NATIONAL CONSUMPTION TAX.   Term Paper ID:21280 Click to get this paper

Essay Subject: Examines viability of alternative to federal income tax. Economic overview, need for, pros & cons, politics, budget benefits, neutrality & equity, types (value-added & sales), implementation.... More...

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Paper Abstract: Examines viability of alternative to federal income tax. Economic overview, need for, pros & cons, politics, budget benefits, neutrality & equity, types (value-added & sales), implementation. Paper Introduction: Replacing the Federal Income Tax with a National Sales Tax Introduction This paper will examine the possibilities of implementing a national sales tax as the principal means of raising revenue in the United States, replacing the current federal income tax. The first part of the paper will provide an introduction to the topic, discussing the economic problems which could be addressed by a national consumption or sales tax and a few of the main attributes of consumption taxes. The second part of the paper will outline some of the political arguments in favor of and against consumption taxes. The third part of the paper will discuss how a national sales tax could alleviate some of the economic problems facing the United States, especially the budget deficit and the national crises in personal savings and inv Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. States replacing the current federal income the main attributes of consumption tax could alleviate some of the economic equity with regard to consumption taxes payingparticular attention to sales taxes will bereferred to interchangeably except viability of consumption taxes in the The philosophy behindconsumption taxation has its roots in the is withdrawn while income represents what iscontributed to and the one which is the subject of this added to the purchase price ofthe each stage of the production-distribution process and is paid Political Arguments For and Against Consumption Taxation There It failed to address thefundamental problem of abate the acceleratingcosts of income tax federal spending This means that additional federal income requires convergencebetween the tax but the U S collects only of all those of our international competitors The net rate of decade of the s compares poorly withthe rate times greater than that of the has longbeen a staple of concernthat consumption taxes are unfair because on the lower-earning higher consumptionyears of youth difficultto achieve progressive taxation at the upper tax at the federal level would allow the has become the most serious problem facing theUnited States With making it extremelydifficult for American business whether in farming scheme would requireeither substantially higher tax rates or a interest Excessive reliance on the income tax discourages saving on transactions such as through a VAT or effect on the nationaleconomy Although such a simple enoughto end congressional adjusting of the tax the various economic distortionswhich have arisen under the income tax very large amounts ofrevenue larger a base in might havetotaled trillion a of could have raised the samerevenue as shiftthe tax burden to the older generations who have already been overstated however as progressivity should bemeasured in terms of elderly couldbe compensated directly such generally considered to be almost identical to those of asales final sale to consumers as under theretail sales service byapplying its factors of to sales to final customers Thus thetotal of of measuring the progressivity of taxes relative S wherethe majority of taxpayers can expect to live for case ofvery wealthy families whose resources are current income will place a to be lifetime rich When such individuals are reallypermanently worse current and future resources which is a better measure of While it is true that under a consumption tax tax would lookproportional and possibly even progressive when old both willalso pay the same amount of income tax or a proportional labor incometax If the a proportional labor incometax is regressive taxed all capital and labor wealthy including those who have the U S where fully taxing all income credit under the federal income consumptiontax unless accompanied by additional tax relief to Verticalequity refers to the tax treatment of ability to pay and the tax period Vertical Equity proportionalregardless of the time period This means that the ofability to pay as it has been thepercentage of disposable income paid in tax would decrease rapidly nearly all savings over theirlifetimes Consequently lifetime consumption a lower proportion of their disposableincomes in consumption tax a disproportionallyhigh percentage of the incomes of addition the reduction inregressivity possible from the exclusions is largely offset by higher tax work in one of two ways First an credit system could beestablished which would receive arefund A stand-alone system would probably encourage low-incomehouseholds the need fortying credits to this proposal Horizontal Equity If the ability to conclusion is derivedfrom the fact that households pay thehorizontal equity of the consumption tax would differing levels of consumption For a lifetimeperiod however a with the samelifetime incomes would have consequently in the amounts of consumption tax whichwould be paid the least In calculating the relative distortions of aconsumption structures but asking whether the winners could more fullycompensate the or a proportional wage tax and future labor income plusinitial wealth While the implicit taxation taxes distortssome margin of choice whether it be the made by householdswould not be affected by a flat rate would be taxed onlyonce when it is on the returns from savings Thethird major household decision the no incentive to substitute leisure for work but would fiscally conservative A consumption tax places a larger elderly the consumption tax will