old tax notes

On the PCT

Graetz 1979?

• Graetz on progressive consumption tax 1979

  • eliminates the problem of double taxing of saving
  • India and Sri Lanka have tried it, and failed. But it should be easier than income tax to administer
  • problem: "the notion of a sharp division between pleasure-seeking and profit-seeking is alien to human psychology and essentially unrealistic" (chirelstein as cited in graetz 1979 1586). And yet, we deal with the same problem in income taxation. And remember how much good this tax could still do, how it could redefine the very boundary of what is pleasure and what profit (thinkg conspicuous consumption). Also, we have this thing called depreciation which takes care of it.
  • think again, this is the problem: we decide which tax to do on the basis of how easy it is to levy. bs.
  • depreciation is key, also for household investment. Otherwise: you'll be punished for buying fridge and washing machine in ONE year rather than two.
  • Include kids as investment.
  • Think about how transfers and the taxing of kids works. I think it ought to be simple; NPV.
  • Greatz agrees that there is no point in a corporate income tax. rather value should, and will directly be accrued to shareholders and taxed at their respective marginal rates
  • Graetz 1979 1659 essentially wanrs that a watered down expenditure tax will suck
  • Cite Shaviro PCT 106 on the inadequacy of consumption taxation only. You need a wealth tax, too.
  • It is impossible to have a tax that is simultaneously progressive, treats families as payers and neutral with respect to family structure (Ehegattensplitting) (124 Moffitt
  • Note how income taxes tax investment twice. This, says McCaffery 2009 (810), was actually intended, for it was supposed to really flatten capital accumulation. Now my idea is: let's just do this through a sharply progressive consumption tax should work, too. McCaffery is right, the traditional view os wron (812): that consumption taxing can't affect accumulation only works when it is not progressive.
  • McCaffery 2009 (816): Income tax taxes capital yield twice, flat consumption not at all, progressive consumption once as it should be.
  • McCaffery 2009 (819): tax. Most importantly, it develops more formally two norms about the taxation of capital: the yield-to-capital norm, which holds that the return to capital is an increment of value that ought to be taxed, and the ordinary-savings norm, which holds that savings that merely shift labor earnings within a lifetime or between taxpayers ought not to be excessively burdened. These two norms are in fatal tension under an income tax; in contrast, a consistent, progressive postpaid consumption tax accommodates both norms by design.
  • Develop this into an ordnungspolitisches Argument for x-tax
  • I think these may be two different problems of the income tax:
    • taxes capital twice (ant, grasshopper, Mill)
    • and reduces incentives
  • Thin debt and progressive consumption tax: got it. Debt is taxed as such never, only when it goes into consumption, that is, when it is not just kept. Principal and interest are actually contributions to wealth, so they are not taxed.
  • Distinguish, as McCaffery 2009 (829) suggests between income, postpaid and prepaid consumption tax. (they are distinct only under progression)

• Here is another problem: some people (scale-free occupations, see Taleb) have very high but concentrated incomes. That is bad under the income tax, if they have no incomes over a long period of time. Progressive consumption helps here. Then again, we also want to curb that to some extent so as to maintain incentives to work (under, important, diminsihing returns to capital), so that's another reason for wealth tax.

the savings benefits seem questionable: "the economic consequences will essentially depend upon the relative responsiveness of savings and labor to changes in after-tax interest and wages." (1577) Problems 1578: coordination with other tax regimes replacement ofr CIT high nominal rates Alvin Warren as cited in 1979: 1579 says that a consumption tax is equivalent to a wage tax. I don't think that's true. The problem may lie in the administrative simplication from balance sheet reporting (necessary) to: amounts received minus amounts saved. That's the problem. The fringe benefit problem is ncely outlined in Bittker, as cited in ibid 1586: It'll be very hard to draw the line (think A/C, think business lunch) think whether a baseline VAT wouldn't take care of this ... cite United States v. Gilmore as perverse case (this is actually the other way around ... business expenses ...): should a divorce be deductible? the solution that graetz expects 1591: these problems are already here under income taxation. COurts may in the future decide that the benchmark is: whether a particular expenditure can be fairly characterized as an expense of immediate rather than of deferred consumption (or a loss). think about health insurance and what this means (it is to upkeep productivity, but so is food. so I think keep it out) the same thing holds for impited income: also, know that this is about the sharp progression, where things become clearer. GRaetz 1595: an expenditure tax does not seem likely to produce administrative problems significantly greater than r different from those familiar under an income tax. excessive consumption is the far easier culprit as oh jewelry and consumer durables. Graetz 1616 says: at least some portion of the decline in value of consumer durables is attributable to consumption use, and separating that amount from any change in price due to market forces would be a practical impossibility. I don't sahre greatz's problematizing of this kind of free consumotion. If it doesn't depreciate, it doesn't depreciate.

So for housing, just depreciation doesn't work because that doesn't measure the opporunity costs enough. Yeah, rental could work ... or maybe not, because it's risk-free. Maybe what would work is depreciation PLUS avg risk-free interest rate. Also this kind of has to take into consideration inflation. This is problematic, I need to think about this further, this could heat up bubbles. I still think it makes no sense to equate it with renters as graetz 1620 wants. He suggests only rent. Actually he then says that's to complicated 1621 and says we should look only at subsequent sale price. I think we need to find something in-between, and it must be because of the progression: it needs to be stretched a little over time (so yes, depreciation is fine!) and then returned upon sale, if that exceeds. People can get valuations at their own cost if they feel treated unfairly. Uh-oh: here is a problem: if it drops dramatically in value, itll be taxed as consumption even when it is not. So you get an incentive never to own a house for private use. That's a problem.

The unit is key, in fact as he says, and the only fix is: family, and yes, that will treat people differently depending on status.

Gifts and bequests befall the donee. Yes that will be exploited in families, but so what.

Transfers of durable goods: both parties have to agree to a value.

Solution: sharp progression will solve the problem.

For unincorporated firms, it's simple: you can exclude that part of your expenses for which you have, or expect to have, receipts in the future. Backdating is possible. No that doesn't work. This is a big problem,my dear.

International should work, except others have to lower their VATs (no, actually, these could be made deductible, by handing in receipts). THe problem is with other people using our low VATs. probably need a different rate there.

