Which is a de facto consumption tax because it means you only pay tax when you sell securities without buying other securities, which you only do when you want to spend the money.
> Not really. You just structure the transactions to avoid what is taxable, e.g., you buy the yacht at a low nominal price and simultaneously (and completely coincidentally) by some financial investment not subject to consumption tax from the same party at an inflated price.
As opposed to the current system where you work for somebody for a low nominal wage and simultaneously (and completely coincidentally) they "sell" you a car for one dollar. Which in either case will get you prosecuted for tax fraud.
> Anyone who can avoid paying taxes on their income in an income tax system can avoid paying taxes on it in a consumption tax system. (If you have an "unconditionally tax every transfer of money between two parties" system, it gets harder, but that has all kinds of downsides.)
This is not actually that hard. You make the amount of the consumption tax based on the market value of the purchased item rather than the amount you nominally paid for it, with a presumption that the amount you paid is the market value, which the IRS can easily rebut when you're claiming the market value of a yacht is $20.
> Sure, if you only ever sell shares that have lost value, you can avoid paying the (low) capital gains tax, at the expense of always losing money.
It's not actually losing money. You invest in a diverse portfolio of stocks, some go up, some go down, some stay the same. When you want to spend some money you sell the stocks that have underperformed rather than the stocks that have performed well, which (at the risk of selling low) is plausibly what you want to do anyway, and then you pay no taxes because you realized no gains.
Even if all your stocks went up and by the same amount, if you want to spend 1% of the total assets then you still only pay tax on 1% of the gains because the rest of the gains are still unrealized. So it's already effectively a consumption tax as long as you can avoid changing what you're invested in.
Except that it's a consumption tax that taxes only the spending of interest (and earned income) but not principal, which seems to be to the benefit of people with more wealth.
Getting rid of capital gains tax to encourage reinvestment is kind of silly. Heck, you could tax capital gains as regular income, and still eliminate any drag on reinvestment by allowing deductions for investment so long as the investments for which such deductions were taken were treated as having a zero basis value.
> It's conceivable that a consumption tax would cause the super-rich to pay more taxes, because if you want the yacht you have to pay the tax
Not really. You just structure the transactions to avoid what is taxable, e.g., you buy the yacht at a low nominal price and simultaneously (and completely coincidentally) by some financial investment not subject to consumption tax from the same party at an inflated price.
Anyone who can avoid paying taxes on their income in an income tax system can avoid paying taxes on it in a consumption tax system. (If you have an "unconditionally tax every transfer of money between two parties" system, it gets harder, but that has all kinds of downsides.)
> but there are currently a lot of tricks you can play to convert stock into stuff without paying tax, like selling only the shares that have decreased in value.
Sure, if you only ever sell shares that have lost value, you can avoid paying the (low) capital gains tax, at the expense of always losing money.
That's not a way to maximize your net, after taxes, utility, but if you want to lose money just to avoid paying a small portion of the gain in taxes...
> The best way to think of a basic income is as a fixed tax refund.
I think you mean "fixed refundable credit" rather than a "fixed refund".