louis Brandeis said "You can have great wealth or a democracy, but you cannot have both".

[ZR2]

31. Most corporations today are subchapter-S corps.

therefore the taxes are paid by the owners on their personal income taxes rather than the corporation filing a seperate return.

[Mountainman]

41. Yes and they do things just right so the corporation loses money

and they take the loss on their personal return offsetting their salary and they borrow from the corporation to live lavishly. I worked for such a person last year.

[Frances]

4. Gotta protect the top 1% at all costs

Notice how no one is grilling Greenspan on his testimony in 2001 about tax cuts? And didn't Greenspan say something about the danger of too great a surplus? It seems to me that the surplus went to the top 1% and to the wonderful war in Iraq.

In my opinion, Greenspan is a thief, plain and simple.

[screembloodymurder]

17. Fastest growing housing market is homes over $10,000,000

and these MFing bastards want to tax food and clothing. Aggghhh!!!!

[seventythree]

29. if you read the entire article

you will see that Greenspan says it could be fashioned to exempt necessities. I don't care for the man since he screams deficits and then supports the war and SS privatization, but I've always felt there should be a tax on consumption -- tax policy should foster the behavior we want and discourage what we don't want. Encourage saving, discourage spending, and encourage hard work and dedication to duty. I much prefer a tax I can control. I don't shop at NeedlessMarkUp (Nieman Marcus), and I have no problem going to second hand stores, although I can afford not to. I am very frugal, and I would like to be rewarded for that. On the other hand, I would like not to be penalized for delayed gratification and hard work, ie a decent income.

[PA Democrat]

38. But what would the tax rate have to be if "necessities" were exempted?

And how would that determination be made? Creative people would find ways to get around a consumption tax.

And besides the point, consumption taxes, even with exemptions are regressive, strictly based upon the fact that the wealthy make more than they can spend. Seriously, Bill Gates is worth something like $30 BILLION dollars, which means that over the years he has made $30 billion more than he has spent. $30 billion that would be untaxed under a consumption tax.

Who will pick up the slack? HINT: It won't be the ultra-wealthy.

[seventythree]

44. I have no idea

what the tax would have to be or how it would affect income tax since some of the talk is a hybrid. I don't begrudge people like Gates, his money. He's a brilliant entrepreneur who took the risk and deserves the reward. He gives an enormous amount to charity. The mega wealthy, like Gates, are often the big givers to charity and the arts. They have their place. And they are also the ones who provide the capital for growth, which translates to jobs. I am certainly not one of them, but I have always had trouble with bashing them. Given normal intelligence, good health, hard work, delayed gratification and the willingness to take risks, anyone can live an abundant life. The folks I look askance at are the athletes -- mega bucks for a child's game, and stupid fans who will pay high prices for tickets to perpetuate it -- and those born on third base who think they hit a triple. We all have our prejudices, I guess.

[PA Democrat]

45. I've seen estimates as high as a 50% consumption tax rate

And that is without exempting "necessities". Below is a link to an excellent article of the consumption tax published by the Institute on Taxation and Economic Policy.

http://www.itepnet.org/sale0904.pdf

Feeling that those who are wealthy (whether through their own hard work or through inheritance) should pay their share in taxes is not bashing the wealthy.

A consumption tax is regressive, and even with exemptions for necessities, it guarantees that the wealthiest will pay a lower percentage of their overall income in taxes than would the poor and the middle class. Case in point. PA has a sales tax which exempts "necessities". But still the wealthiest citizens pay only 0.5% of their total income in sales taxes, while the poorest citizens pay 2.6% of their income in sales taxes (more than FIVE TIMES the rate the rich pay). Link here:

http://www.ctj.org/whop/whop_pa.pdf

[seventythree]

49. thanks, I will read your links

I just read an ominous statement by Paul Volcker (sp?) former fed chairman, about our huge dependence on foreign investment. As you are probably aware, just the other day the Koreans saying they were not going to hold so much in American currency sent the market into a skid. His analysis is that we are in deep, deep, trouble because we consume 6% more than we produce which causes the reliance on foreign investment. Bush saying we can't pay the IOU's in the social security account only sends the message to foreigners to get out, lest they end up holding the bag. It seems to me we have to get the consumption down. I am the rare democrat who finds no more value in speaking of percentages than in speaking of actual dollars -- I have never seen why one use of numbers is any more valid than another.

I grew up in a pink collar wage home, where mom would cry if we broke a milk bottle because she would lose the deposit. It wasn't easy, but we never thought of ourselves as poor because we had food (many nights only pancakes), garage sale clothes, a nice garden, a roof and lots of love. Perhaps because of my childhood, I have never carried credit card debt, still shop second hand, never have been into conspicuous consuming, buy used cars, etc. I know it's all relative, but I see some really high end consuming going on now, particularly with the younger set. I could go on and on with examples, but suffice it to say you do not need designer sheets for the baby's bed, even if you can afford it, and your best friend is doing it.

