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Income Tax Versus Consumption Tax

Income Tax Versus Consumption Tax

by Dr. David Gruder

The question of revamping the U.S. income tax code is one of the themes that has comes up in every presidential election for decades. We all know that the current income tax code is broken beyond all reason. One of the questions we need to collectively answer is whether to replace it with a more fair and more corruption-proof income tax or whether to replace it with a taxation approach based on consumption rather than income.

The question of how much the government should be spending, on what, and through what means (amassing debt, getting income from citizens, from business and/or from investments) is another matter for another time. But, the issue of whether the government accumulates its money through taxing income or taxing spending is, I believe, a deeper question than might be obvious on the surface. I also think this question needs to be answered first prior to making decisions about whether to receive this income from businesses, investments and/or citizens. (Debt, though, is simply unacceptable — it reflects a lack of financial integrity. Citizens need to stop tolerating it in their own lives from their government.)

Back to the question of taxation strategies decisions, though, I propose looking at these from the point of view of collective highest good. I further propose that a particularly important aspect of discovering what serves collective highest good involves evaluating what a government is and would be modeling to its citizens with the policies it pursues.

Here is a simple example of what I mean by role-modeling. I already alluded to it above: A government that pursues a spending policy that puts it in greater and greater debt is modeling to its citizens that debt is a perfectly fine thing when in fact in most circumstances (except purchasing a home that is within our means to afford and perhaps purchasing a car), debt is a financially self-defeating strategy. Certainly there can be no doubt that credit card debt and purchasing homes and cars that are beyond our means is profoundly self-defeating financially.

With this in mind, what does a policy of taxing income model to citizens? Well, one thing I think it models is that people should feel penalized for working! Don’t we want to create a working environment in which people are as enthusiastic about working as possible? Does taxing people for working really contribute to increased job motivation and a desire to excel? I propose that it does not.

In contrast, what does a policy of taxing spending model to citizens? Well, taxing purchases encourages people to look more closely at their consumption habits. That kind of awareness could be a valuable thing to encourage in a country like the US that is notorious for significant over-consumption compared with most of the rest of the world.

Taxing spending might also encourage people to save more. This could translate into more people achieving a greater level of financial independence by the time they retire, rather than being as dependent on the government (social security) for survival as the majority of retirees are projected to be in the coming years.

I would propose that both individual and collective integrity is better served though the positive shift in perspectives and priorities that taxing spending is capable of providing over the more negative perspectives created as a result of taxing income.

For more about issues of personal, relationship and leadership integrity, read The New IQ: How Integrity Intelligence Serves You, Your Relationships and Our World and check out these websites, www.TheNewIQ.com  (the new IQ we need today is Integrity Intelligence!) and www.IntegrityPledge.org.

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