If you replaced all taxes with a simple sales tax, it'd be even more regressive, since a gallon of milk (for example) has a higher relative cost to someone who makes $20,000 than someone who makes $2,000,000.
Also, it could have an unintentionally bad effect on our (now very consumer-driven) economy. You don't want to discourage people from spending money.
On the other hand, a consumption tax taxes people proportionally to the benefits they receive from society. It might be less progressive w.r.t. income than our current system, but it is arguably more fair.
It's also hardly clear that the tax burden is even felt by the rich. Consider an investor with millions in investments who only consumes $50k/year. He would like to invest in his new venture, a medical search engine. But because of the taxation, he has less money for this investment. Think: who is forced to consume less as a result of taxation? The rich man continues to consume $50k/year. Instead, goods and services have been redistributed from the medical search engine to government uses.
The real question about taxing investors: do we believe the government will spend the money better than Fred Wilson would?
The ability to choose when to work and on what terms is a vastly greater benefit than mere consumption goods.
Your link is really unhelpful to the idea of consumption taxes and I'm actually surprised to see you post a line of reasoning that suggests allocation of fiat money is zero sum in the medium term, especially in response to someone making a point about the economy being driven by consumption.
The $84 million belonging to Mr Kendrick might have been invested in US businesses providing valuable services (although if his private wealth managers are competent, he'd have been better off investing in foreign companies or shorting the housing market in the last few years. Earlier on, maybe, or maybe he'd have done fine placing speculative bets on asset bubbles that create nothing except liquidity for malinvestment and problems afterwards). But given the existence of fiat money created by the fractional reserve system, taxing Mr Kendrick's wealth shouldn't result in a reduction in the supply of bank loans unless the banks are running low on reserves. The government has a whole host of non-fiscal policy instruments to encourage more loans if that's the problem.
It's not a straight opportunity cost decision since the government isn't consuming the money out of existence, even if their spending is utterly devoid of foresight. Welfare check recipients and pointless bureaucrats consume much greater proportions of their income, which ultimately returns via a flows back into the hands of private investors via the mechanism of people actually buying products. Investors, especially passive ones apparently indifferent to returns, don't create profit; consumers buying things do. Shifting the burden from income to consumption taxes discourages that spending, especially if the government has to recoup the revenues Mr Kendrick's $84 million from people that actually get put off by higher prices. If consumers buy less, even Fred Wilson isn't going to get good returns from his investments.
The ability to choose when to work and on what terms is a vastly greater benefit than mere consumption goods.
The "ability to choose when to work and on what terms" is nothing but the ability to purchase goods.
The issue is not allocation of green pieces of paper at all. Moving numbers around in computers somewhere at the Fed or BankAm's data center doesn't affect the world at all.
The issue is spending. Real resources are allocated based on where the money is spent. If Fred Wilson spends the money, then real resources will be allocated towards a social network/gaming platform for people trying to get in shape. If the government spends the money, those resources will instead be devoted to making bling bling for welfare recipients.
If you want to argue that the latter case is a good thing, then go ahead and argue it. But the issue is whether the money should be spent on Fred Wilson's venture rather than Obama's venture, not whether to increase or decrease Fred Wilson's consumption.
Incidentally, if you are concerned by investors putting money into foreign companies (note: I'm not), why are you not concerned by welfare recipients consuming goods that are made in China?
The "ability to choose when to work and on what terms" is nothing but the ability to purchase goods.
And the ability to be able to enjoy more of that wonderful tax-free benefit: leisure. A person living a life of leisure off the proceeds of their lottery win benefits more from society than a person who works 4000 hours a year to fund exactly the same consumption habits. That advantage accrues to the lottery winner from the day they receive the income.
The issue is not allocation of green pieces of paper at all. Moving numbers around in computers somewhere at the Fed or BankAm's data center doesn't affect the world at all.
On the contrary, numbers moving around in computers makes a huge difference. I don't think we disagree with the basic intuition that taxing the supply of cash going into Fred's fund will reduce the real resources allocated by his fund. But the dynamics of the economy overall are a little more complicated, especially when instead of the investor actively allocating to new ventures a la Fred Wilson, investments are fed into the world of finance where the inherited real resources of Schlage Lock Company have the same purchasing power as newly-created credit to most market participants.
As several of the comments in your linked article pointed out, it's not a true representation of reality to suggest that taking $84 million out of the bank will result in the cancellation of $84 million in business loans, unless the US were to switch to a 100% reserve system. Instead, banks have a large degree of choice in the quantity of money they loan out, which is ultimately based on whether they anticipate earning enough real interest to repay the loans: they've already allocated a multiple of Mr Kendrick's money to real resources and if the government wants to start consuming it that's fine and dandy until the reserves look a little low. If the recent upswing in the bling market is looking sustainable, and the demand for yachts remains resilient they may even decide to extend more credit than they were previously so more people can get to work creating resources.
Sure, the government isn't omnipotent and clumsy fiscal stimuli might boost little more than inflation and do more damage to the economy than good. But moving numbers around and multiplying them does a lot more for the economy, especially when it's not doing too well. And Mr Kendrick would doubtless greatly appreciate being taxed less even if his bank manager notices the difference less than him.
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Most of the profit in selling Chinese-made goods is made by US companies (or multinationals employing sizeable US workforces). Selling and distributing foreign-made goods to US consumers is always going to generate incomes in the US, even if its creatively destroying domestic manufacturing industries at the same time. On the other hand, US investors can invest the untaxed portion of their income anywhere in the world with a few strokes of a keyboard. In the event of the US government offering the investment stimulus of income tax cuts but balancing them with domestic-demand-depressing consumption taxes, it's a fair bet a sizeable portion of that investment stimulus might find its way to London, Frankfurt or Tokyo.
...it's not a true representation of reality to suggest that taking $84 million out of the bank will result in the cancellation of $84 million in business loans...
Again, the issue is spending, not loans. Consider two possible uses for the money:
a) You can hire a programmer to do maintenance on the welfare administration system.
b) You can hire a programmer to build Fred Wilson's new venture.
By taxing the money, you devote it to welfare admin apps. By leaving it untaxed, you devote that programmer's labor to Fred Wilson's venture.
The relevant question: is purpose a) or b) a more valuable use of that programmer's labor?
My point is that contrary to intuition debiting (and spending) $84 million from a bank account or invested in the stock market doesn't necessarily correspond to an $84 million short term decrease in the spending power of companies spending revenues generated by borrowing from that bank or floating on that market.
Because of the amount of credit in the system, that $84 million can be simultaneously spent by many people anyway; the government joining the spending party might crowd out rather less or rather more private sector investment expenditure than they collect through tax revenues.
What if we special-cased the essential consumables a bit? Not very elegant, and probably a bit exploitable, but I can't think of any glaring holes (yet).
As for your second objection, I don't see the issue. If they don't want to be taxed, they can forego buying something.
As for your second objection, I don't see the issue. If they don't want to be taxed, they can forego buying something.
That's parent's point: if I one buys less because of the tax, that's means someone or some company has lost a sale, which means they'll need to cut back on spending, etc.
In a consumption based economy, you want money to be constantly re-injected into the economy to prevent stagnation.
Also, it could have an unintentionally bad effect on our (now very consumer-driven) economy. You don't want to discourage people from spending money.