Progressive Consumption Taxation: Can It Be Done? Should It Be Done?
About This Event

Online registration for this event is closed. Walk-in registrations will be accepted.

In 2005, the President’s Advisory Panel on Federal Tax Reform put forward a tax plan that would replace most, but not all, of the federal income tax with a progressive consumption tax. Known as the Bradford X-tax, this type of tax was developed by the late Princeton University economist and AEI scholar David F. Bradford. Members of the advisory panel argued that moving from an income tax to a consumption tax would promote saving and long-run economic growth. They also argued that moving to the X-tax would preserve tax progressivity--that is, avoid a shift of the tax burden onto those least able to pay.

Panelists at this conference, cosponsored by the Tax Foundation, will explore whether progressive consumption taxation can and should be done. The advisory panel’s chief economist, Rosanne Altshuler, a professor at Rutgers University, will explain and discuss the “Growth and Investment Tax Plan” as well as other options considered by the panel. University of Virginia Law School professor George Yin will offer an independent perspective on the panel’s work. Leonard E. Burman of the Brookings-Urban Tax Policy Center, Robert Carroll of the Tax Foundation, and William Gentry of Williams College will discuss and evaluate possible ways to combine progressivity with consumption taxation. Former House Ways and Means Committee chairman Bill Thomas will deliver a keynote address on the implications and political prospects of progressive consumption tax proposals.

Agenda

9:00 a.m.
Registration
9:15
Welcome:
9:20
Panel I:
The President’s Advisory Panel on Federal Tax Reform
Presenters:
Rosanne Altshuler, Rutgers University
George Yin, University of Virginia Law School
Moderator:
Alan D. Viard, AEI
10:20
Break
10:30
Panel II:
Achieving Progressivity in the Tax Code
Presenters:
Leonard E. Burman, Urban Institute and Brookings-Urban Tax Policy Center
Robert Carroll, Tax Foundation and American University
William Gentry, Williams College
Moderator:
12:15 p.m.
Luncheon
Keynote Speaker:
1:00
Adjournment

Event Summary

Consumption Taxation: Is It Best? Can It Be Progressive?

WASHINGTON, OCTOBER 29, 2008--Could a consumption tax, long favored by economists as more efficient, avoid being regressive and generate enough revenue to replace the complicated, messy income tax? Gathered at AEI on October 24 to discuss fundamental tax reform, several tax experts addressed the value of--and challenges to implementing--a progressive consumption tax.

There was broad agreement among the panelists that tax reform can provide substantial economic benefits relative to the current tax system. "Perhaps we can come up with a tax system that can get more out of the economy that can raise revenue in a more efficient way," said Robert Carroll of the Tax Foundation and American University. "We have a very significant long-term problem we have to deal with . . . the looming entitlement problem. . . . Tax reform is important because if you can squeeze more out of the tax system, it might make it easier to address the longer-term problems the nation faces." Carroll proposed the adoption of a "Bradford X tax," named after the late David Bradford. The X tax has two components: business firms pay a flat value-added tax (VAT) with a deduction for wages and workers pay a progressive tax on wages. Carroll said that "[the Treasury Department under President Bush] kept gravitating towards an X-tax as . . . the reform that would do the most for the economy in terms of living standards and economic growth. . . . We were pretty sure we could do that in a way that was distributionally neutral and revenue-neutral."

Despite favoring a general move toward consumption taxation, not all panelists agreed with Carroll about the optimal quality of the X tax. Roseanne Altshuler of Rutgers University outlined some the plans proposed by the President's Advisory Panel on Federal Tax Reform: the simplified income tax (SIT), growth and investment tax (GIT), and progressive consumption tax, all of which she said constituted substantial improvement over the current system, both in simplicity and efficiency. The panel--assembled by President Bush in January 2005--was charged with creating tax proposals that would simplify the tax code, provide appropriate progressivity, and promote long-run economic growth and job creation. The panel, which consisted of prominent businesspeople, lawmakers, economists, came to a consensus on the SIT and the GIT, both which included improved incentives for saving. The GIT is closer to a progressive consumption tax than the SIT, and it would replace most of the income tax system with a Bradford X tax but maintain taxes on dividends, capital gains, and interest at a flat 15 percent rate. The panel could not reach consensus on the progressive consumption tax, which would have completely replaced the income tax system with an X tax, because concerns about maintaining the progressivity of the tax code could not be overcome.

