Monday, February 22, 2016

Misunderstanding Marco

I like Marco Rubio and hope that he, rather than Donald Trump, gets the Republican nomination.  In particular, I think his tax plan includes a lot of good ideas.

Paul Krugman's column today takes a cheap shot at it (natch):
You probably know that Mr. Rubio is proposing big tax cuts, and may know that among other things he proposes completely eliminating taxes on investment income — which would mean, for example, that Mitt Romney would end up owing precisely zero in federal taxes.
So is this true?  Would Mitt Romney really end up owing zero in federal taxes?

Before turning to that question, consider a simpler one: Under a retail sales tax, do you pay the tax if you are not a retailer?  In a superficial sense, no.  Only retailers end up sending checks to the government.  But in a more meaningful sense, yes.  A retail sales tax gets built into the prices that customers pay, and anyone who buys from a retailer bears the burden of the tax.

Paul's statement is true in the superficial sense.  But if you are more concerned with the actual burden of the tax, then his statement is false.

The Rubio plan is essentially the X-tax designed by the late Princeton economist David Bradford.  It is a progressive consumption tax.  Anyone who consumes bears the burden of the tax, even if you don't send a check to the government.