My Ideal Tax System
Robert Frank is a Cornell economist. He wrote the microeconomics textbook I used as an undergraduate student. I’ve listened to a few EconTalks (here and here) he’s done with Russ Roberts and found them pretty insightful. He also did an event with Justin Wolfers comparing absolute and relative income and the implications for the general welfare.
Frank’s conclusion leads him to support a progressive consumption tax. This is my preferred system of taxation. His idea takes insights from many that what matters isn’t inequality of income or wealth, but inequality of consumption. The mechanisms he has in place are pretty simple and build off the system that is already in place. You just take someone’s income and subtract their savings/investments to get their taxable consumption. Then you give large deduction, e.g., $30,000 a year for a family of four, or whatever you think is an adequate amount of consumption for the basic goods. Then the tax rates become steeply progressive. Maybe they start at 10% and escalate as high as you like.
The best thing about this system is that you don’t get any distortionary effects. You can have a 100% tax rate on consumption over $10 million a year and it won’t discourage work, investment or wealth accumulation. In fact, it would probably do the opposite. If the price of a Sweet Sixteen party or a corporate jet suddenly doubles, you’d probably just decide to save, invest, or donate that money, rather than use it for conspicuous consumption.
Frank wrote an NYTimes op-ed on the subject a few years back.
