Author Topic: Flat Tax  (Read 53987 times)

grantmeaname

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Re: Flat Tax
« Reply #150 on: July 08, 2014, 02:30:45 PM »
Which is certainly somewhere in the neighborhood of 20% of the gross domestic product.

grantmeaname

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Re: Flat Tax
« Reply #151 on: July 08, 2014, 02:35:16 PM »
Public companies should be taxed at a higher rate than sole propriortorships to offset the risk differential of a diversified portfolio versus betting the farm (or house) on starting your own business.
That seems unenforceable. What about small businesses organized as corporations? What about family partnerships? What about large privately owned businesses? Should Koch Industries get the Jim's Bait Shop treatment in the tax code? How would you make this law more than trivially difficult to innovate around (I shouldn't be able to figure out how, much less an attorney who does that for a living)?

Quote
IMHO, a nation of mom and pop companies would be much more stable and beneficial than a small group of mega corps.
I've gotta disagree on this one. Beneficial you could probably argue either way. But I've gotta think there would be much less stability when you dramatically shrink the size of any given business's reserves to weather hard times. We certainly see more little companies go bankrupt in recessions than big ones.

Hamster

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Re: Flat Tax
« Reply #152 on: July 08, 2014, 03:42:05 PM »
TL;DR: Even analyses promoted by FairTax.org show after-tax prices immediately increasing by 24% after implementation of the FairTax. This would be offset by increased income. As for the value of my current savings... who knows...

The $265 billion spent on compliance is just for the accountants and lawyers hired to understand the tax code, you're also not factoring in the % of the price built in to cover all of the various taxes the business pays.

Yeah, but to think that the 30% sales tax increase would be completely neutralized by price reductions is magical thinking. Let's assume the businesses use 100% of their portion of the payroll taxes (500 billion) and 100% of corporate income taxes (270 billion) toward lowering prices. That still leaves 1.3 billion in income tax savings (paid by the worker, not the corporation) and 500 billion of payroll tax savings paid by the worker. Since those aren't paid by the emplyer, they don't see that savings unless they cut wages, so those tax shifts can't be used to lower prices.  So, in the best case, only about 30% of the current federal taxes could possibly be reflected in lower prices, as only 30% of these taxes are paid by employers and 70% are paid by the income earners.

That would mean there would still be a price increase of 21% (70% of the 30% FairTax) attributable to the fair tax in the best case scenario.

That is pretty close to the estimate that the FairTax proponents publish. I found an analysis on the FairTax site that predicts a one time immediate after tax price increase of 24% to prices of goods and services and a one-time immediate increase of 27.4% to income. this is based on the fairly extreme assumption that 100% of payroll tax savings would be reflected in price reductions rather than any increase in corporate profits or hiring.
...we assume that all corporations pass the payroll tax savings to consumers, putting downward pressure on before sales-tax prices.

That pretty much puts to bed the notion Travis put forth that a 30% sales tax won't increase afer-tax prices. Granted, the FairTax argument is that income will increase more than prices. In the long term, that may be good, but we are talking a major shitstorm for a while as prices settle out, and suddenly, any new products I want to buy with my mustachina savings just spiked in cost by 24%. Craigslist will do a booming business...

If you ask me, there is a reason that the FairTax FAQ skirts around the issue of price increases by stating "it will depend on market forces", and I suspect it is the same reason they call a 30% sales tax a "23% inclusive tax".

It is because the real numbers will scare the shit out of people.

Anyway, I've spent about as much mental energy on this as I care to. It's been fun to discuss, but I've come to the conclusion that a national consumption tax would work better as a VAT than as a retail sales tax like the FairTax.
« Last Edit: July 08, 2014, 04:45:20 PM by Hamster »

anisotropy

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Re: Flat Tax
« Reply #153 on: July 08, 2014, 03:56:23 PM »
dumb question.....

how does VAT differ from retail sale taxes (FairTax). I thought they're both taxes based on consumption/spending?

Man, i know so little about this it's embarrassing.

