Inequality Could Be Reduced By Taxes

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inequalityIf there were a way to eliminate tax loopholes for the superwealthy and corporations while simultaneously reducing income inequality, you would think it?d be more popular. But tax reform is not high up on the list of exciting reforms that might create a more equitable society.

But there is at least one group of people who are focused about the debate on comprehensive tax reform that?s gearing up this year: the lobbyists who will be paid handsomely to swing things their clients? way. The poor and middle classes, however, don?t have any lobbyists, which may explain why taxes and public spending in the U.S. are making inequality worse rather than reducing it.

If the poor and middle classes did have lobbyists, what ideas might get pushed through as part of comprehensive tax reform that would reduce inequality?

Bill Gates, speaking at the American Enterprise Institute last year, had one idea: “Don?t tax my income, tax my consumption.” His rationale? Income is easy to hide, but consumption isn?t. It?s not hard to see where he?s coming from?it?s never been easier to set up an offshore bank account, and companies as well as wealthy individuals are using them in numbers we?re only beginning to understand.

By taxing consumption instead of income, the argument goes, you could capture a share of the price of every yacht, luxury sports car, $2,000 leather bag, $800 pair of shoes, and whatever else the uber-wealthy choose to buy in your country. You could even expand the consumption tax to include services, which isn?t usually the case for existing sales taxes mostly at the state level. Were that so, you could collect sales taxes from hedge fund manager fees, attorney fees, plastic surgeries, landscaping, housekeeping, and other services that are more likely to be consumed the higher up you go on the income ladder.

So is that the solution to a more equitable tax code? Should we eventually stop taxing income entirely?at the corporate as well as personal level?and shift toward taxing only consumption? Rebecca Wilkins isn?t convinced. A career tax attorney, Wilkins is the executive director of the FACT Coalition.

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