Progressive Expenditure Tax (PET)
“Tax people on what they consume and take out of the planet not on what they earn and put into it. ”
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2. How does it fit with Compass’ core beliefs of equality, solidarity, democracy, freedom, sustainability and well being?
In place of income tax PET would be a progressive tax on people’s total annual spending each year - adding their net annual borrowing to their total income and subtracting their net annual savings. It is fairer to tax people on their consumption - what they take out of the economy - rather than their income - what they put into it through their labour or the fruits of their savings. It is also better for the planet - rewarding the people who take the least from the planet and penalizing those who demand the most.
3. How does it build the institutions of social democracy, like social groups and collective and cooperative forms of ownership and control?
As a fairer, greener and more progressive tax than our present system, PET would enhance and underpin social democracy.
4. How much will it cost or raise and where will any cost come from?
Yield of the tax depends on the rates chosen and the bands of expenditure at different rates. There is a one-off unquantifiable cost of transforming the tax system. The new system will have to keep track of people’s borrowing (which is a new administrative cost) but there will be administrative savings from simplifying the complex system of reliefs from income tax into a general relief for savings.
5. Which groups in the electorate are likely to support or oppose this measure? Is there any polling evidence you have on this?
Winners and losers depend on rates and bands of expenditure chosen BUT compared to income tax, PET will to some degree be a voluntary tax - people can always mitigate it by spending less and saving more.
All savers benefit automatically.
Will also provide opportunity for comprehensive, simplifying social security reform and could end any “poverty trap” - no one loses automatically from extra income.
6. Is there a place or country where it’s worked? Please provide some information.
Not to my knowledge. This proposal is fundamental and innovatory.
7. What are the three main arguments in favour/against it?
FOR
Fairer and greener.
Anti-inflationary.
Rewards thrift and savings and encourages investment.
AGAINST
Complex
Never been tried.
Comments
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Alison Smith
I like the idea of taxing spending rather than income as a means to discourage consumption, but I can see several problems with this.
1. Is this not pretty similar to existing VAT?
2. This could be seen as very regressive - high earners would not be taxed on their income, and their spending is probably normally a much lower proportion of their earnings than for low earners.
3. People are already rewarded for saving via interest payments. They don’t need an extra reward.
4. What about “altruistic” spending such as charity donations, and consumers who choose to pay higher prices for organic, fair trade or energy efficient goods?Instead I would much prefer resource taxes or carbon quotas, together with recycling of revenues to low earners as income tax relief or grants.
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David Chester
The biggest thing that people take from our community is the opportunity to equal rights in the use of the natural resources namely land. So logically what the writer is asking in practice is to tax land values, see the proposal on this subject by Carol Wilcox.
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adrianpotts
How is this different from Thatcher’s policy of reducing income tax and increasing VAT? Shifting taxation from direct to indirect always hurts the poor more. The biggest savers (relatively and in absolute terms) are the super rich. So how will this tax contribute to wealth redistribution? It won’t!
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Did it take much time to research this article? It’s really well written, nice job on it for sure.
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Good Job on the articles you have here, thank you for putting your time into it!
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Posting Comment...
December 18th, 2008 at 3:40 pm
The biggest thing that people take from our community is the opportunity to equal rights in the use of the natural resources namely land. So logically what the writer is asking in practice is to tax land values, see the proposal on this subject by Carol Wilcox.
February 28th, 2009 at 12:16 am
How is this different from Thatcher’s policy of reducing income tax and increasing VAT? Shifting taxation from direct to indirect always hurts the poor more. The biggest savers (relatively and in absolute terms) are the super rich. So how will this tax contribute to wealth redistribution? It won’t!
December 22nd, 2009 at 5:15 am
Did it take much time to research this article? It’s really well written, nice job on it for sure.
February 21st, 2010 at 11:27 am
Good Job on the articles you have here, thank you for putting your time into it!