Scott Sumner has an interesting discussion about tax systems on going on his blog today. And I agree with him, that in a perfect world a consumption tax would be much better than the convoluted, and full of more holes than Swiss cheese income tax system the US has today.

But of course this isn’t a perfect world and there lots of imperfections and inconveniences around, like the 16th Amendment to the Constitution, for example.  As long as that amendment is there, I do not want a national consumption tax. If I were to suppose, however, that the rest of the Constitution were alive today, it wouldn’t be such a problem because the States have always used some form of consumption tax to augment revenue. In the State of New York, income taxes are pretty low. Where New Yorkers get slammed is the nickel and diming of all of the other taxes like property taxes, gas taxes, sin taxes, and we can’t forget all kinds of licensing fees for hunting, fishing, keeping non-standard pets like ferrets – and then there’s all the taxes that get piled on residents of NYC.

I would rather have a much less energetic national government that raises revenue off income and more empowered States that have consumption taxes to cover the majority of transfer programs, if we must have transfer programs.

And then I think context matters because it’s really hard to have a discussion about morals and what’s a more efficient and fair tax system in a bubble. If, for example, the inflation nutters had their way, I would have very little problem in advocating a wealth tax. Whether we like to think of the US as a democracy where the real power is vested in the people, it really isn’t so. I’ve lived the difference between the Reagan years and the Gingrich Congress years, and the Bush years that replaced a good portion of the Reaganesque neo-liberalism with big government, paternalistic and corporatist conservatism, and the inflation nutters. The kind of selfish narcissism and corruption that came with it is simply breathtaking.

I have trouble choking down the typical meaning of a tax compared to what tight money does to average people and I would consider it a kind of stealth tax, the largest tax of all. After all, something put millions of people out of work and out of their homes to live out of their cars in parks. Taxes and tight money are both forms of confiscation, and it doesn’t necessarily matter if it raises revenue. And so I say that if people like Jeffrey Lacker have their way, we have to have something in order to compensate the people who end up losing everything. If we had such an option in our tax code, say, deflation triggers a wealth tax, I bet that we would start seeing concern about nominal stability rather than propaganda campaigns aimed at getting people to accept what is very bad for them and think it’s good. At some point we will get tired of eating elitist shit and saying it’s good. I certainly hope it is soon.