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The United States is alone among industrialized countries in having no broad-based consumption tax at the national level. Yet, economic analysis suggests that consumption taxation is likely to be superior to income taxation, because it does not penalize saving and investment. This book proposes to completely replace the income tax system with a progressive consumption tax. This approach avoids the problems arising from the adoption of a consumption tax alongside the income tax and also avoids the distributional problems posed by regressive consumption taxes, such as the VAT.
This book argues that the Bradford X tax, developed by the late David Bradford, offers the best form of progressive consumption taxation. The X tax modifies the VAT, so that it no longer imposes a flat-rate tax on all consumption. It splits the value-added tax base, which equals aggregate consumption, into two components, wages and business cash flow. The X tax achieves progressivity by applying graduated tax rates to wages and a high flat tax rate to business cash flow, which reflects consumption financed from wealth accumulated prior to the reform and from above-normal business investment returns, which largely accrue to well-off households.
Because the X tax is relatively unfamiliar, however, there is concern about how it can be implemented. This book sets forth solutions to commonly perceived problems concerning the taxation of pensions and fringe benefits, business firms, financial intermediaries, international transactions, owner-occupied housing, state and local governments, and nonprofit institutions, and the transition. By adopting these approaches, the United States can move to a progressive tax system that no longer penalizes saving and investment.
Praise for “Progressive Consumption Taxation: The X Tax Revisited”
“Progressive Consumption Taxation carefully lays out the rationale for adopting a progressive consumption tax system in the United States and shows how such a system can be adopted. Carroll and Viard provide the motivating ‘big picture’ arguments but also tackle the many thorny details that confront this tax reform, including the appropriate treatment of financial intermediaries, international transactions, and transition from the income tax. The book is accessible to those with a policy interest, but it will also enlighten tax experts.”
—Alan J. Auerbach, University of California, Berkeley
“Although consumption-type taxes like the Flat Tax and FairTax are beloved by GOP presidential candidates, they have never won political traction because they are widely perceived as unfair. Bob Carroll and Alan Viard take fairness considerations seriously and explain how a modern version of the X Tax could address them while preserving the efficiency advantages of a consumption tax. The book provides a comprehensive and accessible analysis of progressive consumption taxation and should be on the reading list of anyone interested in fundamental tax reform.”
—Leonard E. Burman, Syracuse University and the Urban Institute
“Two of Washington’s top tax scholars have authored an excellent new book on overhauling the federal tax code. Alan Viard and Robert Carroll’s new book, Progressive Consumption Taxation, is a great introduction to tax reform for young policy wonks who want to understand the economics of savings, investment, tax base neutrality, efficiency, and other factors that are important in tax design.”
—Chris Edwards, Cato Institute
“This book does a great job of explaining both the rationale for enacting an X-tax, and how it might actually work.”
—Daniel Shaviro, New York University School of Law
“With the demand greater than ever for both fairness and growth, any tax plan that can credibly promote both – instead of pitting one against the other – is a plan that should attract a lot of attention. That is exactly what Robert Carroll and Alan Viard provide in their new book, Progressive Consumption Taxation: The X Tax Revisited. […] With a combination of facts, an encyclopedic knowledge of tax economics, and clear writing, they make a convincing case. […] There is no stridency, no overselling, and for the most part, no glossing over the numerous difficulties of any major reform plan. They educate more than advocate. And that makes the book relevant not just to readers interested in overhauling the code in the particular way the authors suggest, but also to anybody who wants a balanced overview of the latest developments in tax economics.”
—Martin Sullivan in Tax Notes
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Progressive Consumption Taxation: The X Tax Revisited
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