Foreign residents should pay there share by means of eitehr still income taxation or a heightedn VAT baserate (the former is Greatz 1979 1645)

Foreign investment in third countries is unproblematic: you give tax credits for withholding taxes elsewhere. And if people hide their capital elsewhere and spend it out there, you treat it as consumption, bang (WTO problem). Probably: you treat it as consumption if you have reason to believe that in other countries it is consumed away.

Investments by firms in other countries, however, would be problematic: they can't get tax credits on anything. But it's likely they will attract more money in the first place, so that's a good start (Greatz 1646 this is). In effect ,the PCT country becomes the 0 CIT country. There is the possibility (Greatz ibid) to give tax credits in the amount to the shareholders, but that'll get pretty complicated, because they have a progressive schedule to upkeep. think this through. Maybe this will serve as a deterrent, to do or not to do this. This of course will have costs (financial nationalism), the question is just: for whom will it be more painful, and faster.

Then there is the issue of immigration/emigration: people can dissave elsewhere. Again, this could be treated by threatening to consider it as consumption whenever you leave the country, but then again, that's impeding on capital mobility. Or it could be a one-off wealth tax (Graetz 1648, Lodin as cited in ibid). Graetz 1648 makes my point on expenditure taxes: capital moves faster tahn people.

Transitional problems: (Graetz 1649): carryover problem for old, already taxed incomes (this problem, luckily, does not exist for the majority of pensioners in gerMany yet) it's also a possibility to consider age in the calculation, just make it one variable, the number of liveyears available for tax-free incomes. and make this clear: this will be a job for two decades or so. the drawing of the concrete formula and schedules will be very hard, particularly with all the variables. But it should be continuous by any means (draw a formular with the terms included) consider inflation also for monetary reactions, you need to do this realy slow.

here's a crude justification: economics is about the allocation of scarce goods. what is scarce? work, and what we do with work (as well as other resources). So, we need a base rate VAT on the one hand (because they get some public goods for which they should work) and there should be a steeply progressive VAT, because that's what's scarce.

Note here, CIT is bad. Markets should function, and if they don't that's a matter for regulatory policy.

make this tax real time, and display average and marginal tax rates, smoothed over time so as to avoid cycles.

actually, depreciating education would equate an umgekehrter generationenvertrag!

Note that a consumption-type or cash flow personal income tax sucks. It needs to be changes to wealth, not just income. beware: this isn't the same thing. you need more than cash-flow, you need balance sheet: only then can you forget about loans, and only then can you forget about other problems, many of these guys (Andrews 1974) never ever talk about progression, which is a big problem. a couple of preliminaries: consumption vs. income (on scarcity) progression is key and progression is always personal.

On distributive justice: no, it shouldn't be entitlement "that a person is entitled to those goods acquired in uncoerced exchanges with others" (Robert Nozick, as cited in Bankman, Griffith 1997: 1915) I want a welfarist theory of distibritutive justice. It shouldn't be utilitarianism, it should be leximin / Rawls. Also: dynamics / outliers / network effects (Benkler, matthias' guy) / inequality / spirit level. Also: Hobbesian.

and: you want a tax that is as optimal as it gets, that is, as neutral with regard to market decisions as possible and with little DWL.

talk about harbinger triangles, and ramsey's originaly argument on tax DWLs. What matters is reactions to price. for conspicuous consumption, these are none.

Think about lifecycle implications of this. Who pays for kids? And who should? Can we fully credit-finance that?

JIPEEEH I got it. Cafferty 2005: 918 says. Corporate income tax has two problems: it depends on incidence (economists disagree), and even if it does tax capital, it does so randomly, not progressively. All capital owners are taxed, not just the progressive ones.

Argument for wealth tax that remains: scalable effects.

Think again how to tax house ownership.

Blog about how I don't like "decommodification". It's bs. We're meant to work.

Include childcare, studies, et al in the treatment of negative income tax. And somehow reconcile the negative incoem tax with this plan. OR maybe make it a general availability of state-backed credit? So that you have to pay back your negative income tax? Will negative income tax even be necessary? Or can it be folded into just PGT? (when costs of living fall by roughly 20-30% and no social dues are necessary?)

May have yet to read castles mitchell 1992 again. Nice dataset and typoligy work.

cold progression

TAX IDEAS what is the superior instrument for intl redistribution: transers, tax harmonization, factor mobility? Or what? actually, political science would have to become deliberative, too. It must go beyond realism, too. Be prescriptive, but pragmatic. Do: überzeugen.

Piatwoski et al. 2008

they also write that CIT and PIT go hand in hand and a re likely to do so in the future (14) they write it on 16: optimal tax literature suggests that overall deadweight costs of taxation and thus economic efficiency is generally higher if taxes are levied on most inelastic cash flows and least mobile bases, such as labor, consumption and real estate. Think this through for progressive consumption: isn't that wrong? Because in progressive consumption, there IS NO deadweight loss, unless you accept that people really get welfare from the S-class which isn't merely positional. Great quote 17: "To the extent that the declining corporate tax revenue is replaced with revenue from VAT and payroll taxes, the progressivity of tax systems may diminish." True, as they argue next (17) it's not clear who benefits from lower CIT, it could be workers - but the point is, it's not going t be progressive in any meaningful way. They argue that welfare increases if government expenditures have utility higher than the deadweight loss from taxation. What if there isn't any? The broad idea seems to be: there cannot be any substnatial welfare gains from tax coordination (Maximum 0.95% of GDP), but this is a stupid idea: it does assume that there IS a deadweight loss. It does not take into account that other countries are added (new member states not included). It Does not consider, as they agree (18) that this could be much higher if revenues are invested, rather than transferred. I think Piatkowski, as many, when tey think that VAT (regressive) may increase economic efficiency fail to recognize the effective price floor for labor that VAT, just as payroll, contributes to. Think this through. you need to consider the references in this piatkowski piece and read through them They are good,

Dalsgaard 2005

negative income tax, or something of the sort, is also known as the earned income tax credit (EITC) in the US the broad argument, against consumption clearly is: its regressive (dealt with) and also: it taxes old wealth twice (I want that!) for my tax, I still have to wonder about marriage and other family things. COnsider this arrows impossibility theorem (sort of ) of tax: no tax system can accomodate the following three objectives at the same time: progressive rate structure neutrality towards mariage tax liability independent of the distribution of income between married couples turns out the USA is actually not the same as the PCT, but similar. Because it wants to tax income-savings. I want to tax: property-savings. here;s an interesting idea: Avi-Yonah 2005 are cited to believe that when the US has no CIT, capital will come rushing in, and that would be untenable. GET THIS REFERENCE! this is the critical mass point.

