Summers Research...

Here is Summers latest Econ paper. The line is essentially that we need a tax on consumption...

Whether direct taxes on consumption are a good thing or a bad thing depend very much on the details. Clearly bad goods (marijuana) should be taxed more. Fried-fast foods should be taxed more. Super-sized meals should be taxed more, and I also don't have a problem w/ taxing tobacco and alcohol more. I'm scandalized that I can buy wine for $1.99 in the grocery store, or get a case of beer for $10. Things which are basically fine but which do nothing to alter long-term growth should also be taxed, just to a lesser extent as "bads". Professional sporting events. 2nd homes. Eating out.

The next the government should tax are luxuries -- yachts, boats, expensive wine, sports cars -- things the rich buy.

Anything which deals w/ education/health should not get taxed. Notebooks, paper, computers, newspapers, magazines, pencils, tooth paste, high-speed Internet access...

Secondly, a broad consumption tax would fall more heavily on the poor, so if a VAT was introduced, wage taxes should be reduced even further for low-income people. Poor workers in the US are not in danger of fleeing to the Caribbean for cheaper tax rates, however, so I don't see how "globalization" per se would imply VAT is a good idea unless we replaced rich peoples' income taxes w/ a VAT -- but that is a terrible idea.

If a VAT tried to tax "bads" and not "goods", tried to target the rich and the frivolous, and reduced income taxes for the poor/middle class, I could get behind a VAT. But I suspect that the effect that drives Summers' and conservatives' thinking that a VAT, by lowering wage taxes would increase the amount of work effort or private savings, is much weaker than they suspect. Lower marginal wage taxes would have a slightly larger affect on the amount of income poor people report, however...