[seventythree]

50. another thought

if a tax strategy actually does exempt necessities -- just theoretically speaking -- any tax you pay will be the result of buying something that wasn't a necessity -- keep the spending to what is necessary, and, in theory, you pay no tax. I know, the devil will be in the details of what is necessary.

[LynnTheDem]

6. Greenspan; "I shill for bush". So much for the non-partisan independant

Federal Reserve.

[asjr]

8. Greenspan is an old fart who is careful to

state things that support Bush. I think his first name should be changed to Zell.

[mmonk]

7. Bad idea

but better than the current idea of doing nothing but running up unsustainable debt.

[TahitiNut]

10. But they never include Corporations in such taxation schemes.

What happens if corporations are included in a "consumption tax"? Such a tax could be levied at differing rates on domestic vs. foreign consumption. It's merely be two rates on Accounts Payable; one for domestic payees and another for foreign payees.

Is labor "consumed"?

[mmonk]

40. A VAT tax at levels of production

would take care of that issue.

[catmandu57]

11. this is what they were after all along

The social security flap was a distraction, there never was a plan to "reform" social security, it was a smoke screen. I hope that this idea meets with massive disapproval, in order for that to happen we need to educate john q. whether he wants it or not.

Who's too say it stops at the federal level? We already pay a city and state vat, next will be the fed and county, special use taxes will be added on everything as well.

The piggies will be lighting cubans on newly minted 1000.00 dollar bills and we'll be eating garbage if we can find it.

[RedEarth]

12. Actually, I think the repubs not only want a "soak the working class"

consumption tax, but also want to eventually gut social security, Medicare and Medicaid. Tragically, it seems the "independent" Greenspan is in lock step with Bush on these issues.

[PA Democrat]

13. Consumption Tax would raise taxes for middle & lower income ranges by 51%

Under current law, federal income and estate taxes are progressive. That means that taxpayers with high incomes pay a larger share of their incomes in taxes than do middle- and low-income taxpayers. A national sales tax would be exactly the opposite. It would take a much higher share of the earnings of low- and middle-income families than the wealthy would have to pay. That’s because most Americans must spend most or all of their incomes to make ends meet, while better-off people can afford to spend a much lower share of their incomes. Moreover, older Americans tend to spend a higher share of their incomes than younger ones, which means that a national sales tax would be particularly burdensome on the elderly.

As a result, replacing most federal taxes with a national sales tax would mean very large tax increases on most Americans and very large tax cuts for the wealthy. The tables that follow speak for themselves, but a few important points can be highlighted:

# In virtually every state in the union, the bottom 80 percent of taxpayers would face much higher taxes under a sales tax. Nationwide, these tax increases would average about $3,200 a year.

# Put another way, on average the 80 percent of Americans in the middle- and lower income ranges would pay 51 percent more in sales taxes than they now pay in the federal taxes that the proposed national sales tax would replace.

# In contrast, the best-off one percent of all taxpayers nationwide would get average tax reductions of about $225,000 each per year.

http://www.itepnet.org/sale0904.pdf

edited to highlight pertinent data.

[nodictators]

14. This is Scorched Earth Class Warfare against the American People!

Just today, Bush is starting his blitzkrieg to Kill Social Security.

At the same time, Greenscam calls for a consumption tax, which, as noted above, if grossly regressive.

Greenscam also supports Bush's assault on Social Security and more tax cuts for the rich.

Medicare and Medicaid are also on the Bush agenda for destruction.

Get this from the article:

While Greenspan did not specify what types of transition problems would be faced in moving toward a consumption tax in his prepared remarks, he did tell the panel he is concerned about the issue of taxing capital investments under the consumption tax. "This is the issue that bedeviled the 1986 commission and ultimately led them to abandon the consumption tax idea," he said.

So, ordinary Americans (about 90% of the citizenry) get hammered to hell with regressive taxes, while the richest 10% have no consumption tax on goodies like race-horse ranches and luxury condos in hoity-toity vacation spots.

[applegrove]

15. They want to get rid of all income tax & death tax - that way the rich

can hide in plain view and nobody will ever tell them they have to pay taxes. ***holes.

[jmowreader]

27. Never, ever call it a "death" tax

Calling the inheritance tax a "death tax" is like calling dilation-and-extraction "partial-birth abortion." It's a right-wing smokescreen bullshit term designed to confuse the sheeple.