Hamster

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Re: Flat Tax
« Reply #154 on: July 08, 2014, 04:09:51 PM »
how does VAT differ from retail sale taxes (FairTax). I thought they're both taxes based on consumption/spending?

Here's an explanation
Quote from: wikipedia
A value-added tax (VAT) is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to a product, material, or service, from an accounting point of view, by this stage of its manufacture or distribution. The manufacturer remits to the government the difference between these two amounts, and retains the rest for themselves to offset the taxes they had previously paid on the inputs.

Althought it is more complicated to implement, the VAT has a better incentive structure to prevent fraud when compared to a standard sales tax (like the Fair Tax) that is only collected at the final retail sale. To quote myself:

...[regarding VAT] If I am a store, I buy a shirt for $10, and pay my $3 in taxes. I then sell it for $20, and collect $6 in taxes. $3 of that goes to offset the VAT I just paid, and $3 goes to the gov't. Now, as the final seller, I have a real financial incentive to collect the tax - If I don't collect it, I am on the hook for the $3 tax I paid when I bought the product. That's a big difference compared to the Fair Tax [in which both teh seller and the buyer have an incentive to hide the transaction since neither of us benefit directly when that tax is collected]

anisotropy

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Re: Flat Tax
« Reply #155 on: July 08, 2014, 04:28:37 PM »
Thanks Hamster. I read your posts and they explained the differences very well. If I understood your posts correctly, neither seem to be a good solution:

sales tax promotes frauds and VAT increases the prices and renders our current asset "depreciate" by the tax amount.

lol, it's like losing over 20% of your net-worth over night. Unless the investment taxes (both gains and divi) cease to exist to offset this change. Wait, does that mean buying shares of stocks also carry this tax? ie, a 1 dollar share costs 1.20 to buy so one needs at least a 20% increase in share price to make profit?

What about buying business ?

anisotropy

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Re: Flat Tax
« Reply #156 on: July 08, 2014, 04:45:03 PM »
And how doest VAT become "progressive", it sounds pretty regressive to me?

Also most countries that have VAT (usually over 20%) seem to have income taxes on top of that (Canada included) hmmmm, I thought.... this was supposed to replace income based taxes as some posters suggest?

Hamster

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Re: Flat Tax
« Reply #157 on: July 08, 2014, 05:01:14 PM »
lol, it's like losing over 20% of your net-worth over night.

I think it's more complicated than that. The purchasing power of your *cash savings* for retail goods/services would go down since price of new goods/services would go up, while your cash reserves wouldn't change. But the tax wouldn't apply to used goods... The value of your investments (equities, real estate, etc) would potentially jump since people would no longer pay capital gains or dividend taxes, making investments more attractive. 

It would be fun to do some research on what the immediate economic effects have been upon introducing a VAT or other large consumption taxes.

Wait, does that mean buying shares of stocks also carry this tax? ie, a 1 dollar share costs 1.20 to buy so one needs at least a 20% increase in share price to make profit?

The FairTax would not apply to investments. You would have to pay the tax on fees to purchase/manage your investments, but not the investments themselves. I assume the same would be the case with most VAT systems.

The fun part about creating a theoretical tax is you get to write the rules.

Thanks Hamster. I read your posts and they explained the differences very well. If I understood your posts correctly, neither seem to be a good solution:
Remember, I'm just some guy talking out of my ass based on reading things on the internet, and having fun trying to apply some analysis to these questions. I'm not willing to say good or bad at this point. I think there are a lot of externalities that get very complicated, so it's hard to know, but I'm skeptical.

tomsang

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Re: Flat Tax
« Reply #158 on: July 08, 2014, 05:37:42 PM »
The FairTax would not apply to investments. You would have to pay the tax on fees to purchase/manage your investments, but not the investments themselves. I assume the same would be the case with most VAT systems.

The fun part about creating a theoretical tax is you get to write the rules.

From earlier...

