Speaking to the Milwaukee Press Club on Wednesday, March 24, Republican U.S. Senate candidate Dave Westlake indicated he favored a tax on consumption as an alternative to the current income tax system.
The basic premise of a consumption tax, as I understand it, is that individuals would only be taxed on what they consume, while their savings (and income) would remain untaxed. At face value, a consumption tax seems rather uncontroversial, but there are a number of problems inherent to a consumption tax, the first being how housing is taxed. While renters “consume” housing, resulting in their being taxed on the expenditure of rent, homeowners would not be required to pay taxes on their housing, as they pay down a mortgage, resulting in their payments being classified as savings, not consumption.
Another problem with a consumption tax is that it tends to be a regressive tax, in that taxes become a larger percentage of income as one goes down the income ladder. The closer you are to poverty, the higher the percentage of your income that you’d pay in consumption taxes. On the flip side, if you’re really rich – like Terrence Wall, for instance – your income, whether from work or investments, will be exempt from taxation.
A consumption tax would certainly be advantageous for those in our society who’ve amassed wealth, but I simply don’t see it being a good idea for the lower and middle classes.
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