Seidman

2 USA tax is the only that doesn't discourage either savings or is regressive! 8: education should be deductible old age equity issue? - think this through! coment on the need for an asset tax based on net workf effects, think about collateral. The history Kaldo 1955: an Expenditure Tax Irving Fisher did it before even Hobbes, Mills mention it, just didn't think it was technically feasible cite the history (14) Fisher 1942: 14: wait a minute, all you need is to deduct! not even a need for an NIT because of the lower costs of living? what about social contributions? do we really need that for good factor costs? or does it not matter because of progression on NATURAL PERSONS? phasing-in higher savings rates is hard to do, and it must be slow (20) Tink hard about fringe benefits and consumption w/in firms. Is that ok? Which boundaries do I depend on in my argument? the private and the market ... does that even make sense? phasing in needs to be slow because: layoffs recession! do asset taxing, not inflation inflation isn't progressive inflation leads to asset bubbles (assets aren't inflated) point out: discounting of the future/savings rates are a tax-independent, but political decision. Seidman + lewis (21) show it takes only a decade for savings rates to pay off! 24: both low and high-skilled labor productivity and wages grow with more saving but high-skilled more so PCT as such may lead to deflation - sp monetary expansion is important (think consumer goods, investment goods)

ch 3 fairness 36 income inequality is on the rise in the us from 1980 pretax 43 its a smart luxury tax 51 "the basic proposition of progressive consumption tax proponents is this: it is fairer to tax a person according to what he takes out of the economic pie, rather tahn according to what hecontriutes to it" 58 note that the idea of saving as a common good is also reflected in seidman's argument that it's about "taking out things of the economic pie" and whether saving vs. consumption benefits others, or not. This actually makes the PCT a pigouvian tax. 61 another argument for pct: some incomes just cant be well measured (increase in the value of assets) 63 Winner-Take-All society, Frank and Cook 1995 72: cash inflow matters not invomee risk : barter trade 81 we could inlude wins on selling durable assets by treating them as cash income an alternative to depreciating would be specific consumer loans where onlyu interests and payment on the principal would be considered. we dont really look at haig-simons, we make it all cash low an asset tax is an empirical question. its very complicated to do, because you need to do a full balance sheet for practical reasons ignore the gifting of durables. the donor has to pay it. But cash donations would be included (think of parents donating cash to their students, from which they buy cars) pensions, life and other insurance should be exempted but not their consumption when they are paid similarly with health expenses: good thing that we have insurance, no single copayments. 99 for old wealth there could be an amortization solution cas hoarding is a problem phasing in is necessary because there me a drop in demand - and certainly in the kinds of things asked for. this warrant phasing in - or maybe not? maybe subsidize? this is an exercise in the end game finding the cfurst best realization is a necessary evil of income taxation: values aren't always known, they fluctuate on random dates and they are hard to measure. deferall of taxation is impossible because of progression! and because we would need to know when an asset increased in value we bias one kind of equity against the other (saving vs. equity actually, replciated in US taxation on the corporate level) think of payment in stock options et al when considering a wealth tax. employee noncash compensation is the word think about the IDEAL income tax, how that wouldn;t work (leave alone the ugly scars, like bond exemption or ehegattensplitting) depreciation rules for corporate income taxation stink. 121. they create more disincentives and arbitrary distortions there will be no cold progression because we fix the tax schedule in dollars spent / GDP of that year. We sometimes hear it is only a "matter of timing" when we pay the income tax. This , McLure 1988 as cited in Seidman 125 writes, is either because "Such a statement reveals a basic failure to understand - or a desire that others not understand - the nature of income taxation and tax avoidance: (...) If income tax can be postponed (...), interest (or other capital income) can be earned on a tax deferred basis in the meantime". in other words: compound interest, is ignored. dangers for recessiioN savings rate moves jobs from consumption to investment goods progression moves jobs from high status to low status usa tax was birpatisan but thats not great in itself two lines of arguments acutally: inherently desirable exclusion of alternatives

Bank 2004

2: talks about the ideal combination that McCaffery's plan is: progressive appeals to liberals, exemption for avings and investment appeals to conservatives 3: skepticism that this ever will materialize. rather: the consumption tax supporters want a flat VAT, the progressive guys want an income tax 2: was considered post WW1 (graduated spendings tax), Mill's proposal again in1942 by Treasury Secretary Henry Morgenthau (graduated surtax on spending), and lastly in 1995 by Sen Sam Nunn, Pete Domenici, Bob Kerrey Unlimited Savings Allowance (USA Tax). 4: numbers for the PCT can be found here (US example, progression up to 50%). 4: Haig-Simons definition of income: I=C+A debt repayment would be deducted from income (it's a form of investment), debt spending however would be consumption 5: estate and gift tax, according to McCaffery can be safely abolished. Dead people don't spend. Their heirs pay when they spend. 7: two ideas were present from the very beginning: place the burden on the wasteful spender, never the investor. Also, make it more equitable, yet efficient. 10: the progressives were against it because it didn't tax firms, nor property as such 10: the regressives were against it, well, because it was progressive, they wanted flat ax, already back in 1921. 10: Representative Stevenson asked: "[put] into effect the proposition according to what a man spends and graduate it according as he spends it, and the United States Government will have to have an auditor behind every man in the country who has any money to spend. How would you ever carry it out?" 15: "Under the progressive consumption tax, Hazelett explained, "we define income as what it really is. there is no economic income but the living standard of the taxpayer". this point is key: things OUT to be about consumption! 18, 19: the USA tax had to problems: it didn't include borrowing as income and it didn't terminate the estate and gift taxes (which are transfers, not new consumption) 19: Both in 1942 and in 1995 the PCT failed because of its complexities: the more complexity you introduce, the more devils, the more rejection. With that rise chances for evasion: flat and sales tax proponents are disenchanted Think about the problems of old savings: we have to know about these, do a full cash flow status of people. as cited on 22 As McCaffery writes, "I will not add fuel to think tank fires. Complexity can wait. The devil may indeed dwell in the details, but we first need to find an angel or two in the abstractions that govern tax." idea: the PCT is between a rock and a hard place in terms of how people like it in the political spectrum! But that doesn't need to be so. there is nothing inherently good about the income tax. actually, the PCT provides a possibility to fight evasion: you can force people to prove where they have invested and treat it as consumption, otherwise. The problem, of course, need to think this through

Bradford 2004

critize his tax. Yes, to be fair, it does allow us to tax capital at whichever rate we wish to. But the problem of CIT remain: unclear incidence, uniform rate and limited progression THe uniform incidence is, in fact key: you want low income earners to be able to get massive returns on the capital market so as to incentivize them.