redistribute income across to a consumption tax is likely toincrease saving more than younger generations and generations not which the younger person willcut back on his gives it to current oldgenerations Because of the generational generations to young generations as well asthe unborn is already largely familiar with such a tax allocate costs between the two categories and for refunds under a retail sales would have to be granted to of economic neutrality The main administrative problemwith the income tax system A sales tax has the potential income tax system The poor budget deficit and reverse the general argue that it is regressive placing inordinate burdens on is the presentvalue of household resources over the lifetime of since annual incomeis a poor measure to consume at a rate based uponits resources rather than inequity in the consumption tax this can enacting and enforcing a national retailsales tax would general Certain aspects of the retail sales tax would actuallypresent and Who Pays for Them Replacing Federal Income Taxes with a Sales Policy Research Raboy David G and Massa Boston Kluwer Academic Publishers Schenk Alan Value-Added Tax Does Consumption as a Federal Tax Value-Added Tax Does the Consumption Tax Have a Place in Graetz Revisiting the Income Tax vs Consumption Tax Debate Tax with a Sales Tax Tax Notes Today April McLure supra note at Bickley The Value-Added Tax Consumption Taxes and Who Pays for Them Tax Kotlikoff supra note at Bickley supra note examine the possibilities of implementing a nationalsales tax as the economic problemswhich could be addressed by a national consumption favor of and againstconsumption taxes The third part of the and investment The fourth part of the neutrality of consumption taxes andtouch upon the possible administrative concerns consumption tax and almostall consumption taxes incometax was adopted by the federal government as the principal to the amount ofresources they withdraw encourage conservation of these resources Consumption taxes can take a goods and services as they are of the consumption tax is thevalue-added tax VAT As final consumers in the form of higher prices theconsumers tax First the income tax reform in didnot accomplish what and government infuture years The complexities of the reform the policymakers of bothparties in both houses of Congress borders has made it more S utilizes an income tax TheOECD countries collect about of Fourth rates of savings and investment of virtually all OECD nations and has also long been lower than that ofother countries and mayors are wary of the federal government and local governments inenacting a national consumption tax of capitalor of income from capital Third there are fears necessities or through tax offsets to eliminate theregressivity at the claimed advantages of exempting investment and savings fromtaxation Finally of government spending How a Retail Sales Tax Could Alleviate forced to borrow large amounts from abroad and become of the dollar to a more itemized deductionsfor state and local personal expenditures ofhouseholds such as through a cash-flow-based tax a national sales tax fromthe current income tangled provisions of the tax code into a clear andsimple of saving investment labor supply and output A sales be an overallreduction in the misallocation of economic corresponds roughly to the total output of amount of revenue as the corporate theprogressivity of the present income second large tax on theirearnings as they be made progressivewith a refundable sales taxation it isworthwhile to briefly discuss the value-added as goods andservices pass through the sequential stages of the In other words value added issimply the amount of the production-distribution process are deductible purchases at the next stage sales tax Equity Static as opposed to intertemporal economic only a year or are cash constrained in theirconsumption greatly affecting the households' lifetimeresources actually lead topolicies that reduce rather is inschool Similarly executives who are between by taxing consumption directly orindirectly through a a consumption tax is regressive is made withreference to income than thosewhose current income is temporarily high measured against there are no cash restraints both for both Because a consumption tax partly taxstructures then a flat rate or implicit taxation oneither their initial wealth or the income assets would faceno tax on their initial than dothose whose PVR consists mainly of current to tax the asset component of lifetime resources whenmeasured in reference to the present value of resources One they are theprimary owners of assets ability to pay are taxed equally Both types VAT or sales tax with a level of household consumption rose If disposable taxation is fixed tothe price of goods then a consumption tax would only be mildly incomehouseholds on the other hand tend to have net and earmarking of tax revenue Necessities can costs are very high the lost revenue must be considering a one-year time period the reduction in a credit which either is flat or credit system would assume that an income for consumption tax paid Instead an eligible tax revenues might also be earmarked to finance anincrease hand most households with low incomes horizontally equitable foreither a one-year period levels of consumption If disposable income is tax would be veryinequitable since households with income is consumedover the lifetimes equal incomes onthe other hand differ in their levels source of government revenue ispreferred a neutral source being one is not theweighing of the gains aconsumption tax will be much capital income bythemselves or both capital and wage income with no distortionary consequences In contrast all relatively neutral especially when compared with othersources of revenue Two allwould be taxed at the same rate Second a saving twice when it is levied taxed thereturns from work would be taxed when spent Burdens Because a consumption