Good Hybrids/Bad Hybrids
12 Pages Posted: 19 Jul 2005
Hybrid income-consumption taxes seek to tax some but not all savings, the treatment of savings being the principal difference between an income and a consumption tax. Some hybrids, however, simply move the tax system towards a prepaid consumption or wage tax; others, by allowing arbitrage, risk making all taxation voluntary. A consistent, progressive postpaid consumption tax, in contrast, gets matters just right, by design: it allows ordinary savings, for times of retirement or medical or educational needs, to lower the burden of taxation, while falling on the yield to savings when it is used to elevate lifestyles. It is, in short, a good hybrid.
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