Carroll, Viard and Ganz 2008

Bradford X tax says: don't worry about financial transactions of households. I don't think that works.

Cheng 1953

333: it is interesting to note that the PCT first came about as an idea to curb inflationary tendencies in a time when government expenditure couldn't be reduced (Korean War, Cold War). You needed more saving in other words, you needed more public goods (defense, after all, is the quintessential public good). My point is this: it's the same situation today.

Feldstein 1999

674 DWL of the income tax (on saving, as well as work vs. freetime) is much greater than usually anticipated, when changes in consumption patterns (housing) and payment (employer-paid health insurance) are considered and quality of working conditions (larger offices, better furniture, air condition etc.) The real thing should be: U (utility) = U(L, C, E, D) where L Lesure, C Consumption, E Exclusion D Deduction Think hard about the issue of leisure! Does that work? the answer, I think is: PIT isn't better, and the problem is solved, to some extent by setting the baseline VAT as one wishes Think hard about the issue of side-payments, fringe benefits etal

Fried 1992

Fried explains how the progressive consumption tax, or rather, the consumption tax, cash-flow type is equivalent to a yield-exempt form (really a wage tax, all capital incomes exempted, also see the X-tax). This isn't true: progression, anyone? Unlikely to be the same reasonably Fried rightly notes: rates must not change (no problem) fried 961 also notes: consumption not be deferred indefinitely. Here's the problem. This isn't true today. Some riches are so vast (think bequests) that they are never actually spent only their interests. And in any case, even if they are spent, this is over generations, not a meaningful term for tax equity. Note: these people are still thinking improving the income tax, rather than thinking about property and assets, too! Fried says there are different reasons for consumptionbase, and I need to comment on all of those: less DWL from tax on savings a boost in national productivity from increasing the national savings rate impossibility of ever administering a pure consumption tax greater fairness (this Fried deals with) I need to comment on all of those. There are three arguments, says Fried 965 why savers and spenders ought to be treated the same, and she says, they're all flawed

1. Abstinence ideas: savers and spenders ought tob ear equivalent tax burdens because they have equivalent wealth ex post, once the costs of deferreing consumtpion are accounted for this is, in fact, as fried notes 967, an improved income tax. the abstinence justification is: you have costs when deferring consumptions, psychic costs. OR: you have less utility for the remaining lifetime
2. Bradford: savers and spenders ought to bear equivalent tax burdens, whether or not they are in equivalent positions ex post, because they face equivalent choices ex ante
3. savers and spenders ought to bear the equivalent tax burdens because they are entitled to preserve the relative ex post advantages, whether equivalent or not, that they enjoy in a no-tax world. now here is a key argument (971) she argues that the abstinence theory is wrong, because we never compensate for pscychic cost of at the margin-leisure, we don't do this for workers, they work at the margin of where they are indifferent between working and not working. But we don't reward them enduring the psychic cost of working, we just tax them anyway. So they will include this in their rationales for working more. Her argument is: then why do it for the psychic cost of saving?!? here's a tentative solution: we do that for workers, actually, and we should: it's the base-rate of only consumption, which I think we should continue this is a key point write lots about this, and think hard how this related to the problem of idleness. my problem with this argument: progression isn't part of this the savings things are good reasons. also the other discarded reasons if you think of it NOT as an income tax, or endowment tax, or whatever, but as a foundational tax, like Hobbes did, it makes an awful lot more sense. in fact, you have to expand on hobbes: it's not just income that matters, but property to finance consumption should matter, too! of course, this idealized thinking of savings deals only with the risk-free return to saving, that's ok: inflation, of course, should never matter also: positive or negative risk returns shouldn matter, we want these to be felt, because that's welfare maximizing, and we want these to occur, and also, if people have sufficnelty large wealth its unlikely to matter 971 She comments that we don't tax human capital (ability) to work as we should, we only tax the same for capital. a solution: question this empirically: do people really become lazy in really high upper income brackets if they don't need to work anymore? I don't think that's true, empirically. People derive other pleasure from working. another solution: the baseline VAT. That'll take care of this a little bit. Also, what would the counterfactual be, if we tax people based on their income generating ability: seems administratively hard to do if you don't want to be totalitarian in fact, you'd have to look at previous incomes as an indicator, which would disincentivize hard work in the first place. when the ability of property to pre-save work is disallowed, it's really questionable what remains off property. here's another problem with the costs of abstinence: it doesn't take into account diminishing returns to wealth. And that, my friend, is key to my argument. I just don't quite know how yet. fried says this too on 975. So the question is, why only use this argument to wage war on consumption tax, and rather argue FOR a PROGRESSIVE consumption tax? And the problem remains: if you want an income tax, in today's world, you need a corporate income tax, and that is a problem because that is bad. note: progressive consumption tax revenue may be highly cyclical. For the state, that's not a problem, and it may actually be a good thing to smooth out the business cycle. This is for really high income earners. Or actually, it may not be cyclical, because it imposes a penalty on consumption spikes. here's an important idea about savings (from Fried 980): when saving gets an interest rate, you may initially save less (the income effect of saving) but when the interest is high enough, you may save MORE (the substitution effect of saving) when you accept the interest as a payment for non-smooth deferral to later consumtpion the entire question of how much consumption to defer isn't easy. the PCT gives the state the ability to put lots of money into public consumption, private consumption not so much because that would deter ... something what the state needs to change this lever, is ultimately, an asset tax. That genuinely puts more capital into consumption. also, make this point: when you go out in this world, you don't exactly see an abundance of investment. this is key: the PCT needs a corollary, it's an asset tax. For once, to avoid runaway capital accumulation. For another, so that there is a lever to pull if savings rates are seen to be too high. Note that savings rates cannot be set individually, they require a decision by the polity (it's a collective action problem). I probably should comment on the issue of whether all savers are in fact, marginal savers. Comment on risk: neither changes it. The government just shares in the positive and negative returns to risk under an income tax. nice summary of Frieds argument on 995. She argues the perfected income tax arguments work for efficiency reasons, but not for equity grounds. I am not sure that is even true if you consider capital (not only incomes) as well, but whatever I can still use it for efficency. Funny argument in Fried 1001: the marginal saver cannot by definition be hurt by a tax on savings because she saves only at the margin, where she is indifferent. That, of course, is true, but it forgets the whole point of higher savings rates being necessary, and inframarginal saving being good, too. interesting argument fried 1004: taxes in interest incomes will also affect the borrowers, it all depends on the relative elasticities of supply and demand. think about this: is there a way to shift the incidence of the progressive consumption tax? think about this: what are the relevant elasticities, also: what is a likely DWL - which always depends on relative elasticies. Here, I need Veblen. Make graphs about this, read Veblen, stupid. Here's the point about the corporate income tax (if I get that right): it is necessary because otherwise you can hide from the taxation of compound interest in corporations.