The biggest boon to the rich and tax preparers would be a flat tax because all the various regulations that were derived to keep people from gaming the system would be gone plus they would get a reduced tax rate.  We would be able to take advantage of all of this stuff and eliminate all federal income taxes by structuring deals.  Those with simple W-2 income would need to pay 100% of the taxes because the wealthy would be paying 0%.   

The original tax return in 1913 was a very simple from, with like 5 lines.  The rest of the complexity was added to ensure that people paid a fair amount of taxes and to ensure that the accountants and lawyers didn't game the system.  Loopholes are being filled in at a fast pace, but new laws create new loopholes.  Eliminating all the rules would be huge!!!

Tax planning would be off the charts!  Make all your money in the US and then move to a foreign country when you are ready to retire.  What about those wealthy that buy overseas.  Do we have a global consumption tax?  Talk about IRS auditors traveling the world trying to determine if someone bought something somewhere.  What is the definition of an investment?  A Maserati that the owner has to show potential clients by driving all around the town. No tax owed.  A yacht that is for sale, but never gets sold.  A mansion that is built to sell, with the owner living in it?  Lease vs. buy.  Used goods are not taxed under this scenario.  Even a $150 million van Gogh painting?  What about a used car that came from over seas.  If it was used for 20 miles does it still count?  Restored cars, antiques, gold, diamonds, wine, other things Wow! 

This would be amazing for the wealthy!  Who picks up the bill.  Those who buy standard items to live, the middle class.  No estate tax, therefore wealth accumulates at the top.  This would be crazy.

Of course the answer is that we could create rules to plug all the holes and then the tax code would get complicated again.  Of course the country would be bankrupt (more bankrupt) as the wealthy would not be paying taxes until all the loopholes were filled with new laws.

Again for a person who has a W-2, a 1099 for interest and dividends, and a few exemptions could prepare their tax return within 30 minutes.  The rhetoric about the complexity is used to convince the masses to vote for something that would be hugely detrimental to the country and middle class, but a huge win for the wealthy. 

fixer-upper

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Re: Flat Tax
« Reply #159 on: July 08, 2014, 05:57:28 PM »
Public companies should be taxed at a higher rate than sole propriortorships to offset the risk differential of a diversified portfolio versus betting the farm (or house) on starting your own business.
That seems unenforceable. What about small businesses organized as corporations? What about family partnerships? What about large privately owned businesses? Should Koch Industries get the Jim's Bait Shop treatment in the tax code? How would you make this law more than trivially difficult to innovate around (I shouldn't be able to figure out how, much less an attorney who does that for a living)?

Quote
IMHO, a nation of mom and pop companies would be much more stable and beneficial than a small group of mega corps.
I've gotta disagree on this one. Beneficial you could probably argue either way. But I've gotta think there would be much less stability when you dramatically shrink the size of any given business's reserves to weather hard times. We certainly see more little companies go bankrupt in recessions than big ones.

If Koch is pravately held, it should get the same treatment as the bait shop.  If it's listed on the exchanges, it shouldn't.  Privately held companies tend to be better for the economy for the simple reason that they look at long term viability rather than pumping each quarter like the world was going to end. 

Some of the benefits of smaller companies are:  less off-shoring, faster innovation, and improved quality of goods.  Your typical family run restaraunt, for instance, will be much less likely to serve wood pulp in your cheeseburger than the chains who put PE ratios before ethics.

milesdividendmd

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Re: Flat Tax
« Reply #160 on: July 08, 2014, 07:52:56 PM »
Public companies should be taxed at a higher rate than sole propriortorships to offset the risk differential of a diversified portfolio versus betting the farm (or house) on starting your own business.
That seems unenforceable. What about small businesses organized as corporations? What about family partnerships? What about large privately owned businesses? Should Koch Industries get the Jim's Bait Shop treatment in the tax code? How would you make this law more than trivially difficult to innovate around (I shouldn't be able to figure out how, much less an attorney who does that for a living)?

