Consumption Tax – Will It Ever Return?

COMMENT: Dear Martin, One of the knocks against a consumption tax has always been its potential effect on the deficit. It seems that argument is now irrelevant in the age of QE. This is the perfect time to move to a consumption tax (esp. w/ IRS scandal)

REPLY: We did a lot of research into taxation. I testified before Congress on why capital was moving international driven by taxes. I explained that it was not even the actual tax rate inasmuch as it was the constant changing tax policy in the USA that drove capital away. In the real world, companies have to establish what is called a BUSINESS PLAN and stick to it, unlike Congress. This constant raising and lower of the tax rate has done far more damage to our economy long-term than anyone wishes to admit.


Politicians blame corporations for just trying to avoid taxes and accept no responsibility for creating an environment where there is no stability. Other countries lure corporations in by giving them guaranteed tax rates that are not just lower, but are FIXED for decades. Our politicians are all about manipulating numbers to make people think they did something. They will use the criminal law and the IRS for political survival. There is no stability because it is all about them not the country.


This is simply human nature and until we stop this Marxist view of the world  that society has a RIGHT to the property of anyone on a changing basis and look at reality, there is no hope of creating economic stability. Nobody in their right mind would buy a house for $100,000 where the seller can change the price raising to $1 million by keep raising the final price on an ongoing basis as you are making payments. How can you contract for a mortgage or plan your future retirement? You cannot constantly keep changing the terms with each election. This is like renting an apartment where the landlord has the right to raise the rent whenever he needs money. You cannot then demonize the renter for not agreeing to these terms. Yet this is what we do to multinational corporations. Instead of looking at what we are doing wrong, we blame everyone BUT those in charge,


Martin Armstrong Steve Forbes Jim Florio



At Princeton Economics, we put in a major effort to try to bring this point of economic stability to the real forum. You will recall the whole debate on the Flat Tax. The up-front point-man on that issue was Steve Forbes who was running for President. Steve was a good guy, but was on board with the Flat Tax. Governor Jim Florio never saw something he did not think could be taxed. I took the middle ground in this debate at Princeton University for a Consumption Tax. I actually won Florio over by pointing out that Social Security was just a tax and we now were borrowing from the average person and not even giving them interest for their use of their money we call a refund check.



We produced an extensive report on the Consumption Tax back in 1996. The thrust of this was an effort to try to prevent what we are starting to go through now. History repeats and there is always a massive deflationary implosion because government ends up consuming so much money it sucks the life-blood out of everything. The Founding Fathers were very smart and they forbid DIRECT TAXATION to preserve our liberty. The difference between a Consumption Tax (indirect) and Income Tax (direct) is rather simple. The first government does not need to track you whereas the latter income tax you have an obligation as an economic slave and they own you and your labor. It is a matter of freedom.



I was working with Bill Archer who was the Chairman of the House Ways and Means Committee who was for a Consumption Tax and Dick Army who was for a Flat Tax. They were both Republicans but would not sit down together. I ended up shuffling back and forth between them. I was in the office with Dick. He had his feet up on his desk wearing his cowboy boots and smoking. Dick said it rather simple. He could not support a Consumption Tax for unless the Constitution would be Amended to remove the right to tax income, “when the Democrats get back in” (cycles) we would end up with both income and consumption taxes.




I gave up. Dick was correct. I realized that we simply just had to go down this path until we crashed and burned. There would be no stopping this freight-train from hell. So to all of those who send emails asking what if government would listen, my response is they cannot and will not. They will follow the invisible hand in their own self-interest to survive and keep raising taxes to try to sustain that power until everything collapses. That is just the way it has to be.




Sorry. We are going to have to hide under a rock and come out after everything collapses.