Ganghof 2007

notes two things: income taxation isn't enough, it needs to be on capital, too income taxation nesd to be progressive provides a cool argument 1063 how (institutional) veto playing may favor, rather than weaken the forces of retrenchmecn because of the wide-reaching legal changes that would be required to avoid retrechnment Kato 2003 as cited in ibid 1064: yes, a revenue shift to regressive taxes makes it politically easier to maintain a large public sector (51) but that is a bad idea, it's not the idea of a welfare state 1075 says that there are few major overhauls of tax systems because they are associated with significant transaction costs and political risks, so centrist and pragmatic policy makers will avoid that.

Ganghof 2004

scharpf in foreword 12 cites the negative employment effects of high social contributions, also inequitable because they're strictly proportional also in scharpf foreword 13: MwST does 2 bad things: it depresses the price-elastic demand for low-qualification service industry jobs (which is very bad) and it raises the costs of living for everyone. Scharpf is right when he says there is much to explain about the chaos of german tax. In fact, there is MUCH more to be explained if you look at a perfect counterfactual. 19 CIT and PIT highest marginal rates are same in Germany since 1977 (and for a good reason) 25 make this key point: when Ganghof suggests a dual income tax for germany, fundamental equity (OR efficiency) concerns are long past. 25. He cites two "pragmatic reasons" 1) it will be easier to find a cap income tax rate that is low enough to include as many as possible kinds of cap income. 2) labor incomes can still be taxed progressively. wow, where's the innovation? I like that he agrees that german negotiation democracy has led to a lack of efficciency and democratic representation Ganghof 33 compares the consumption tax to nachgelagerte besteuerung - that makes a lot of sense, actually. his criticism of a consumption tax is actually on some other sort of tax which I don't understand. There is a point that REingewinne are bad to tax, even though in theory they are not, because tey tax good ideas and they are easily avoided so Ganghof actually HAS my tax, only with one exception: his is only a savings allowance (kapitaleinkommen), my tax would also exclude reingewinne (equity et al). Now one way to look at this is to say that it taxes only labor income, but that is a flawed way to look at it. the point, precisely, is not to tax labor, but to tax consumption. yes incident-wise this may be the case. the incidence question, lastly, depends on progression here's my key key key point: we ought not to think of respective rates for capital and labor, that's stupid. that's no longer today (riester). Today, it's all about consumption. he says, a consumption tax, if revenue-neutral, will tax the hell out of labor. Now that's just plainly misleading. It won't. why? simple. Capital vs. labor income and level of total income have a positive correlation, stupid! now HERE is the difference. the PCT includes what is consumed out of savings, too! jipeeee! he wants the dual income tax, and he is plainly wrong. he doubts on page 42: "wie stark eine progressive konsumsteuer wirklich zu verteilungspolitischen Zwecken eingesetzt werden könnte, darüber lässt sich streiten. Denn wie wir oben gesehen haben, belastet eine solceh Steuer ja primär den FAktor arbeit, so dass es sich weitgehend um Umverteilung inerhalb einer Einkommenarbeit halden wuürde" (really?!? - I don't think so. There is one point that is right about this, alsready mentioned by Fried, but the gist is wrong_ think: manipulation von verrechnungspreisen zwischen multinationals, to cite just one. e-mail ganghof three effects for competition 43ff steuervermeidung: verrechnungspreise intl investitionsentscheidungen I: iflnt investitionsentscheidungen II: tax credits for taxes paid abroad. small countries

Random stuff

there is a basic, fundamental argument to make all redistributive/revenue generating taxes personal taxes, because only these can be genuinely progressive. REalsteuern cannot, by definition. This means: kill all other taxes but the PCT. Exceptions: Asset tax and, because it is actually and in part an excise: Grundsteuer und Gewerbesteuer, wrapped up in a wertschöpfungssteuer, the armut und reichtungsbericht der bundesreg shows: the tenth decile (upward of 88k) pay 51.8% of income tax revenue, but only have 24.9% of income. that's in part because of progression, but also because some incomes arent considered.

there is the issue of cold progression. it can and should be solved, but it will hurt inflation (thinkg this through) has to be done slowly.

inflation is very, very bad

think about versicherungssteuer. it's out. because it doesn't BUILD capital. exempt

also: kill the estate tax. do it via asset tax. much better, much fairer (you don't get taxed for all the other things you get from your familiy, so why take this? rather understand what this is all about) Also, estate taxes are so easily avoided and so hard to do for firms.

the guy against a wealth tax makes the typical argument: capital is lost. it really isn't it's just redirected.

think about potential interactions between wealth tax and PCT>

it's true the asset tax also shifts consumption. but that's ok because we control the broader savings rate. anyway, it does NOT disincentivize investment, which income taxes do, independent of whether it is consumed or not (kept safe)

according to the wealth tax text up to 3/4 of individual wealth in the US are inherited, not due to individual efforth

AUSCHLUSSPRINZIP! that leads to wealth tax!

it's a social mobility argument, not an inequality argument. in our world however, they are same

Genschel 2004

the sceptics and the revisionists have it wrong: because they lack the right counterfactual 616 the welfare state is indeed, and rightly so, expected to do 2 things as Genschel 617 writes (this is part of the two criterion) to systematically control economic developments at the macro-level (macro-economic control), and to guarantee, unconditionally, adequate living standards at the micro-level (redistributive social policy)

note that really depreciation isn't all that difficult: we do that for firms, too and we do it fairly roughly. We can do that for households, too. Also: if people sell their stuff at some point, we may even allow them to correct for the depreciation up or downwards.

