Currently, we face a situation where the fate of the poorest Americans would be better off had they been paying more in taxes.

The biggest problem facing low income Americans today is the paucity of job openings. There is strong reason to think that additional government stimulus could help that. Yet, the effort to increase stimulus has been stymied by concerns over the US debt-to-GDP ratio.

Yet, if we look back on the past decade a low flat 5% consumption tax would have eliminated most of the debt. No doubt low income households would have been worse off paying such a tax. However, they are much worse off without the possibility of stimulus, today.

When we think of helping lower income households we typically think of transferring wealth from the rich to the poor. However, perhaps more useful is transferring wealth between the poor under different circumstances. Taking more from the poor when times are good and giving more when times are bad.  Providing low income households with this type of consumption smoothing is at the margin likely eliminate much more hardship then small increases in wealth.

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