25th November 2013
It’s pretty simple: Income taxes penalize saving. That’s bad. Savings and investment are critical to long-run economic growth.
Consumption taxes do not penalize savings. See, under an income tax, workers who save to consume in the future are taxed more heavily than a worker who consumes today. Replacing the current income tax system with a consumption tax would boost saving, which would increase the capital stock and promote long-run growth.
My, what a surprise! Aren’t you surprised? I’m sure surprised.