Perhaps the most important argument against consumption taxes is Murray Rothbard's critique of them here, noting their time-preference prejudice:
"The major argument for replacing an income by a consumption tax is that savings would no longer be taxed. A consumption tax, its advocates assert, would tax consumption and not savings. The fact that this argument is generally advanced by free-market economists, in our day mainly by the supply-siders, strikes one immediately as rather peculiar. For individuals on the free market, after all, each decide their own allocation of income to consumption or to savings. This proportion of consumption to savings, as Austrian economics teaches us, is determined by each individual's rate of time preference, the degree by which he prefers present to future goods. For each person is continually allocating his income between consumption now, as against saving to invest in goods that will bring an income in the future. And each person decides the allocation on the basis of his time preference. To say, therefore, that only consumption should be taxed and not savings is to challenge the voluntary preferences and choices of individuals on the free market, and to say that they are saving far too little and consuming too much, and therefore that taxes on savings should be removed and all the burdens placed on present as compared to future consumption. But to do that is to challenge free-market expressions of time preference, and to advocate government coercion to forcibly alter the expression of those preferences, so as to coerce a higher saving-to-consumption ratio than desired by free individuals."
Rothbard goes on to ascribe this prejudice to "Calvinism", which may be entertaining to the libertarian who is interested in wine, women and song now and has a devil may care attitude about present frugality as a defense against want later. But this assumes there is no moral difference between savings and consumption, which there certainly is when the penniless old man turns up on your doorstep, hat in hand. The libertarian has his own time preference prejudice, were he to admit it, which life teaches us has serious consequences, more often than not.
Be that as it may, it is important to recognize that standard measurements of economic activity in the United States have for some time shown, in something like the following formulation, that "70% of GDP consists in consumer spending", and were it not for schemes like Social Security and Medicare there would be far more ringing of the bell going on at the front. This is quite a remarkable fact in a supposedly Calvinist civilization, a fact which argues for the moral superiority of savings over consumption because despite our better natures we in reality live otherwise. This suggests that we still ought to do everything we can to encourage the former and punish the latter, for the simple reason which the observation of human nature teaches. We are mixtures of good and evil, but unfortunately too often it turns out to be a bad mixture.
The ancient Greeks, among other things, notably taught us "nothing too much", by which we may infer that the preponderance of present spendthrifts demonstrates individual and social excess which ought to be remedied by tax policy encouraging the increase of savers. To right the ship would mean achieving a better balance between the two, and to Rothbard's main point, which is that under a consumption tax savings would inevitably be taxed in the long run anyway just as consumption is in the present because that is what savings becomes, we therefore ought to have no compunction about taxing savings in the end. That is what the death tax accomplishes, the final message to an excess of savings.
In the present context this recommends taxation of consumption in some form to encourage marginally less of it, better mechanisms of rewarding savings of which we have too little, and a death tax which approximates the same level as a consumption tax would operate at. This means that draconian schemes of estate confiscation by the government at death are in principle unjust because as consumption taxes we would never think of imposing similar levies on the living.
Unless, of course, we subscribe to The New Republic.
