What If We Abolished Income Taxes & Replaced Them With 'Stuff Taxes'?

tax definition photo

photo: Alan Cleaver via flickr

Over at Green Biz there's an interesting article that proposes a way to address the environmental impact of the goods we buy, as well as realign our tax code to stop penalizing the very thing we want to encourage. What if we abolished income tax for just about every single person and made up the revenue with a higher tax on consumption, a 'stuff tax'? Would Raise the Same Amount of Money as Income Tax
Author Stephen Linaweaver, taking the recent increase of the Value Added Tax in the UK to 20%, says it would work like this: "You would take home the lion's share of your paycheck each month. Consume nothing? Pay no taxes. Want to buy a snowmobile or a Ducati? Pay the tax."

Income taxes would be eliminated for all but about 95% of the population; employment taxes greatly reduced by 50%; all products are services (save food, public transportation, some clothing and shelter) have a 20% federal tax. By Linaweaver's calculations this would raise about $1 trillion, approximately the same amount collected in income tax.

And the benefit to the environment? Creating stuff involves environmental costs -- of extraction and pollution -- that are currently unaccounted for. Although it is a coarse tool, a Stuff Tax could acknowledge those externalities...and fund the appropriate mitigation. As we learn more, the Stuff Tax could be varied based on the impact that product or service has on the environment -- gas would carry a higher tax, for example, than birdseed.

The gradations in tax based on the varying environmental impact of different goods would be essential. Otherwise you're just really making a philosophical economic point in changing whether you tax work or consumption.

So what do people think?
Does taking home all of your paycheck but paying much higher taxes on the goods you buy sound like a good bargain, assuming the shift is ultimately revenue neutral?

Consider at the same time that in Europe, they generally pay higher income taxes than do people in the US while still paying much higher taxes on goods, yet no one really pities the quality of life there.

Also consider that this tax shift doesn't necessarily actually shrink the ecological impact of our consumer culture. It just provides a financial incentive for considering our purchases a bit more. And if government services are paid for directly by how many goods we buy alone, if people start saving more and buying less, what will that do for public programs?

Read more: Fighting Climate Change With a 'Stuff Tax'
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More on Economics:
What if the Global Economy Was a Giant Hamster? or Infinite Growth on a Finite Planet
Book Review: Prosperity Without Growth - Economics for a Finite Planet
Anything But a Carbon Tax! Psychology Reveals How to Better Price Pollution

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