great idea.. especially if that tax is included in all bank transactions. That would eliminate all tax filings and tax enforcement.. while guaranteeing income.... also it should include wholesale finance transactions like foreign exchange and the financial markets. Given a 100% coverage, it becomes more a value added consumption tax.. but nevertheless, a simple, clean tax put on those who have the means to pay it... and less those of limited means.

The consumption tax, like european VAT should exclude food, education materials and medicine.

ryszard mentions several different schemes. I'll assume objective is environmental.The UK (and probably the whole EU) already has a "landfill tax". So burying a business 15" computer monitor can cost £50. Obviously this encourages them being given to the poor.

Energy. Again petrol(gas) prices are much higher, by taxation, in Europe than USA. This conserves the planet.

Water. Taxation is really only justified in (places like) Western USA, where it is scarce. We've all seen Las Vegas's fountains, in the middle of a desert.

Not everywhere in Europe, food is exempted from VAT. I pay 12% in Norway. In the other Nordic countries it's somewhat similar.

The reason that we do not phase out the progressive income tax and replace it with a sole consumption tax is simply because it would be a regressive tax. It would actually fall hardest on those that have a lower income. Many parts of life have an inelastic demand (like air...nobody has the option of going without it.). Simply put, despite the fact that you could exempt some things - like food - a larger percentage of a poor person's income would be devoted to paying a consumption tax. The only way to make a tax just a little more unfair, is to create a lump-sum tax, where everyone pays the same regardless of income.

Basically, what you are suggesting is almost like trickle down economics. Allow everyone to have their incomes and the incentive to buy will force those with higher incomes to invest in more beneficial outcomes. There is no proof that this will actually happen and in the end everyone would simply go back to buying only necessities - causing economic upheaval and disintigration. Poor people would not buy luxuries of any kind, and rich people would hoard everything they could. Consumption taxes are actually taxes designed to make people STOP consuming. (We also call these sin taxes, and we use them to deter people from buying cigarettes, alcohol, and all kinds of other goodies...) We don't want people to stop consuming! It's what we're built on! When economist say "People respond to incentives," they actually mean "people respond to incentives - AND the government."

The progressive tax system, while although annoying at times, is the best system for handling our social needs.

A consumption tax is not necessarily regressive, and in fact can be the most progressive. You just have to tax things that aren't basic necesities, or you give people a card that exempts a certain amount of clothing, food, and energy per person. The point is that if you then buy a Hummer or a big house you have to pay extra for it. The reason this is more progressive than an income tax is that it takes care of the negative environmental effects of consumption, which are disproportionately caused by the rich and suffered by the poor. Instead of taxing everyone once on income and then again to clean up the environment we can just tax once.

The consumption tax does not work like a sin tax to stop consumption. The reason is that it replaces an existing income tax, which will increase disposable income. What it does instead is encourage the consumption of goods and services that are less costly to society, but equally benefitial in terms of economic growth. Its a way to reallocate resources more effiecently buy making people pay the true price, including negative social consequences, which is more effient and therefore good for economic growth and the environment.

Current income based tax system is not necessarily progressive. It is very complex and full of loophols, or tax shelters, depending how you want to see them. There is the whole industry of lawers and financial advisers inventing ways of legal tax evasion - it is rather disheartening. Tax system based on energy/fuel and water consumption could be very simple and transparent. Please note: the idea is not to add extra taxes, but to replace BASE for the tax - shift it from income to energy and water use. On average it should be revenue neutral i.e. approximately the same amount of tax would be collected in both scenarios. Imagine possible benefits of such shift: no more tax forms for most people, no loophols/shelters, IRS reduced to small fraction, very simplified tax enforcement (only for energy/fuel and water producers), great incentive to save energy, fuel & water. Frankly I have hard time trying to imagine what could be potential bad outcomes - the only one I can imagine so far is creation of black market for energy/fuel/water. If prices of these resources are much higher in US (e.g. $30/gallon of gas) then elsewhere, this could be an incentive to smuggle fuel here and sell it on black market.

