Egalitarianism and Consumption Tax

Abstract

Consumption taxes are often used to dissuade citizens from purchasing products that cause negative health outcomes, such as tobacco and alcohol. Such taxes are often criticized on the grounds that they discriminate against the poor: Consumption taxes are ‘regressive’, insofar as they require poor persons to pay a larger fraction of their income per consumed unit of good. After an attempt to spell out exactly what this objection asserts, this chapter attempts to respond to it. The apparently egalitarian complaint about regressive taxation can be countered by other egalitarian worries about the vulnerability of low-income groups to the harms resulting from the type of consumption being taxed. This calls for the redesign of consumption taxes rather than abolition. Further progress can be made by recognizing there are ways of taxing consumption other than the standard model of a sales tax that is typically assumed in these debates. One is to hypothecate the revenues from ways that aid the poor, mitigating the regressivity of the tax burden. Another is to replace sales taxes with licences or permits. Hypothecation and licensing can also be combined in ways that can eliminate regressivity altogether. This contribution attempts to develop these ideas in more detail.