Bob Frank celebrated by The Economist for his views on 'soaring executive pay'

11/18/2010 3:02:00 PM

Economist blogger describes Frank's writings on the benefits of a progressive consumption tax as 'excellent and balanced'

The Economist blog posts Frank's suggestion to begin to remedy the widening income gap in the U.S.:

'In terms of economic incentives, the most efficient remedy would be to replace the federal income tax with a much more  steeply progressive consumption tax. Under such a tax, people would report not only their income but also their annual savings, as many already do under 401(k) plans and other retirement accounts. ...

As taxable consumption rises, the tax rate on additional consumption would also rise. With a progressive income tax, marginal tax rates cannot rise beyond a certain threshold without threatening incentives to save and invest. Under a progressive consumption tax, however, higher marginal tax rates actually strengthen those incentives.'

Mr. Frank's proposal is well worth considering on pro-growth and counter-cyclical grounds. As Mr. Frank writes:

'If a progressive consumption tax were phased in gradually, its main effect would be to shift spending from consumption to investment, causing productivity and incomes to rise faster.

Should a recession occur, a temporary cut in consumption taxes would provide a much more powerful stimulus than the traditional temporary cut in income taxes'.

Full post from The Economist

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