(Title changed to reflect that I was an idiot,and was seeing it all wrong. Original post left intact because I don't like it when other people just erase the things they'd said that they wish they hadn't, leaving comments and responses hanging in midair.)
OK, Matt: you've been beating the drum for a progressive consumption tax for awhile. And for just as long, I've been asking: how the fuck would this actually work in practice? You've basically pointed to Robert Frank, who explains how things would work when tax time rolls around the following April:
Families would report their incomes and their annual savings to the IRS, just as many now do with 401(k) and other similar retirement savings accounts. Their taxable consumption would then be calculated as income minus savings minus a large standard deduction–say, $30,000 for a family of four. For example, a family that earned $50,000 and saved $5,000 during a given tax year would have taxable consumption of $50,000–$5,000–$30,000, or $15,000 total.
And then that total could be taxed according to a progressive tax rate schedule, just as income is now.
The problem, as I'm really bored with having to point out over and over again in comments at Matt's place, is that we don't know how it would work as one made purchases during the year.
When I fill out my 1040 on my 2010 income in early 2011, I should only have to pay (or be refunded) a fairly small sum, since my employer knows how much I earn, and each paycheck is a pretty good indication of how much should be withheld to make things work out fairly close to even over the course of the year.
But how can one apply that to a consumption tax? Unlike with paychecks, few individual purchases give any clue as to what bracket the consumer would likely be in. As I said in comments at Matt's here:
We don’t know how it would work IN REAL TIME, as consumers made purchases and were presumably taxed for them on the spot. How would it ensure that consumers weren’t taxed on an ongoing basis in a manner that resulted in their either owing a huge tax when they filled out their return the following April, or in a manner that, while ensuring a mammoth refund the following April, deprived them of desperately-needed income as the year went along?
Until Yglesias (or Frank, or whoever) can explain how a consumption tax would be structured to avoid this immense practical pitfall, it has to be regarded as unworkable in practice.
So, Matt, there you go: either explain how this part works, or STFU about the damn consumption tax already.