Quote
IMHO, a nation of mom and pop companies would be much more stable and beneficial than a small group of mega corps.
I've gotta disagree on this one. Beneficial you could probably argue either way. But I've gotta think there would be much less stability when you dramatically shrink the size of any given business's reserves to weather hard times. We certainly see more little companies go bankrupt in recessions than big ones.

If Koch is pravately held, it should get the same treatment as the bait shop.  If it's listed on the exchanges, it shouldn't.  Privately held companies tend to be better for the economy for the simple reason that they look at long term viability rather than pumping each quarter like the world was going to end. 

Some of the benefits of smaller companies are:  less off-shoring, faster innovation, and improved quality of goods.  Your typical family run restaraunt, for instance, will be much less likely to serve wood pulp in your cheeseburger than the chains who put PE ratios before ethics.

What evidence are you citing here regarding the benefits of privately held versus publicly held companies?

Your wood pulp example doesn't pass my sniff test.  If one jack n' the box serves kangaroo, the entire chain is implicated. But if a mom n pop makes rat bolognese, and are found out, the effects are muted because so few will hear about it.

Cressida

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Re: Flat Tax
« Reply #161 on: July 08, 2014, 08:14:13 PM »
Out of every $1 a business charges you for a product, 23 cents goes to paying their payroll, social security, federal income, and tax code compliance costs.  If taxes were removed from the equation, the product would cost that much less. 
My ass. If all businesses all of a sudden equally don't have to pay taxes, what incentive would they have to lower prices? Come on.
Um, if I make and sell widgets and my competitors hold the price, I'm dropping the price to keep the same profit levels and gain market share.  That's just how capitalism works.

I didn't state this as well as I could have. I think I was responding to the statement that the product would cost that much less. It would not. The businesses would definitely not pass on the entire savings to the consumer. That's laughable. And none of them would suffer for it because they would all do the same thing. That's what was at the back of my mind, but I didn't articulate it.

fixer-upper

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Re: Flat Tax
« Reply #162 on: July 08, 2014, 10:11:08 PM »
What evidence are you citing here regarding the benefits of privately held versus publicly held companies?

Your wood pulp example doesn't pass my sniff test.  If one jack n' the box serves kangaroo, the entire chain is implicated. But if a mom n pop makes rat bolognese, and are found out, the effects are muted because so few will hear about it.

http://www.foodrenegade.com/would-like-some-wood-pulp-your-shredded-cheese/
Enjoy your tasty wood pulp and pink slime, courtesy of your favorite food chain owned by yum brands.  If you need me, I'll be at the locally owned place that serves food fit for humans.

If you want examples of the disadvantages of publicly held companies over privately held, you need look no further than GM and Toyota's delayed recalls, monsanto's push for GMO monoculture, or BP's safety record.  Most of the publicly traded companies CEO's are sociopaths, and it's rare for one like Tim Cook to buck the investors over an ethical issue...even though he is less than ethical about paying apple's fair share of taxes.

anisotropy

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Re: Flat Tax
« Reply #163 on: July 08, 2014, 10:54:00 PM »

If you want examples of the disadvantages of publicly held companies over privately held, you need look no further than GM and Toyota's delayed recalls, monsanto's push for GMO monoculture, or BP's safety record.  Most of the publicly traded companies CEO's are sociopaths, and it's rare for one like Tim Cook to buck the investors over an ethical issue...even though he is less than ethical about paying apple's fair share of taxes.

meh mom and pop shops owners/managers can be just as bad: crooked car mechanics, shady information/data brokers, dishonest service providers, you name it.

one might argue these independent business owners pose way less threat to the society than the often hated big company CEOs, but that's simply due to the limit of shop owners' influence. We must also remember that public companies tend to receive a bigger share of media spot light and be put on TV almost 24/7, after all, who cares if a few people got screwed by a crooked car mechanics, let's go after Monsanto! Oh the horror of GMO !!

There's a Chinese saying "crows everywhere are equally black", it's just human nature.  And like it or not, "bad" people tend to win in this world we live in. (the dark side is more powerful !!)

