On the heels of his statement yesterday reaffirming his support for Bush's counterproductive and probably doomed Social Security "reform" scheme, FED chair Alan Greenspan today suggested that the government look into
a tax on consumption as a spur to growth.
Not only does this run counter to every notion of progressive taxation--I don't even see how it could raise revenues, based on the caveats Greenspan himself quickly added to the idea:
Addressing concerns about increased taxes on food and other necessities, Greenspan said that policy-makers could design a consumption tax that would exclude products mostly consumed by the poor.
In his prepared remarks to the panel, the Fed chief said that "a consumption tax would be best from the perspective of promoting economic growth" because it would encourage saving and the capital formation that the economy needs to expand and modernize.
"However, getting from the current tax system to a consumption tax raises a challenging set of transition issues," he added.
Greenspan also said he supported tax incentives to encourage savings, despite what he called conflicting evidence about the incentives' success at increasing the national savings rate, because they enhance individuals' retirement accounts.
...
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.
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.
If memory serves, in order to totally replace the current system of income taxation with a consumption-driven system, the rate of the tax would have to be something like 55 percent. Good news for Steve Forbes and Paris Hilton; bad news for pretty much everyone else. So, yes, Alan, "purity" probably isn't the way to go here.
Greenspan suggests that, for political purposes, "reformers" exempt food and other necessities from a consumption tax. But he also wants to exempt capital investments, presumably out of concern that the tax would deter them. So how exactly is this going to raise money in any quantity?
Greenspan seems in lock step with the right-wing drive to shift the burden of taxation "from work to wealth," as John Edwards so effectively put it during the campaign. Other than that, though, I can't make any sense of what he's saying:
- He's very concerned about the deficit and the mounting national debt, but wants to privatize Social Security and extend Bush's tax codes.
- Cutting spending, he suggests, is the way to solve the problem. He wants to encourage "saving", but seems to be supporting a measure that would lead to a larger tax bite out of the pockets of working people. (Not to mention that the economy seems to be sustained by consumer spending; we're all so heavily leveraged that if less money circulates, the bottom likely would fall out in short order.)
- And of course he's been utterly silent, so far as I can tell, on the issues of predatory credit and medical costs, probably the two biggest obstacles to more people saving their money.
Final thought: my intuition is that spending cuts would have as much anti-stimulatory effect, or worse, as repealing tax cuts which have mostly benefitted the super-wealthy anyway; government spending certainly seems to have more aggregate utility, to more Americans. We always knew Greenspan was an ideologue, but I think the true costs of his slavishness to doctrine are only now becoming apparent.