Monday, March 5, 2012

But, what about China?

Even though I agree that a progressive consumption tax is more favorable than an income tax or payroll tax, I believe Frank is excessively confident in his speculations about the consequences. All public policy has unanticipated effects; and these effects contribute a significant portion to the total impact of policy, and often times contravene what is originally intended.

Frank acknowledges that the spending boom that would precede the implementation (but following the approval) of the tax would stimulate the economy. In this particular situation he is thankful because "it would clearly be better than standing idly by while total spending remains far too low to support full employment." (pg 83) Yet, after implementation and given full employment, wouldn't a progressive consumption tax reduce household spending and in turn drop prices, wages, and employment? Wouldn't the affluent attempt to reach previous levels of consumption by levering up significantly, taking on debt at low interest rates due to the influx of capital to the banks? Or would spending truly drop, resulting in higher unemployed supported by the consumption tax?

A progressive consumption tax may increase the disparity between social classes. Low income workers will spend their money at current levels because they pay no-to-little taxes while the affluent will save their money, becoming richer in the process. The little they do spend will go towards supporting the large unemployed population laid off by the highly productive corporations that just don't need them anymore.

The point I'm trying to make is that simplistic conclusions need to be scrutinized, not that a progressive consumption tax is the wrong direction. Besides, can basing the awesomeness of our society on GDP growth be sustainable in a closed system? To the moon!

No comments:

Post a Comment