Like a ship covered in barnacles, the U.S. economy is burdened by a needlessly complex tax code that discourages saving and investment. The need for tax reform has never been clearer in Washington, but a solution appears out of reach. Though both parties agree that the tax code needs fixing, Republican desires for growth in the form of lower, flatter rates and Democratic wishes for fairness in the form of higher rates on higher earners have made consensus about broad changes impossible.
What if there was a way to solve this impasse?
There is. It's called the Bradford X Tax -- a progressive consumption tax that would impose separate taxes on the two components of consumption, wages and business cash flow. Economic researchers have found consumption taxation to be vastly superior to income taxation because it does not penalize saving and investment. Yet the United States is the only developed country without a broad-based national consumption tax.
In their new book, "Progressive Consumption Taxation: The X Tax Revisited" (AEI Press, June 2012), economists Alan Viard and Robert Carroll explain how a consumption tax would work in the U.S. and how the X tax should completely replace the current income tax system. The X tax's unique features offer a game-changing solution to the tax problems that have hampered our economy and poisoned our politics. Republicans and Democrats alike could credibly unite around a tax reform plan that boosts economic growth while preserving progressivity.
- The X-Tax is pro-growth: as a consumption tax, it does not penalize saving and investment
- The X-Tax is fair: it preserves progressivity by taxing business firms and high-paid workers and at higher rates than other workers
American Enterprise Institute resident scholar Alan Viardhas served as a senior economist at the Federal Reserve Bank of Dallas and has also worked for the U.S. Treasury Department's Office of Tax Analysis, the White House's Council of Economic Advisers and the Joint Committee on Taxation of the U.S. Congress, as well as taught economics at Ohio State University. Viard is available for interviews and can be reached at firstname.lastname@example.org or 202.419.5202 (or through research assistant Veronika Polakova at email@example.com or 202.862.4880). Co-author Robert Carroll has served as the Treasury Department's Deputy Assistant Secretary for Tax Analysis. He is a principal with Ernst & Young LLP's Quantitative Economics and Statistics group. He can be reached at firstname.lastname@example.org. For additional help or other media inquiries, please contact Veronique Rodman at email@example.com or 202.862.4871.
Video of Monday June 4 2012 AEI Hill event on The X Tax Revisited
Pro-growth tax reform can be progressive
The X tax: The progressive consumption tax America needs?
What if we had overhauled our tax code?