But this assumes that the revenue from the consumption tax will 1) be the same as for the income tax, and 2) hit wealthy people enough that the lower benefit payout will balance it.
I don't really see how these can be true given that, as you state, wealthy people spend a smaller portion (a lot smaller) of their income than do poor people.
To toss out some numbers, let's say the wealthy person makes $1M per year at a 35% effective income tax rate and the poor person makes $50K per year at an effective 10% income tax rate. Let's further suppose the wealthy person spends half their after-tax income, and the poor person spends all of it. Total tax revenue in this case would be $355K under the income scheme, but if we switch to a consumption tax, the tax revenue drops to $55,500. There's no amount of benefit allocation you can do to make up the difference. On top of that, the tax burden for the wealthy person (after offsetting for the benefit allocation) is still massively lower than under the income scheme, even if they get $0 in benefits. You'd have to raise the consumption tax ridiculously high (33% !) to get close, which will effectively discourage expenditures and encourage savings, pretty much destroying the US consumption-based economy.
I just can't see a realistic scenario where this setup isn't regressive or generally a bad idea. If you want to keep a progressive system but also eliminate income tax, we need to consider a wealth tax.
Just checked the Danish national budget. Danish VAT brought in (or was estimated to bring in) 212 billion DKK in 2018. In comparison, tax levied on personal income brought in 562 billion.
That's fair. However, the proposal in the parent comment's link (and other proposals like it) is asking for a 17.5% consumption tax, which would be an absurd gift for the wealthy. Even for not-wealthy people like me, it would be a huge boon, while the middle class would get hosed.
Well, you may not think 33% is ridiculously high, but you just wrote that it is in the second sentence. You say that 33% is 1/3 higher than Sweden, which is proverbial as an example of a highly taxed locale.
I don't really see how these can be true given that, as you state, wealthy people spend a smaller portion (a lot smaller) of their income than do poor people.
To toss out some numbers, let's say the wealthy person makes $1M per year at a 35% effective income tax rate and the poor person makes $50K per year at an effective 10% income tax rate. Let's further suppose the wealthy person spends half their after-tax income, and the poor person spends all of it. Total tax revenue in this case would be $355K under the income scheme, but if we switch to a consumption tax, the tax revenue drops to $55,500. There's no amount of benefit allocation you can do to make up the difference. On top of that, the tax burden for the wealthy person (after offsetting for the benefit allocation) is still massively lower than under the income scheme, even if they get $0 in benefits. You'd have to raise the consumption tax ridiculously high (33% !) to get close, which will effectively discourage expenditures and encourage savings, pretty much destroying the US consumption-based economy.
I just can't see a realistic scenario where this setup isn't regressive or generally a bad idea. If you want to keep a progressive system but also eliminate income tax, we need to consider a wealth tax.