Basinger & Hallerberg 1999

The naysayers like Rodrik and Swank. cite Putnam's idea of a two-level games framework (1988) as cited in Hallerberg 624

McCaffery

is right indeed "the canonical understanding of consumption taxes changes under consistently progressive rates. No longer are prepaid and postpaid consumption taxes - taxes on wages and spending, respecitbely - equivalent. Postpaid consumption taxes can and do burden the yield to capital, and not in an arbitrary, random way. Far from it: A progressive postpaid consumption tax emerges as the fairest and least arbitrary of all comprehensive tax systems, precisely because it chooses to make its decisions about the appropriate level of progressivity at the right time. In doind so, it burdens some but not all uses of capital and its yield. and for normatively attractive reasons". (812) wow. "This traditional view has generated an impoverished choice set for tax, consisting of a badly flawed status quo on the one hand and a flat consumption tax of some sort on the other. Under the guiding light of the traditional view, we are heading ever closer towards a flat wage tax." 812 "Under progressive tax rates a postpaid, cash-flow or (all equivalently) spending tax is not equivalent to a yield-exempt or wage tax" 813 The burden of taxation will decrease when a taxpayer uses capital transactions (borrowing, saving, investing) to smooth out the pattern of her lifetime labor earnings, and thereby to consume, in any given year, at the level of her average annual lifetime labor earnings in constant dollar terms. The burden will also decrease when capital transactions result in diminished consumption, again measured against the average annual labor earnings as the baseline. The burden of taxation will increase when capital transactions are used to finance enhanced, or greater, consumption than this level. This pattern is not random, as this Article demonstrates. 814 817 awesome: "The new understanding of tax paves the way for extensive tax reform and opens up an important line of critique on current political proposals. The real and pressingly practical question for tax is not whether to have an income or a consumption tax, but what form of consumption tax to have. The stakes in this battle are clear and dramatic: the fate of progressivity in tax lies in the balance." just shifting income between points in life should'nt be capital taxed (the ordinary savings norm), but lifestyle-enhancing yield-to-capital norm should be taxed 818 Headline: not all capital gains are created equal. include the ant/grasshopper example. starting line: is this the best of all worlds? hardly so. double taxation of cap incomes is nicely included on p 823 prepaid and postpaid consumption taxes are the same only under two conditions (825): constant tax rates and constant rates of return constant tax rates no prorgession! constant rates of return not likely this isn't exactly the condition of our super-rich what you spend out of debt, is taxed, too (under the postpaid version, not the prepaid version) paying back on interest, however, IS an accretion to savings and thereby excluded. the misunderstanding is gross between postpaid/prepaid, and it has given the PCT a bad name. In fact, McCafferty 829 suggests that there are essentially three taxes: income, prepaid consumption and postpaid consumption. governing dynamics of inequality. "Genuinely progressive taxation is necessarily personal taxation" (Vickrey 1947 "Agenda for Progressive taxation" as cited in MCCafferty 830) Diminishing marginal utility of wealth! Jipee! if you want read more on this by Mirrleess, Bankman and Griffith, as cited in McCafferty 835 and elsewhere Hobbes and smith come down for consumption taxes. Both the father of economics and the father of the state Hobbes, Leviathan 386-87 [T]he equality of imposition, consisteth rather in the equality of that which is consumed than of the riches of the persons that consume the same. For what reason is there that he which laboureth much, and sparing the fruits of his labour, consumeth little, should be more charged than he that living idlely, getteth little, and spendeth all he gets, seeing the one hath no more protection from the commonwealth than the other? But when the impositions are laid upon those things which men consume, every man payeth equally for what he useth, nor is the commonwealth defrauded by the luxurious waste of private men. Smith Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it.... Taxes upon such consumable goods as are articles of luxury, are all finally paid by the consumer, and generally in a manner that is very convenient for him. He pays them little by little, as he has occasion to buy the goods. As he is at liberty too, either to buy, or not to buy, as he pleases, it must be his own fault if he ever suffers any considerable inconveniency from such taxes. Smith supra note 54 in cafferty McCaffery says the USA mistake came from mistaking the Haigs-Simon definition: "an is had become an ought" (emphgasis in original. 840 MccFfery this comes from Andrew's' idea that the most sophisticated reason for the PCT would be principled nontaxation of the yield to capital. That is the wrong reason! It is taxed, too. just differently. yields to capital are taxed, and only there where they elevate living standards (that's vertical quity) as opposed to horizontal equity between saving, then spending McCaffery makes this very point that progressivity, even though desired, is disappearing because of the choice of really bad tax choice. 848: "Advocates of redistributive taxes must wake up and realize that their end is in jeopardy on account of their poor choice of means: they are fighting, and losing, the wrong war." Neutrality in comparison to a no-tax world seems nice, but is a problematic thing. if you avoid distortion of the saving-spending decision, you skew the work-leisure tradeoff. comment on this! neutrality, or rather, fairness, narrowly understood as economic welfarist perspective (the optimal tax literature) is bad.

1. judgment of fairness need to take the pretax status quo as normatively appropriate
2. optimal welfare-maximizing tax answer may clash with ordinary moral intutions and reflective normative commitments