Oh, I saw a hi-LARIOUS one. "What about Biltmore? Biltmore won't be the national treasure and the boost to the western North Carolina economy it is if the heirs have to auction it off piecemeal to pay the Death Tax!" Well, fine. The Biltmore House, America's largest private home, is a national treasure. I think it should be exempt from the inheritance tax under one condition: that the heirs leave it and its contents intact, as a museum piece. Sell off anything, and the full weight of the inheritance tax hits, but maintain it as kind of a privately-owned museum and your reward will be total exemption from inheritance tax on anything on the Biltmore House grounds.

[applegrove]

36. You know - an inheritance tax is not necessary. Just so long as

the tax on the income you get from it is paid. Pay it now, pay it later - but don't hide that huge amount of wealth with smoke and mirros and have migrant workers living in the USA without families so they can pay the sales tax for the rich - and make it look all the same. That is immoral. That is not family values.

[DemocracyInaction]

16. I've followed this all day and what really disturbs me is our Dems..

..lack of saying much more than "it will hurt the poor" (to which idiot Greenspan replied that they can figure out what the poor buy and exempt the stuff). My god, the implications of the 26 to 30% the republicans are proposing (that's right folks)would bring the US economy to it's knees. It would also mean that basically the entire middle class would not be able to afford to live. Why aren't they just in a total outrage about how incredibly deadly it is to the American people. Don't tell me they want some form of it??? About time to get back to taxing rich assholes and corporations------what are they going to do--pack up and move??? These whinny corporations all need their American market share or they would crash. Time to tell them to be good little citizens or we will take the sons of bitches down with us.

[AirAmFan]

18. Sure it would 'promote growth'--of the UNDERGROUND economy, at the

expense of the poor, of the honest, and of all dishonest people who cannot figure out how to sell their products on the sly.

[Deja Q]

19. Greenspan is a traitor. Such a tax might just DESTROY THE ECONOMY.

Greenspan is a twit. Our economy is grounded in the belief that CONSUMPTION helps keep the economy going.

Nobody consumes = no money = nobody makes anything for people to consume.

Hmmm. *co won't like that tax, either. In theory. It'll be fun to see if * tries to wiggle in a tax hike in amongst his usual natterings about tax cuts being good for the economy...

[CoffeeCat]

20. Would they really tax food and clothing?

Is that true, that food and clothing would be taxed?

It's awful that they would tax the bare essentials, especially food.

They'd actually tax food--30 percent???

I'll tell you right now what this would do to our family. Our consumption of goods--all of it--would massively decrease. Even though our income would increase, I would find myself laboring over every purchase.

I can't see how retailers or anyone who sells anything--could possibly want this. This would hurt small businesses--big time--I would think.

Many retail outlets that thrive on non-essential brickabrack (Pier1, Target, Kmart, dept stores, WalMart, toy stores, gift shops, etc), wouldn't they greatly suffer?

[girl gone mad]

21. This would hurt Red State Rerpublicans the most.

Those people that have large families and live paycheck to paycheck. Not to mention it would hurt corporate sales.

Executives that support this move are putting their own opportunity for financial gain ahead of the needs of the company. That's nothing new, I suppose. Corporations seem to have existed largely to be plundered by those at the top of the food chain for quite some time now.

[Resin]

22. It seems to me...

... that you guys aren't looking at all the theories around this stuff. Generally, that prices of products will be dropped. The thinking is that items are marked up 20-30% already to cover the taxes paid to produce them. So in the end, we'll all end up paying less.

Which of course doesn't make sense. The money has to come from somewhere...

[Frances]

23. I think that the margin of profit on supermarkets like

Safeway is around 1%. There's no way Safeway can mark down its prices--unless it makes its employees work for dogfood.

I read a story about a guy in the Depression working for $1/month plus he got a dozen chickens from the store owner once a year.

I think all of you should start talking to your relatives who lived through the Depression because most people don't have a clue just how bad things can get.

[nookiemonster]

24. I totally agree with discussing the Great Depression

There's alot of people that need to know. The stories I heard as a child from my grandparents give me chills today.

[seventythree]

32. I think they need to know

how you can live with a whole lot less -- like that commercial where the guy lets the water run as he brushes his teeth, and the other guy takes 15 napkins out of the holder. Yes, we shouldn't have a consumption tax on food, but how many people plant gardens any more or even grow tomatoes in a pot? How many still can? Hang their wash? Buy children's clothes at garage sales when they outgrow them in 3 months anyway? The Depression stories teach us what IS basic. Kids walked to school, their parents didn't drive them, and they weren't little blimps from being over fed with junk. If tv's existed back then, there sure wouldn't have been one in every room - most only had one radio. If there were no consumption tax on the basics -- wholesome food, kids shoes, medicine, soap, utilities,school supplies,X amount for one automobile, public transportation -- wouldn't most the middle class save money by reducing the needless things in their life? My biggest problem with the thought is -- in a consumer driven society when only the rich spend foolishly, will their spending be enough to sustain it?