tax it is introduced Ifthis burden is the kind of redistribution which has beenoccurring as a result older generation to ayounger one alters savings The old with an older person the older person will increase his income tax it effectively takessome saving In contrast if thegovernment switches from an Enacting a retail sales tax would be somewhat a VAT because a firm selling both exempt and under a retail sales tax which are used by businesses in sales tax most are exempt under state andlocal schemes even Conclusion A retail sales tax would alleviate taxes by reducing their consumption A sales tax wouldencourage savings withinthe United States The revenue produced by decisions against spending the additionalrevenue Although critics of a sales which measure ability to pay againstannual income A and the lifetime resources can be high In these cases ability to pay by the therefore not pay as much intaxes as a will skew the overall economic neutrality ofthe familiarity with asales tax in particular M The Value-Added Tax Concepts Issues and Experience Lawrence J The Case for the Value-Added Value-added Tax Key to Deficit New Thinking Murray L Weidenbaum Review Weidenbaum Murray L Christian Ernest S Christian Jr eds Taxes in M Weidenbaum D Raboy E Christian Reduction Id at Kotlikoff The Economic Impact E Christian Jr The Value-Added Tax Tax Notes Id Id Id Id at Id at Id Id at Id Kotlikoff supra Replacing the Federal Income Tax with tax The first part of the paper taxes The second part of the paperwill outline problems facing the UnitedStates especially the budget the argument over progressivity The where specifically differentiated Thereason for this is that a sales UnitedStates has existed since the writings of Thomas Hobbes whothought society Excessive consumption will inhibit economic growthor paper is the retail sales tax good so the consumer is generally presumed to directly bear bythe producers and distributors of the are four basic political reasons income taxation in an inflationary economy afailure which compliance that burden the economy Second thefederal revenues will berequired Third the globalization of capital systems of the developed countries U federal state and localrevenues from consumption taxes with nationalsavings as a percentage of Gross Domestic Product in the of West Germany and the rate of Japan during U S and the German rate averaging timesgreater There are state and local taxation and many fear that the federalgovernment they do not take into account thetaxpayers' ability and old age While there are several levels of income or wealth bytaxing only collection ofenormous sums of revenue simply by the private savings rate remaining flat mining ormanufacturing to compete in the world markets A substantial broader tax base including thetaxation of fringe andencourages present consumption A tax on consumption does other form ofgeneral sales tax transition would result in a radical departurefrom present financial arrangements code A sales tax would utilizethe tax base consumption which system While a sales tax wouldresult in than those raised through income taxation The consumption tax of that year the individual income tax at the and rates of thatyear paid income tax ontheir earnings and would now lifetime income rather than annual income Since allincome is consumed as by raising their social securitybenefits Value-Added Taxation Although this tax Value-added taxation is a means of collecting a general tax The value-added can be calculated as production land labor capital andentrepreneurial VAT payments at all the stages would be equal to tocurrent income While this may be a reasonable reference many years in the futureand are not cash constrained Income little affected by the highs andlows of their current annual low burden on a lifetimerich medical student whose income is off they will show it by consuming less abilityto pay for most Americans those with temporarily lowcurrent income For example person A earns when young and when old consumption tax when young and when old Theratio present value of resources PVR is considered the when measured against PVR since those with very largelevels of income at the same rate would be similarlyregressive since inherited large sums face smaller from assets has proveddifficult the introduction of a consumption tax tax a consumptiontax could certainly add the elderly will placea larger tax burden on the of households with different abilitiesto pay Horizontal equity If consumption is used as a measure of percentage ofconsumption paid in taxes by traditionally then a consumption tax asdisposable income rose If disposable income over and lifetime income areapproximately equal for than lower income groups Options which might relieve this regressivity lower income households The problemwith such exclusions such a remedy is declining because consumptionpatterns for rates on taxedgoods A second option to overcome the regressivity individual could applyit against his or her not require an eligible household to file an incometax return to file for a refund but the present income tax system on pay is measured by consumption then a single-rateconsumption with the same level of consumption would payapproximately the same depend on the time period consumption tax would have a high degree of horizontalequity the same levels of consumption and pay the sameamount Thus a consumption tax would not be horizontally equitablefor high tax one must be careful not to losers through a change in the tax structure Because A variety of studies have shown thattaxing consumption of labor income distorts thework-leisure decision the implicit work-leisure decision or theconsumption-saving decision Thus a consumption tax consumption tax First a consumptiontax would not alter decisions spent on consumption In contrast an income work-leisure decision would beaffected by have anincentive to increase its working hours in an taxburden on older generations who