"On balance, Robert Frank’s proposal for a consumption tax on high income families may be a good idea (“Hey, Big Spender: You Need a Surtax,” March 21). But there may be some potential downsides that we should keep in mind. He suggests that reduced future consumption spending (as a result of the tax) won’t cause a fall in total spending in the economy because investment spending will rise to pick up the slack. But if businesses know that consumers will be cutting back, they have less of an incentive to build new plant and equipment. There will also be reduced incentives for people to earn, since, if they cross the threshold, they will start paying these consumption taxes (which are also progressive, exacerbating the problem). The rich might turn, as they often do, to smart lawyers and accountants to help them hide their income. This would waste talent in our economy. Finally, a luxury surtax in the early 1990s failed to generate the expected revenue while at the same time causing layoffs for workers."
Wednesday, April 14, 2010
My New York Times Letter
You can read it at A Consumption Tax, Revisited. It also contains a link to the article that my letter addressed. What got printed in the paper on Sunday was cut down from what I actually sent. Here is my originla letter: