Re: Does consumption tax include real estate sales? (Was: Consumption 2)

From: Jeff Bone (
Date: Fri Mar 30 2001 - 08:43:57 PST

Russell Turpin wrote:

> Most consumption taxes I've read about exclude
> real estate sales. This is especially relevant to the
> question of equitableness, since houses are big
> ticket items, and high income earners tend to
> splurge on bigger, more expensive houses. Why
> should a low income earner be taxed on the
> $20 tent he buys, to keep the rain off his head,
> while the high-income earner is not taxed on the
> $1M home he buys, for the same purpose? (I'm
> not going to bring up sailboats, since I believe
> they should be excluded from all tax, as a matter
> of high principle.)

The question boils down to whether the expense is expected to generate
ROI / be economically productive or not. If so, it's an investment,
and should not be taxed in a consumption tax system. If not, it's
consumption, and should be taxed.

> There's a related issue. Jeff neatly divides
> income into consumption and investment. But
> this consumption tax is not really a tax on
> consumption. Rather, it is a sales tax. Or maybe
> a transaction tax. A true consumption tax would
> distinguish the purchase of an arc welder,
> depending on whether its purpose was personal
> or business use, i.e., consumption or investment.

I agree.

> The sales tax proposed does not distinguish
> between the two.

Are we talking about FairTax? Actually, it does. B2B transactions
are assumed to be productive rather than consumptive, and therefore
are not taxed.

> The blue collar worker who
> invests in an arc welder to start his own business
> is hit by the proposed tax.

Again, what is the "proposed tax?" For FairTax, I don't believe this
is true. The blue collar worker is *starting his own business.* It's
a B2B transaction. It's not taxed.

> The investment banker
> who buys stock in a welding company does not
> pay the tax. This difference is not between
> consumption and investment, but between two
> different categories of goods: material goods
> vs. stock.

I believe FairTax reasonably captures this difference. BTW, I'm not
advocating the FairTax anymore --- it's too progressive in formulation
and not EQUITABLE-2 in results; worst of both worlds. I'm advocating
a pure, straight, flat, universal consumption tax. But my proposed
tax can make the same kinds of consumption vs. investment decisions as
FairTax, which addresses all of your concerns AFAIK.

> There are
> lots of benefits to sales taxes vis-a-vis income
> taxes. But in Jeff's personal moral calculus, he
> is too quick to confound sales and consumption.

I think you're drawing unfounded conclusions.

BTW, Russell has at last out-ed himself to me. After years and years
of being (I thought) the staunchest free-marketer and libertarian I've
known, I find he's been hiding his softie social democrat



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