make a footnote on foundations, charity, health care (not exempt), and neither is education. extent the schedule to infinity so as to avoid the problem of the whole thing at a higher nominal level. source neutrality just makes more sense than use neutrality from a hobbesian point of view, or in fact from any point of view that views us as a cast of households. the issue of the timeframe is complex; it's probably best somewhere inbetweeen lifetime and a day. transparency, either way, is key. Or actually is it just the short-term that works best? Remember that depreciation takes care of all the rest. talk about federated data structures talk smoothing. Smoothing works with PCT> both for old- and early age. talk abwrackprämie take as given the nature of people, and, if sharply progressive and with wealth tax, this will get as to a new, better world of equity and efficiency, and maybe, somewhere down the road, a man which is no longer boundedly rational, but no longer individually rational. if you base it on % of nominal GDP, it actually works as the perfect automatic stabilizer. and gets rid of cold progression. Also takes care if the savings quota DOES in fact increase. Make the point of lumpy earner, steady earner and trust fund baby *878) compare to the other tersm used for the same thing. note, as McCaffery does on 883 that private markets can also solve the consumer durables smoothing problem: leasing, reanting. the income tax problem for the propertied classes gets even worse because of the "wait until realiziation" and the "wait until debt is repaid" problem - bth may never happen for the super rich (this is McCaffery 888) (at least this shifts the time problem, and may make it very problematic. in the US, the fact that things canthat are inherited can be sold at fair market value free of tax makes this an even bigger problem. This is an extension of the CIT problem actually, a problem that maters for all things where accretions are not immediatley realized. "Tax planning 101 is elegantly simple: buy, borrow, die" (890) this can't be easily solved, it's an admoinositratove nightmare. hence the backstop of the estate and gift tax. this is it: DYSFUNCTIONS OF THE BACKSTOPS. Dysfunctional backstoppers of PIT: CIT, PIT. nice quote "THings in tax today are bad" (McCaffery 893) a corolarly problem of taz planning 101 is that there may, at sufficiently high taxes, be a lock-inf effect (895) where nothing is traded anymore. Another problem: firms have an incentive to hoard cash and retain earnings. The ugly backstops to the personal income tax. when the personal income tax is bad, it's backstops are ugly. he cites my point on endogeneity of low tax rates on 894: "low tax rates on realization are endogenoues to an income-with-realization regime" so there is a great tendency for personal income to become flat. similar lock-in problems exist for homeowners (on realization), and for life-insurance. So, too, housing is excluded. This is all american context. 899: "Together with the basic tax planning of buy/borrow/die, lower tax rates on capital realizations and corporate dividends, cash-value life insurance, and the taxation of home-ownership, the new developments in retirement savings help to move tax towards a world in which citizens will pay taxes on their wages, under a compressed rate structure, and never again. This is the world of prepaid consumption, or wage, taxation" people arbitrage their way toward a falt, wage-tax. a yet similar problem exists with retirement savings (tax exempt) which dan be offset by debt elsewhere. does ti really lead to more saving? there is the issue that the perfect income tax does not allow for forward or backward smoothing at all. Forward smoothing we get, ever more, through ad hoc savings provisions. Backward smoothing (student loans), we get not at all. these problems also play over to the labor market, where high income earners can reasonably bet on (and sell) their ability to earn sustained, large incoems (905) social security in germany, and in the US increasingly (Medicare, social security) is already on the payroll, in germanyeven with some regressive elements. the estate tax is a very porous backstop to the income tax (913) the incidence and proportionality (non-progression) of CIT is mentioned in McCaffery on 918. That's nice. Indeterminate. "Corporations are legal fictions". the key moral intuition, and Rawlsian reflective equilibrium is this: it seems fair and appropriate to burden capital ransactions when these facilitate or enable a better lifestyle, reflecting a greater "ability to pay" or more "benefits received" from the social compact. But it does not seem fair and appropriate to burden capital transactions when they are used simply and sensibly to move around in time uneven labor market earnings." 921 there really is no need to worry about realization under PCT as long as you don't exclude debt. debt must be included in the base of a PCT (tragically, the USA didn't) it is a redifinition of "wealth to be one's own" (932) ant that's a great thing Tax matters "tax represents the last battle line for any meaningful redistirbution of material resources from the better able to the least well of" (936) and we should be glad that it is the last battle line. Realism is epistemological endogenous: "People treat a plan as realistic when it approximates what already exists and as utopican when it departs from current arrangements. Only proposals that are hardly worht fighting for - reformist tinkering - seem practicable" (Roberto Managebrai Unger, False Necesseity 12 1987 as cited in McCaffery 938)

The whole growth debate is beyond what can be done here. Is it endogenous or exogenous, or, for that matter, what the optimal savings rate is. Actually I tend to be more endogenous growth.

Nicodeme 2009

the benefit principle (cite Nicodeme 2009 somewhere) suggests that firms should pay for common goods, but not for public goods. (That's my intuition). They are after all, fictious. There is also a treasury effect: it's beggar-thy-neighbour, indeed, you get to tax stuff wen others refund it (this is why we have a CIT): Benefit principle tax exporting treasury effects erosion of PIT political constraints problems: administrative costs, distortionas by reduced CIT rates and a DWL Nicodeme says that the CIT is fully borne by labor (Gordon 1986 as cited in Nicodeme 8). It has recently been estimated to be 92 cents per eur (Arulampalam, Devereuz and Maffini 2007 as cited in Nicodeme 8(

effects in nicodeme 2009:

Sachar 1984

initial problem groups: assets purchased under the PIT, would have to be taxed again when they spend money preferential treatment of some things under the income tax is gone. aka changes in asset prices of those assets that cannot change (Daimler can change, they need time - the others cannot change and even if grandfathered in, they will be reflected right away) is right to point out: some of the burdens of transition are inevitable, we can just decide who pays for it

Shaviro 2004

I disagree with Shaviro that tax choice income-vs.-consumption would not be a question to which academics can speak (92). some problems remain, yes business vs personal outlays (just as hard as under current income law) household: what is the best unit? medical expenses? charitable contributions? but also a lot easier: Shaviro says that law school credits could be cut fro m28 to 7 credits, maybe 9

The good news is that under the PCT even barter wouldn't work. Think about the realization under a (nonpure) haig-simons income tax: this is necessary because continuous appraisal is impossible or at least, expensive. So it reverts to cash-flow - but that doesn't work well (shelter). But Cash flow for PCT works perfectly!

make clear: this isn't a political science piece. The political science must come later. But if I am right, and this is a perfect tax, then there is a lot to explain.

make a footnote of VAT, RST and exempting labor from VAT. THIS IS WHAT THE PREPAID CONSUMPTION-TAX IS: It's a wage tax. Make a footnote about this how this terminological confusion really is quite scandalous. (American Enterprise Institute!) With no progression but a zero bracket it's the Hall-Rabushka flat tax / two-tier consumption tax / two tier vat. with more tax brackets on labor it's the x-tax.

