A Tax Policy Expert Speaks on the Benefits of Switching to a Consumption Tax

     The tax policy expert Joe Slemrod argues that the benefits of switching from an income tax to a consumption tax would be quite large if only there were empirical evidence showed a strong relationship between savings and its after-tax rate of return. The only trouble is, that in all the studies he's looked at, there is very little such evidence.

     See Supply Side Follies by Robert D. Atkininson.

     http://www.amazon.com/Supply-Side-Follies-Conservative-Economics-Innovation/dp/0742551067/ref=sr_1_1?s=books&ie=UTF8&qid=1375615500&sr=1-1&keywords=supply+side+follies

     I've tried to keep an open mind on the allegedly progressive consumption tax. I did read about a few blueprints that sound not wholly inconceivable that they could be revenue neutral-though ideally I don't want revenue neutrality but rather revenue should be raised.

     http://diaryofarepublicanhater.blogspot.com/2013/04/a-progressive-consumption-tax.html

     http://diaryofarepublicanhater.blogspot.com/2013/04/a-progressive-consumption-tax.html

    However, even if you could find one that was truly progressive-it would have to start with large exemptions for the poor and a retention of a number of tax credits; on paper it sounds like it possible could work though the devil is in the details-what I could never get around was the question of why? Why should we privilege saving over consumption?

    The argument that we should raise the savings rate-while reducing the rate of consumption-begs a number of questions.

     http://diaryofarepublicanhater.blogspot.com/2013/04/still-skeptical-about-progressive.html

     The answer of Supply Siders is that this will lead to an investment boom which will raise the long term trend of GDP. However, as there's no empirical evidence that a higher personal savings rate raises business investment, the argument is moot.

     Interestingly, on the question of the long term trend of GDP, it's an assumption of Supply Siders-and most Neoclassical economists-that only supply side fiscal policy can change the long term trend of growth. We've talked a lot about Larry Summers lately, much of it negative.

     http://diaryofarepublicanhater.blogspot.com/2013/08/who-wants-to-defend-larry-summers.html

     http://diaryofarepublicanhater.blogspot.com/2013/08/larry-summers-has-another-fan-in-robert.html

     http://diaryofarepublicanhater.blogspot.com/2013/08/the-best-pro-larry-summers-argument-yet.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29

     However, he did write a really interesting paper with Delong way back in 1988 about long term growth which argued that demand side policies can change long term growth-a point that Keynes argued, but that the later Classical synthesis of Keynes and the Neoclassical school denied; the same was true of long term monetary neutrality, something that Keynes made a case against but the synthesis brought back. They get this result by questioning the natural rate hypothesis.

   http://www.j-bradford-delong.net/pdf_files/Filling_in_Troughs.pdf