alt Hacker NewsWhy need production if you don't have consumption? I jest, only partially.
I suppose we do things how we do because taxing income is a lot easier to do progressively than taxing consumption.
You can't meter how many times someone has been out to eat or how many gallons of gas they have put into their car, but you can more easily track what their employer puts in their bank account.
You can progressively tax consumption by combining high, non-progressive consumption tax with negative income tax rates. Something like, everyone gets some small UBI, and also extra income for every dollar made.
For example, let's introduce 35% consumption tax, but introduce $1k/year UBI and extra 30% on income between $0 and $30k, then additional 20% on income between $30k and $60k, and then 10% on income between $60k to $100k, and 0% on any income above that.
Then, if you make $30k, your gross take home pay is actually $30k + $1k + 30% * $30k = $40k, and if you make $200k, your gross take home pay is $200k + $1k + 30% * $30k + 20% * ($60k-$30k) + 10% * ($100k-$60k) = $220k.
At the same time, if you make $30k, if you spend all of it on consumption, you pay 35% * $40k = $14k in taxes, so your net take home pay after taxes is $40k-$14k = $27k. On the other hand, if you make $200k and consume all of it, you pay $77k in consumption tax, and your net take home pay is $220k - $77k = $143k. All very progressive.
Now, the person making $200k is highly incentivised to avoid some of this tax, and instead of consuming all of it, he might only want to consume half of it, and invest the other half. This is great, because then the other half will (hopefully) get invested in a productive activity, so that in future there's even more production.