The discussion in Shaviro is, i think on purpose, misleading: dynastic properties, or even below that, any capital income cannot be traced back to saying but the initial wages (and he agrees that that's a little hard to define) are taxed. That is NOT a taxation of capital gains. Taschenspielertrick. Also the x-tax is not postpaid, by any meaning of that word. It is, actually pre-paid (98) "exempting dividends merely accomplishes corporate integration and still leaves corporate income bearing a tax at the corporate level, as the x-tax would do " (98) - that's pretty close to a lie: exactly where? a VAT is now a CIT? He also argues that "capital income" isn't really a dichotomous categru (hard to contest in postmodernity), and that it really is something the "defunctc economist may be non other than karl marx" (100) He goes on to argue (outrageously) that a cook who buys a restaurants and earns because he is a good cook kinda makes capital gains irrelevant. That's bs. instead, what follows from the example, that it should be taxed similarly. the PCT IS BLIND TO THAT! what kind of bs argument is this anyway? he features a perverse example of deffering consumption for a year, then arguing that consumption tax would include gains to capital because of the interest (104). that's just wrong - people don't HAVE to save when they're really rich, it just happens. he's also wrong when he discredits the belief that money is power, security or social standing is but a case of "money illusion" (106), and is already reflected in its ability to put it to consumptive use: there is, after all, inframarginal returns, risks and that part of what you do with money. investments have the following returns

1. risk-free return to waiting 2 an inflation premium 3 adjustment for sisk
2. inframarginal returns (for a good idea, can also include his labor)

Headline: the PCT's evil twin

think wehther you really want depreciation, which would require a balance sheet or something of the sort. yeah, I think it's needed. Depreciation or expensing? For education, of course, it would be amortization. Exempting things, of course, seems like a bad idea, you'll get avoidance issues (think an education class with fancy food). So you don't want that generally. Also note: jewlry is still a problem, and so is, for that matter, asset bubbles. uh-oh. (what is gold, after all, but a giant asset bubble, or art ...)

Look at this in terms of WTO, GATT, etc.

For the base rate you don't need VAT, RST will do, because the burden of proof of non-consumption lies with the consumer.

Lord, make us prudent, but not now.

Mankiw

Mankiw think elasticitiy, maybe have a graph luxure goods, in their production are arguably fairly elastic supply is NOT its about relative gains of course this assumes that people don't change their behavior due to the tax, which would be sad. Maybe it's not sad either way, because there's resource wasted we have long believed that the VAT had a small DWL, but maybe that isn't true, if we consider it's element of a wage tax. Look at the kind of goods for CIT: club goods / natural monopolies; public goods; common goods / CPR the benefit principle holds for the baseline ability to pay for the rest

McCaffery 2005

McCaffery, E. J. (2005). A New Understanding of Tax. Michigan Law Review, 103(5), 807-938.

Key Pages

• start-821
• 826-830
• 856 bottom - 863
• 885-899
• 917-919
• 936-938

A Primer on Alternatives in Tax

"A progressive postpaid consumption tax emerges as the fairest and least arbitrary of all comprehensive tax systems, precisely because it chooses to make its decisions about the appropriate level of progressivity at the right time. In doing so, it burdens some but not all uses of capital and its yield, and for normatively attractive reasons." Edward J. McCaffery (2005: 812).

There are three types of taxes

1. Income taxes (including capital incomes)
2. Prepaid consumption taxes (VAT), or, equivalently, payroll taxes, or, equivalently social contributions (such as statutory health insurance, unemployment insurance, pensions, etc. in Germany)
3. Postpaid, progressive consumption taxes ("The Perfect Tax"), based on a cash flow account of spending (Consumption = Income - Savings / aka Haig-Simons definition of income).

There are two savings norms (as in: what exactly is saving?)

1. Ordinary Savings Norm: saving is just postponed consumption, "smoothed out" over the lifetime. Nominal interest is just a compensation for postponement (think: inflation, risk, growth, discounting of the future). Incomes from savings (= capital incomes) should not be taxed.
2. Yield-to-Capital Norm: incomes from savings are a genuine accretion to wealth. Interest is income. Incomes from savings (= capital incomes) should be taxed. Note:
   • Income taxes (if complete) adopt a yield-to-capital norm. All capital incomes are (ideally) taxed. (In reality, as McCafferty explained, they hardly ever are, because there are systemic flaws, such as "tax evasion 101")
   • Prepaid consumption taxes (or VAT, or payroll, or social contributions) adopt an ordinary savings norm. No capital incomes are taxed.
   • Postpaid progressive consumption taxes (or spending taxes, or cash flow based consumption taxes) tax some capital incomes. To the extent that (dis!)saving is used to smooth out consumption, interest is not taxed. To the extent that it is used to enhance lifestyle, or for lumpy consumption (opposite of smoothed out), it is taxed. For a review of different taxes and how they work, consider my prospectus (again attached), pages 60-66 Consider this example to understand that a VAT (German MwSt.) is the same as a proportional payroll or proportional social contribution.

The Detective Story of Income Taxation (Who Dunnit? Who killed progressivity?)

"The real and pressingly practical question for tax is not whether to have an income or a consumption tax, but what form of consumption tax to have. The stakes in this battle are clear and dramatic: the fate of progressivity in tax lies in the balance." Edward J. McCaffery (2005: 817)

"Advocates of redistributive taxes must wake up and realize that their end is in jeopardy on account of their poor choice of means: they are fighting, and losing, the wrong war." Edward J. McCaffery (2005: 848)

The political alternatives now seem to be between progressive income tax and prepaid proportional/flat consumption tax (VAT, Social Contributions, Payroll, all equivalent). This is an incomplete choice set. The one progressive component of today's tax regimes, the personal income tax, has deficient backstops.

• Estate and gift taxes (buy, borrow, die)
• Corporate income tax (indeterminate incidence, no progression, indeterminate location of value generation)

The personal income tax as structural flaws, remaking the PIT ever more into a wage or prepaid consumption tax.

1. Macomber. Tax on accession/accrual or tax on realization? The Supreme Court rules: you can tax only on realization (selling). this problem is much exacerbated in the case of income in illiquid assets.
2. Tax Planning 101 aka Buy, Borrow, Die. Mrs Macomber could simply borrow on her (appreciating!) stock as collateral. Recall that borrowing, is not income under an income tax. Mrs Macomber can spend out of the borrowing tax-free.
3. Heirs never pay the estate tax, because that is (as it makes sense) a net tax on assets minus liabilities. In the extreme case of Tax Planning 101, there is no estate.
4. Also, Tax Planning 101 incentivizes people to never realize, to never sell. This may lead to markets freezing up and asset as well as derivatives (!) bubbles, at great cost to the economy.

A Numerical Example to Show the Equivalence of VAT and Payroll

2 Periods EUR 100 Income 20% tax 10% interest Payroll / Social Contributions EUR 100 Gross * 0.8 Payroll Tax = EUR 80 Net Period Consumption Saving p1 EUR 40 EUR 40 p2 EUR 44 (from Saving * 1.1) 0 Aggregate Consumption / Utility = EUR 84

VAT EUR 100 Gross = EUR 100 Net Period Consumption Saving p1 EUR 50 * 0.8 = EUR 40 EUR 50 p2 (EUR 50 from Saving * 1.1) * 0.8 = EUR 44 0