The Solution To Wasteful Government Spending

Today I want to propose a different alternative to cut gov’t spending that has been used before in the United States.  

The way to do this I think is to cut federal taxes dramatically and go with a consumption tax. A consumption tax taxes individuals when they spend money. And to clear, this would be a flat tax across all goods and services.

Now I’ve seen proposals that tax spending between 20-30%. One of the best things about a consumption tax is that it rewards saving not spending.

Every year like most of you I file federal Income Taxes (and state). However, when I think about what the federal government provides me, I struggle to think of where all my tax money is going. Now, obviously there are things like the military, social security and Medicare that are beneficial and I’m not saying to cut those. But the one question I ask myself is who knows how to spend my money better, me or the federal gov’t? There’s no talk or any incentive for politicians to reduce spending and hence the debt grows and grows, devaluing the value of the US dollar.

Now, personally I think that state and local taxes are much different and more beneficial because I’m getting things I use like police, roads, etc. In contrast, my federal taxes, where the money ends up is not transparent.

One of the great things about a consumption tax is that it rewards saving and responsible money. But, since we have a debt driven economy, it will probably never be considered. The Bush administration back in the early 2000’s did flirt with the idea of implementing a type of consumption tax, but as expected, it never gained any serious traction.

One other advantage is that the banks will have more savings and they won’t be as overleveraged as they are today.

Now arguments against this say that it is a regressive tax meaning it disproportionately hurts the poor since they would have to spend a higher share of their income on buying things. But the flaw in that argument is that this is already happening. We’ve got this thing called inflation, which is consistently underreported. 

I admit it’d be difficult to implement but there’s solutions around it and in the end, it would be more beneficial for the US economy.