Progressive consumption tax?
June 5, 2012 Leave a comment
The basic criticism of consumption taxes are that they are regressive–a larger proportion of the poor’s income is subjected to them as compared to the rich. In making policy, this negative attribute must be considered along side the positives, such as ease of collection, difficulty in avoidance and not penalizing savings. The standard tweaks to consumption taxes that address concerns about regressivity, such as exempting food or clothing, rids consumption taxes of many of their benefits. So, they are sold as a panacea by many conservatives, and not even considered by most progressives.
Len Burman reviews a new book by Bob Carroll and Alan Viard Progressive Consumption Taxation: The X Tax Revisited. This book proposes their X tax to replace the current income tax system (based on past work of David Bradford). Here is a one hour video discussing the book. Len Burman is not totally sold on this idea, and he rightly says they need a catchier name (X tax invokes high school algebra and related anxiety!), but he gives the authors high marks for wrestling with the difficult transition issues from our current income tax to the proposed system, that many proponents of big tax changes assume away. I have not read this book, but have read some of the related working papers, and this is not beach reading, but it is important. I will read it and write more later.
update: fixed a blog fail