1) I didn't say that consumption equaled income.
I said that the poor pay a higher percentage of their income in taxes than the rich under a consumption tax. We can take all frivolous spending out of the equation right away - there is a base amount of money that it costs to live . . . you need money for shelter, for food, for clothing. A rich person needs as much of these as a poor person, so these costs are constant between the two. Therefore, the poor always need to pay a higher percentage of tax when compared to income than the rich to live under this method of taxation.
2)Sure, and this is a reasonable attempt to make up for the otherwise obvious unfairness of a consumption tax. Acroy said that he doesn't believe in doing this though, so I was trying to gauge his reasoning for something that doesn't make much sense to me.
I apologize if I didn't make my point clear enough. A straight consumption tax is perfectly fair in itself, IMO. The way I see it is this: you can have all the money in the world, but it doesn't actually benefit you until you spend it, whether it be on food, rent, an iPhone or a yacht. So a guy making $1MM/year and spending $50k is only taxed on the $50k he spends, just like a guy making $50k and spending every cent. The $1MM guy isn't escaping taxes on the $950k by not spending, he's only deferring those taxes until he *does* spend it. Comparing the tax paid to the taxpayer's income becomes completely irrelevant.
A straight consumption tax on all goods is incredibly regressive because the higher cost of goods is a disproportionate burden to people with less income. Which you noted and that is the basic reason why this is true.
There is some cut off where a financially sane person can cover all their basic needs. By adding a flat consumption tax you greatly raise that bar of how much it costs to cover those basic needs. Lets say that bar ends up being $30k for a single person.
All the people making around $30k and single will barely be able to save, live and pay their taxes. They wont get ahead. IF they lose their jobs or there is an emergency they are in trouble.
A person making double or triple that can chose to pay a similar amount of taxes by simple forgoing luxuries and pocket the rest. Beyond that they will probably start to invest. They will pay exactly the same taxes as the poorer people because they can and their investments will snowball because, surprise they are all tax free to. So are all their raises as people with better earning potential will likely get better raises too.
At this point every penny more you make above the standard cost of living becomes exponentially more valuable as it increase your ability to invest and create new income streams. Pretty soon you can chose to double or triple your living costs to bring in luxuries. But at that point your income advantage has given you a great advantage.
Take this out to its limit. A person with billions of dollars in investments literally is incapable of spending any amount of money that could even come close to their investment returns. Because they pay no taxes non of that money they accumulate will ever filter back into the system except in the form of investments in stocks.
It might be possible to create an income tax free system based on consumption but it is much harder to make the system not regressive.