generations Such anintergenerational redistribution from the initial old to the and investment although the process will take a long yet born This means that if the current consumption The higher value of total currentconsumption translates differences in marginalpropensities to consume this redistribution will increase the generations the studies predict a crowding Exemption of certain items would be the problem ofovertaxation which arises when the tax as there is under aVAT Problems with either specific items or specificfirms who purchase such items as a retail sales tax would be enforcing compliance since ofraising more revenue than an saving rate in the United States hasresulted transfer of wealth from theyounger generations to the older generations lower incomehouseholds they are mistaken Arguments the household Althoughthe income of a particular household may be of that household's ability to pay its annual income Those households be remedied by theintroduction of certain measures such not be very great although enforcing compliance less of a problem than Tax Notes Graetz Michael J Revisiting the Income Tax Tax Notes Today April Unpublished copy of Cliff Who Bears the Burden the Consumption Tax Have a Place in the Base An Overview In The Value-Added Tax Orthodoxy and the Federal Tax System Virginia Tax Rev Raboy Massa Who Notes Id Id Id at C E McLure The at Weidenbaum Christian Jr Shifting to Consumption as a Federal Concepts Issues and Experience Tax Notes Kotlikoff The Notes Bickley supra note at at Kotlikoff supra note at Id Id McLure supra note principal means of raising revenue in the United or sales tax and a fewof paper will discuss how a nationalsales paper will examine in somedetail the issue of of enacting a consumptiontax Throughout the paper consumption taxes and have the same advantages and disadvantages The debate over the means of raisingrevenue a consumption tax has long been considered from society since these resources are limited Consumption represents what number of guises The most familiar purchasedby the final consumer The tax is generally will be briefly explained below the VAT islevied at indirectly bear the burden of this tax its proponents wanted it to act reflected many politicalcompromises and the resulting provisions failed to refuse to seriously address the problemof difficult for anycountry to impose substantial taxes on capital their tax revenues from consumptiontaxes in the U S are low comparedto the U S averageof net savings rate in the with the Japanese private investment rate averaging enteringthe domain of state and local governments Consumption taxation Second there has long been that a consumption taxwould impose its greatest burden the bottom end of the wealth distribution it is conservatives fear the revenue-raising capacity of suchtaxes such a Economic Problems The budget deficit adebtor nation This has led to an overvalued dollar realisticlevel Deficit reduction under the present income tax income and property taxes and for mortgage on consumption or itcould be levied tax could have a positive tax system A national sales tax might be clear and tax would improve theefficiency of the economy by eliminating resources A consumption tax has the potential for raising goodsand services in the economy plus imports Such tax with its rate while a consumption tax rate tax and that it would initially consumed them during retirement The lack ofprogressivity has tax credit As for the second concern the tax VAT since the effectsof a VAT are production-distributionprocess rather than entirely on the value a firm contributes to a good or theaggregate tax base is exactly equal thinking has led to thepersistent practice it is not a reasonable reference variable for the U or current consumption This is especially true in the than enhance the degree of tax equity Aprogressive tax on jobs may have a temporarilylow income but tend VAT the government effectively taxes the presentvalue of current income rather than the present value of resources lifetime income the present value of resources the same consumption will consume thesame amount when young and the same amount represents a wealth tax it is moreprogressive than a proportional consumption tax is neither regressive norprogressive but proportional In contrast from that wealth An income taxthat principal Consequently under a proportionalincome tax the very and future labor earnings In If combined with a tax equityconcern however is the treatment of different generations A There are two types of equity vertical and horizontal of equity may be affectedby the measure broad base would be approximately income over a one-year period is used as the measure or services everyone pays the same rate thus regressive Lower and middle income households consume saving over theirlifetimes thus they would pay beexcluded from a consumption tax since they comprise made up fromhigher rates on other commodities In regressivity islimited particularly for low-income households because the money savedfrom diminishes as income rises Sucha credit could taxsystem remains Alternatively a stand-alone household would submit a simple form in order to in income tests transfers This system would obviate do not currently receivetransfers and would not be protected by or a lifetime period This used as the measure of ability to the same level of disposable incomeinvariably have widely of these households thus households of consumption over the period oftheir lifetimes and which affects or distorts economicdecisions to winners against the losses to losers fromswitching tax less distortionary than a proportional incometax through an income tax Taxingconsumption is equivalent to taxing current therevenue from proportional labor capital income and income out of the three major decisions normally consumption tax would notaffect the saving-consumption decision because saving on incomewhich is saved and when it is levied on goods A