[durablend]

26. And that's the biggest load of horse manure around

"If the taxes to produce the products are gone/reduced, prices will drop"

Yeah right...Smiley Mart is going to drop their prices 25% as opposed to pocketing the difference and padding the stock prices/Walton fortune.

[Frances]

28. Good point

Walmart just announced a huge dividend for its stock holders. It has paid a dividend every year. And how does it make its profits? It locks its employees in the store at night, not to mention child labor law violations and hiring illegal immigrants to work for peanuts. Plus several states have done studies showing that most of the children of Walmart employees qualify for welfare type medicare.

[seventythree]

30. but I don't understand

according to some posters here the corporations don't pay any taxes to produce those goods, at least not income taxes, so how can the mark up be 20-30% to cover squat?

[Zynx]

34. Retailers cannot afford to drop prices much lower.

If you ever worked at a retail store, you would know just how thin total margins are after all costs are taken into account and not just the costs of goods.

[baldguy]

25. Tax the poor.

[Zynx]

33. Of course he would like that. He has tens if not hundreds of millions of

dollars. He would love a consumption tax.

[flaminbats]

35. the Greenspan tax..

strange that Greenspan doesn't also support another reduction in income tax rates. Is this tax reform, making all Americans pay more for goods and services after tax rates were cut for the wealthy?

Republicans now believe another consumption tax leaves workers with more money for saving and investing, yet not a single Republican voted Clinton's gasoline tax increase in the 90's!

[MADem]

37. How KINKY!! We'll be like Europe, but without the HEALTH care!!!

There will be brisk trade in things that fall off the backs of lorries...need an air conditioner, a dishwasher, any major appliance? Just go see that surly looking fellow on the corner, and they'll hook ya up!

[indepat]

39. Repugs forevermore continuously craft an even more regressive tax scheme:

sadly, the Fed chariman IMHO has become nothing more than a partisan shill who whores for these Repug regressive schemes rather than focusing on fulfilling his primarily duties in the best interest of this Republic.

[ElsewheresDaughter]

42. when asked "won't this be a hard tax on poor people to tax food?"......

Greenspan said, "well maybe we can make it that the foods poor people eat are not taxed"...WTF??? yeah only rich people can afford to eat HEALTHY foods but this asshole wants to not tax highly process foods loaded with high fructose corn syrup and chemical preservatives that the elite would NEVER eat.

only the wealthy can afford organic vegies and free range beef and chicken

[VirginiaDem]

46. This is a much more complicated issue than social security

Social security reform, as it was originally written, is dead. Bush may eventually get something through but if so it will look like a much different animal than what he really wants. That's because it's a fairly simple issue masquerading as a complex one. For all its faults, the system isn't broken and people know it.

This tax system issue is different. If they phrase this astutely, then we may be up against it. Reason #1: People hate doing taxes. Reason #2: People hate the IRS. Reason #3: Both of the above reasons are rational (not necessarily right, but not illogical in any way). Reason #4: Some of the regressiveness will no doubt be removed by exempting food and the like. Reason #5: Americans don't save--economists will foodfight about pretty much anything but I don't think it's terribly controversial to say that increased savings is one of the few ways to get increased investments. Reason #6: (Related to reasons 1 and 2): Rich people already cheat/exploit the current system. Reason #7: Freeing up resources from processing people's taxes (which this undoubtedly would do at the expense of a lot of gov't workers) massively decreases transaction costs and increases efficiency.

Having said all of that, it would still be a significantly more regressive system as far as I can tell. My point here is twofold: to show that the issue is much more complicated than people are guessing and to show what we will be up against when this goes to the people via the MSM.

[Kat45]

47. Whatever happened to the guy who said deficits were our biggest problem?

Remember that? You know, when the Democratic Party had the White House. No, no, no, you can't put in new programs to help people; you can't spend money like that, said Greenspan. Deficits are a terrible thing to have; you have to cut it down. So Clinton took his advice; we ended up with a huge surplus, only to be frittered away when the Republicans took the White House and immediately cut taxes for the rich.

And now, between the continuous tax cuts and the expensive, unnecessary way, the surplus has become a huge deficit. Greenspan says not one word about deficits being harmful. As a matter of fact, he backed the tax cuts, despite their effects on the budget. Is this man a republican, even a neocon, who stayed in disguise during the Clinton administration? Did he just act like an intelligent economist giving nonpartisan advice while in reality giving advice that would hamstring the Democratic party's propensity to spend money on programs that would help people? Did he then, upon the Republican's ascent into the White House, make statements to enable the neocon agenda, giving it the stamp of approval of a (supposedly) nonpartisan intelligent economist?

[Rex]

48. If anyone knows about regressive it is the vulture.

I swear Greenspan looks like some kind of carrion eater.

[Rainscents]

51. Greenspan can kiss my Asian ass! He is the biggest flip-flopper!