Just like the details behind the "Starbucks Scholarship", things are usually not what they first seem. Follow the money trail and most social phenomenon become so easy to understand. We are mostly here for our own well beings, but that's another topic altogether.


milesdividendmd

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Re: Flat Tax
« Reply #164 on: July 08, 2014, 11:17:17 PM »

What evidence are you citing here regarding the benefits of privately held versus publicly held companies?

Your wood pulp example doesn't pass my sniff test.  If one jack n' the box serves kangaroo, the entire chain is implicated. But if a mom n pop makes rat bolognese, and are found out, the effects are muted because so few will hear about it.

http://www.foodrenegade.com/would-like-some-wood-pulp-your-shredded-cheese/
Enjoy your tasty wood pulp and pink slime, courtesy of your favorite food chain owned by yum brands.  If you need me, I'll be at the locally owned place that serves food fit for humans.

If you want examples of the disadvantages of publicly held companies over privately held, you need look no further than GM and Toyota's delayed recalls, monsanto's push for GMO monoculture, or BP's safety record.  Most of the publicly traded companies CEO's are sociopaths, and it's rare for one like Tim Cook to buck the investors over an ethical issue...even though he is less than ethical about paying apple's fair share of taxes.

Your source offers nothing in the way of evidence as to the prevalence of cellulose usage in private versus publicly held corporations or their restaurants.

There are many reasons to eat Locally produced whole foods. Unfortunately for your argument, the corporate structure of the final assembler of the food, doesn't appear to to be a real player here.

Your examples of the "sins" of publicly held corporations are filled with anecdote but lacking any evidence relevant to the question at hand. While large corporations do terrible things everyday, so do small privately held companies. (Do you think Koch industries has a stellar environmental safety record?)





fixer-upper

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Re: Flat Tax
« Reply #165 on: July 08, 2014, 11:22:58 PM »

If you want examples of the disadvantages of publicly held companies over privately held, you need look no further than GM and Toyota's delayed recalls, monsanto's push for GMO monoculture, or BP's safety record.  Most of the publicly traded companies CEO's are sociopaths, and it's rare for one like Tim Cook to buck the investors over an ethical issue...even though he is less than ethical about paying apple's fair share of taxes.

meh mom and pop shops owners/managers can be just as bad: crooked car mechanics, shady information/data brokers, dishonest service providers, you name it.

one might argue these independent business owners pose way less threat to the society than the often hated big company CEOs, but that's simply due to the limit of shop owners' influence. We must also remember that public companies tend to receive a bigger share of media spot light and be put on TV almost 24/7, after all, who cares if a few people got screwed by a crooked car mechanics, let's go after Monsanto! Oh the horror of GMO !!

There's a Chinese saying "crows everywhere are equally black", it's just human nature.  And like it or not, "bad" people tend to win in this world we live in. (the dark side is more powerful !!)

Just like the details behind the "Starbucks Scholarship", things are usually not what they first seem. Follow the money trail and most social phenomenon become so easy to understand. We are mostly here for our own well beings, but that's another topic altogether.

I'm not saying that the management of mom and pops can't be bad, but at least they don't have a fiduciary responsibility to maximize quarterly profits regardless of the long term cost to society as a whole.  When we are considering what type of business to promote with a given tax structure, I think it's at least appropriate to ask ourselves whether we would rather feed our kids food grown by the people at the farmers market, or something full of unpronounceable ingredients supplied by a corporation based in Delaware.  We are currently favoring the latter, rather than the former.

Another point to ponder is whether you think a REIT deserves tax breaks over someone like arebelspy.  Either one 'could' be a slumlord, but which one is more likely to care about a long term relationship with their tenants? 

Would you rather choose your own doctor with his own office, or do you trust a publicly traded hospital with unionized employees to provide the best care?  If I'm going to support one via the tax code, I'd rather help the little guy who knows his patients by name and remembers the rock you shoved up your nose as a kid.

