A consumption tax would presumably tax people who are currently not paying income tax from illegal activities such as drug trafficking. However, the people who buy those drugs are currently paying income tax on the money they spend one drugs. If a purely consumption tax is instituted guess what happens ? Drug purchasers pay no taxes on the legitimate income they use to purchase drugs illegally. Zero Sum Game. Tax is shifted from the consumers of illegal drugs to the purveyors.
Furthermore, a consumption tax is regressive. A family making $50-60K in San Diego likely would have to spend their entire income to survive. Someone making 300K could live on only 150K and save the other 150K. Net effect is that the high wage earner would be paying 1/2 as much (percentage wise) than the low-to-middle income folks.
Although this would be great for stocks, business and investment capital, it’s not likely to be accepted by the American public because we have an entrenched progressive tax code. If we can’t rally support for a flat tax, how could this fly ?