I recommend recent article in Time magazine (Oct 13, 2003): The Great Energy Scam How a plan to cut oil imports turned into a corporate giveaway. A TIME investigation By DONALD L. BARLETT AND JAMES B. STEELE

Here is a juicy fragment:[...]FUEL FOR THE BOTTOM LINE Who benefits? a carnival of characters. But the most stunning numbers have been posted by big companies that wanted to boost their bottom line. The hotel chain Marriott International Inc., which has 2,500 lodging properties worldwide, bought four synfuel plants in October 2001. The next year, the fIRSt full year of production, Marriott's new synthetic-fuel operations generated $159 million in tax credits. Marriott had paid $46 million in cash for the facilities, meaning the tax credits gave the company a return of 246% on its investment in just one year. It was a welcome boost for the company at a time when the average room revenue from Marriott's traditional lodging business fell 4.8%. Moreover, the company's effective income tax rate plunged to 6.8% in 2002 from 36.1% in 2001, "primarily due to the impact of our synthetic-fuel business," according to its annual report. Consequently, Marriott paid federal income taxes at a rate below that paid by individuals and families earning less than $20,000 a year.

Forgive me beating a dead horse, but here is another interesting example how not necessarily progressive current tax system is. In his October 7, 2003 letter to Wall Street Journal Warren Buffett's mentions his three houses and vastly different taxes he pays on each:house 1, is worth about $4 million - 2003 tax was $2,264house 2, is worth about $2 million - 2003 tax was $12,000house 3, is worth about $500,000 - 2003 tax was $14,401You can find full letter here:http://www.berkshirehathaway.com/wsjletter.pdf

Now, we are not talking here about poor individual, by any standard, but absurdity of these taxes seem to be pretty obvious nevertheless.

Better (than a lanfill/disposal tax, that would lead to dumping to the charites, who cannot afford dumping fees, or illegal disposal) would be an at purchase disposal tax, orto put the cost of disposal upon the manufacturers. Also possible would be a packaging tax.

Most of this proposals opponents live in a dreamlike cloud of ignorance. The fact is (and there have been numerous studies which prove it) that the so called progressive income taxes we have are actually regressive. The really rich pay a much smaller percentage of taxes than those who work for a living. This is because of all the loopholes and exemptions, combined with the ease with which capital flies around the world to low tax destinations. In fact the richest people in the country are only paying something like 3 percent of their income. Wage earners are the meat in the sandwhich of the whole system. What's more, high marginal tax rates hurt the poor the most because they discourage work and savings, the very thing that lifts them out of poverty. Their is a very important distinction between marginal rates and overall taxes. The marginal rates are the ones that affect incentives. From a social equity point of view; it is a good idea to tax the rich more, but this must be done in a way that does not increase marginal rates. This can be done by giving people a fixed unchanging wealth rating, and taxing them on that basis, much like the way local government taxes work. Income taxes only create poverty traps.

I was with you until I saw "Because of the scale of the change probably it should be "phased in" over the extended period of time e.g. 10 years."

Wait ten years and it will never happen.

Also, why does it have to be "zero-sum"? Why can't the government exercise more fiscal responsibility?

This website has some good information: Americans For Fair Taxation

Reminder that consumption taxes require an agency to process them. Especially if they come with huge exceptions for food items and other necessities, international exceptions.

Not to mention that as the largest sales tax in the world (34% taxes on all purchases, not including state sales taxes), it would also have the largest and most complicated rebate program, requiring additional bureaucracy to manage.

Add to that the fact that it's very dependent on the economy, terrible for inner-city retailers, extremely easy to dodge, and hilariously regressive, what have you accomplished?

You've eliminated the IRS and welcomed in an equally complicated bureaucracy to deal with the exceptions and rebates of the new system. Congrats.