I'd also favor supporting the barber who opens his own shop over the investors in super cuts...but then again I'm a radical who isn't afraid of making sure all barbers are equally underpaid.
« Last Edit: July 09, 2014, 12:26:05 AM by fixer-upper »

anisotropy

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Re: Flat Tax
« Reply #166 on: July 09, 2014, 12:24:05 PM »
Another point to ponder is whether you think a REIT deserves tax breaks over someone like arebelspy.  Either one 'could' be a slumlord, but which one is more likely to care about a long term relationship with their tenants? 

Would you rather choose your own doctor with his own office, or do you trust a publicly traded hospital with unionized employees to provide the best care?  If I'm going to support one via the tax code, I'd rather help the little guy who knows his patients by name and remembers the rock you shoved up your nose as a kid.


On one of the other threads arebelspy talked about how REITs are different from renting out houses:

http://forum.mrmoneymustache.com/welcome-to-the-forum/is-investing-in-real-estate-only-a-decent-fire-strategy/msg269172/#msg269172
(reply #20)

and from his answers I'd say yes, "REITs often just follow the market", and should be treated as a stock, which is more risky and should benefit from the risk vs reward mechanism.   

As for the so-called "human connection"... well, maybe we should look past that, even though it'd be impossible to do so at this time. From my other posts one can probably deduce I am a firm supporter of technology and efficiency (now you know what i think of GMO).

The human conditions tend to be the sources of our problems and tragic events time and time again, and in our attempts to fixing them, we create more problems. The more emotionally detached we are, the more "rational" (efficient) our decisions can be. Prob won't ever happen unless one day robots actually ruled the world, for now, we can at least try to think and act as one when making decisions ;)


fixer-upper

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Re: Flat Tax
« Reply #167 on: July 09, 2014, 02:16:39 PM »
On one of the other threads arebelspy talked about how REITs are different from renting out houses:

http://forum.mrmoneymustache.com/welcome-to-the-forum/is-investing-in-real-estate-only-a-decent-fire-strategy/msg269172/#msg269172
(reply #20)

and from his answers I'd say yes, "REITs often just follow the market", and should be treated as a stock, which is more risky and should benefit from the risk vs reward mechanism. 

If they are, in fact, more risky, they should be discouraged via the tax code to promote housing stability rather than the booms and busts which first lead to unaffordability, followed by busts which lead to many other social ills.

Booms and busts are NOT efficient. 

anisotropy

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Re: Flat Tax
« Reply #168 on: July 09, 2014, 02:19:36 PM »
very true on that, boom and bust are not efficient.

grantmeaname

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Re: Flat Tax
« Reply #169 on: July 09, 2014, 04:19:18 PM »
I'm not saying that the management of mom and pops can't be bad, but at least they don't have a fiduciary responsibility to maximize quarterly profits regardless of the long term cost to society as a whole.
That exists only in your imagination and not in the laws of the nation. (I haven't seen this argument brought up since exactly one tax reform thread ago!)

it's rare for one like Tim Cook to buck the investors over an ethical issue...even though he is less than ethical about paying apple's fair share of taxes.
Yet nobody here or in our press or legislature can name a single law that Apple broke by not paying any more taxes than it was legally required to, and nobody has named an incorrect tax position that the company took in arriving at its liability. If you don't like the legal things that Apple is doing, which you still haven't really articulated, change the law.

And how doest VAT become "progressive", it sounds pretty regressive to me?

Also most countries that have VAT (usually over 20%) seem to have income taxes on top of that (Canada included) hmmmm, I thought.... this was supposed to replace income based taxes as some posters suggest?
I don't think anybody suggested it replace the individual income tax (and a ctrl-f through the thread supports that, though I may be missing something or may have said something sufficiently unclear that you construed it as such). I like VAT because it's an efficient way to collect revenue, but it is regressive and I'll be the first to acknowledge that. But we could replace some of the revenue that comes from the income tax with VAT and steepen the progressivity of the scaled-back income tax (I said as much here). If we did that we'd have an overall tax system with the same amount of progressivity we do now, less inefficiency, and a sensible mix of taxing consumption and taxing ability to pay (as measure by income) - like many Western European countries do today.