I have no idea what “good for the economy” means, but if it means “good for your neighbors”, then for God’s sake, save more. The more you save, the less you consume, and the less you consume, the more goods are available for your neighbors. I’ll be blogging about this in a special Christmas post sometime in the next week.

I also pay a flat fee for my phone bill because I don’t like having to decide to spend money at each instance of using those services. But I *feel* like I’d rather have heavier consumption taxes and lower income taxes, because then I would have more control over when and how I was taxed (for instance, paying a higher tax rate for luxury goods and vices). In my head, that would encourage me to save more, which would be good for me but probably not for the economy.

Consumption must be optional, or else it would not be possible to forgo spending the $1 today on consumption to gain the benefit of $1.50 tomorrow

Greater capacity for consumption in the future must also be a goal, or else there would be no incentive to not spend $1 today in order to be able to spend $1.50 tomorrow.

Wages are not necessary to gain $$ for consumption, since $1 invested can created an income of $0.50, or $100 get you $50, etc. even if your wages are $0.

The tax on $0 is $0. This is not equivelent to a tax on consumtion, where the tax will always be a positive number fraction of the value consumed.

Given all these premises, the goal to maximise future consumption is best satified where there is an option to minimise $$ lost to taxation. Ideally, to eliminate it entirely

The wage tax is the only option that offers that possiblity.

To graph it, I think you’d need an assumed minimum level of consumption, wage, investment rate of return, and tax rate, to plot out the optimum starting wage you’d have to work to be able to reduce wages to zero in the minumum mount of time while maximising consumption across time.

I think I remember that Huckabee was advocating replacing the income tax with a federal sales tax. What are some of the pros and cons of this from a policy perspective?

Then every dollar you spend today is $1.50 less you can spend next year.

With a wage tax, that fundamental tradeoff remains. You have fewer dollars to spend, but you’re still trading off a dollar of consumption today versus $1.50 of consumption in the future.

Likewise with a (permanent) consumption tax. The consumption tax raises all post-tax prices by the same percentage, so it remains the case that a dollar spent today is $1.50 not spent tomorrow.

That’s why the wage and consumption tax are equivalent. They leave the basic tradeoff untouched.

The income tax, by contrast, changes the rate at which consumption today can be converted to consumption tomorrow (by taxing the return on your investments).
For example, if the tax reduces the after-tax interest rate to 25%, then a dollar spent today means forgoing $1.25 spent tomorrow, instead of $1.50. The income tax *does* change the basic tradeoff. That’s why it’s not equivalent to the other two.

The only way to be sure this is all correct is to translate it into graphs and equations. That’s a standard textbook exercise but probably a little more technical than most blog readers want to see.

As you identify in your next paragraph, we don’t work only to consume – there’s investment. It’s a relationship between three things, not two. You can trade your effort for money (wage), spend your money on goods and services (consume), or lend your money in hope of a larger return (invest). Discouraging consumption doesn’t discourage work, since work is still useful for investment, which creates additional income without more work, which mitigates the additional cost on consumption caused by the tax – so discouraging consumption encourages investment, and wouldn’t discourage wage earning.

It seems the last choice would still be the least preferable, because like you say income tax discourages both investment and work. The wage tax alone would be preferable to that, since you’re still free to shunt consumption into investment to build a stockpile of wealth that can become a source of income that eludes the tax. This makes the wage tax the most personally preferable, even, because it’s the only one you can ultimatly avoid entirely, by increasing your investment return to the point you can consume what your desire without having to earn a wage at all to do it.

“Under policy A, you pay zero dollars per year. Under policy B, you pay $100,000 tax every time you wash your feet. Either way you’ll pay zero, because if the government enacts policy B, you’ll stop washing your feet. But even though both policies cost you the same zero dollars, you’ll still prefer A if you care about your hygiene.”

The example seems to be in conflict with the specification: “Assume that the tax rates are adjusted so that your total tax bill is the same in each case.”

Let’s assume I wash my feet every day. Then since the tax rates are adjusted so that my total tax bill is the same, the tax rate for foot washing has to be adjusted to 0.

On the other hand, if the tax rates are set based on current practice and not adjusted as I adjust my activities (as in the example) then I prefer the tax consumption. I can reduce my consumption and increase my income (thereby accumulating more money) without paying more tax. If I eventually chose to spend the accumulated money, I then pay tax, but to a great extent one can enjoy having money (because it generates power) without actually spending it. One could, for example, buy and run a business that affects the country. That’s not consumption. One could also spend one’s money running for public office. A lot of that is not consumption. Or one could contribute to a non-profit organization. That’s not consumption.