George Yin of the University of Virginia Law School used the failure of President's Advisory Panel to reach agreement on a true consumption tax to highlight the political impediments to tax reform. "The only consensus recommendation they were able to come out with . . . was a hybrid progressive consumption tax," he said. "What they did is that they took essentially the Bradford X tax and appended to it a 15 percent tax on capital for investments held outside of [a] sheltered account." Yin's primary concern was that since the GIT is at its core an attempt to create a consumption tax that looks like our current income tax structure, political considerations would, over time, cause many of the beneficial provisions--like its low tax rate on savings--to be eroded by the political process.

Leonard E. Burman of the Urban-Brookings Tax Policy Center agreed that the political impediments to an X tax reform would be difficult to overcome, and he proposed his own tax reform plan, which would use an add-on VAT to pay for entitlement spending, decreased income tax rates and the abolition of the alternative minimum tax. "A big problem . . . is that tax reform by itself is not very attractive, especially in a revenue-neutral context. There are lots of winners and losers," Burman said. "I came up with the idea: 'Well, maybe a combination of tax reform and health reform at the same time,' with the logic that maybe if you take two impossible things and do them at the same time, that makes them more likely than if you only do one." Burman said that his plan, which would dedicate VAT revenues to health spending, would concretely tie increases in entitlement spending to tax increases, thus generating political will for entitlement reform.

Keynote speaker Bill Thomas of AEI, the former chairman of the House Ways and Means Committee, assessed the chances of tax reform in the current political climate, assuming that Barack Obama is elected in November: "I do not believe that this administration has any belief that tinkering on the margin . . . comes anywhere near the revenue [needed to pay for its programs]." He added, "I think the drive for revenue will be the least painful way to get revenue, which will lead us towards the value-added tax."

--SCOTT GANZ

For video, audio, and more information about this event, visit www.aei.org/event1792/.

David Bradford authored a 2004 AEI Press book on his X tax proposal: The X Tax in the World Economy: Going Global with a Simple, Progressive Tax.

For media inquiries, contact Véronique Rodman at 202.862.4870 or vrodman@aei.org.

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AEI Participants

 

Bill
Thomas
  • Bill Thomas, a former chairman of the House Ways and Means Committee, served in the U.S. House of Representatives from 1978 to 2007. During his six-year chairmanship, he guided the enactment of $2 trillion in tax relief, including the Economic Growth and Tax Reconciliation Act of 2001, which reduced all ordinary income tax rates; the Jobs and Growth Tax Reconciliation Act of 2003, which reduced the tax rate on dividends and capital gains; and the Job Creation Act of 2004, which provided significant reforms for corporate tax policy.
  • Phone: 2028625830
    Email: bill.thomas@aei.org

 

Alan D.
Viard
  • Alan D. Viard is a resident scholar at the American Enterprise Institute (AEI), where he studies federal tax and budget policy.

    Prior to joining AEI, Viard was a senior economist at the Federal Reserve Bank of Dallas and an assistant professor of economics at Ohio State University. He has also been a visiting scholar at the US Department of the Treasury's Office of Tax Analysis, a senior economist at the White House's Council of Economic Advisers, and a staff economist at the Joint Committee on Taxation of the US Congress. While at AEI, Viard has also taught public finance at Georgetown University’s Public Policy Institute. Earlier in his career, Viard spent time in Japan as a visiting scholar at Osaka University’s Institute of Social and Economic Research.

    A prolific writer, Viard is a frequent contributor to AEI’s “On the Margin” column in Tax Notes and was nominated for Tax Notes’s 2009 Tax Person of the Year. He has also testified before Congress, and his work has been featured in a wide range of publications, including Room for Debate in The New York Times, TheAtlantic.com, Bloomberg, NPR’s Planet Money, and The Hill. Viard is the coauthor of “Progressive Consumption Taxation: The X Tax Revisited” (2012) and “The Real Tax Burden: Beyond Dollars and Cents” (2011), and the editor of “Tax Policy Lessons from the 2000s” (2009).

    Viard received his Ph.D. in economics from Harvard University and a B.A. in economics from Yale University. He also completed the first year of the J.D. program at the University of Chicago Law School, where he qualified for law review and was awarded the Joseph Henry Beale prize for legal research and writing.
  • Phone: 202-419-5202
    Email: aviard@aei.org
  • Assistant Info

    Name: Regan Kuchan
    Phone: 202-862-5903
    Email: regan.kuchan@aei.org
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