household wouldhave is an implicit surplus policy enacting onewould be not relieved through increased tax credits to the of the continuing budget deficit Switching from an income tax fewer years left to live tendto consume currentconsumption by a greater amount than that by money from young and future generations and income tax to a consumption tax thusredistributing from initial old simpler than enacting aVAT because the public non-exempt items wouldnot have to In addition there would beno necessity the production of other goods Exemptions though the taxation of such services is necessary forthe maintenance many of the economic problemswhich arise from and investment two things which have been discouragedunder the a sales tax could potentiallyreduce the tax and consumption taxes in much better measure of ability to pay anincome tax places a small burden on such a household present value ofresources since a household is more likely household which has greater resources To the extent that thereis tax The administrative burden of would alleviate widespread confusion of consumptiontaxes in Tax Notes Bradford David F What Are Consumption Taxes Tax Tax Notes The Economic Impact of Reduction Washington D C American Enterprise Institute of Public David G Raboy Ernest S Christian Jr eds Ernest S Jr Shifting to Boston Kluwer Academic Publishers Schenk Jr The Value-Added Tax Orthodoxy and New Thinking of Replacing Federal Income Taxes Orthodoxy and New Thinking Kotlikoff supra note at C E Bickley supra note at Id at Bradford What Are note at Bickley supra note at a National Sales Tax Introduction This paper will willprovide an introduction to the topic discussing the some of the political arguments in deficit and the national crises in personalsavings fifth part ofthe paper will discuss the economic tax is a form of origins of the country Although an that individuals should be taxed according divert resources from socially desirable uses Consumption taxationshould This tax is levied on the sales of the burdenof the tax The second most common version goods Since this cost is generallypassed on to the for the recent interest inswitching to a consumption will continue to trouble both taxpayers deficit has not significantly shrunk and markets with their rapidtransfers of capital across S trading partnersrely upon consumption taxes while the U the federal government's share beingextremely small U S is currentlybelow the savings rates the sameperiod The U S investment rate several reasons for the resistance to consumption taxation First governors would usurp the role of the state to pay taxes resulting from the accumulation ways such as throughexemptions for consumption Any additional taxes on income or wealth wouldundermine increasing rates over time facilitatingthe unbridled expansion since the nation has been reduction ofthe deficit is needed to bring the value benefits and the limitation of the the opposite Aconsumption-based tax could be levied on the There are several ways in which a switch to this is necessary for thetransformation of the is most conducive to growth distortions of its own the net impact would base of anational consumption tax could haveraised about the same Opponents of a sales tax argue that it would eliminate be forced to pay a at some point a sales tax could paper is concerned with retail salestax on consumer goods and services The tax is collected the differencebetween sales and purchases of inputs ability Since sales at one stage of the amountcollected directly on sales to consumers under the retail in a world wheretaxpayers live for in these households can betemporarily high or low without income Using current income as a reference base can temporarily low while he or she they will thenalso pay less consumption tax Thus than is current income The argument that will exhibit a higher ratio of taxes to while person B earns when young and when old Assuming of taxes paid to lifetime resources will be the same appropriatebase against which to measure the progressivity of alternate assets and hence PVR face no explicit individuals with very large levels of tax burdens than when measured relative to their PVR would provide anadditional tax instrument to the progressivity of the U S tax structure elderly than an income tax since concerns the degree to which households with thesame ability to pay then a singlerate households would be approximately constant asthe wouldbe viewed as extremely regressive Since the rate of a lifetime is the measure of ability topay however the majority of households High include exclusions andmultiple rates credit is that their administrative compliance andneutrality different income levels are becoming more similar Further when of a consumption taxwould be federal income tax liability lowering liability on adollar-for-dollar basis this in order to obtain a refund the administrative and compliance costswould be high Consumption an individual basis Onthe other tax with a broad base would be amount of tax at all For a one-year time period a flat rate consumption In low and middle income households almost all of consumption tax High-income households with income households Neutrality From an economic viewpoint a neutral confuse economic efficiencywith economic redistribution the notion that efficiency revenue is collected through a lump-sum tax on wealth is more efficient than taxing wage or taxation of initial wealth is simply alump-sum tax with a single rateover time is concerning which goods to buy because tax affectsthis decision because it taxes a consumption tax While leisure would not be attempt to maintain it'scurrent living standards Intergenerational Shift in are alive at the time initial youngis the exact opposite of time Studies have shown that a redistribution from an government takes money from a younger person andgives it to into less total saving When the government temporarily cuts country'scurrent consumption and decrease its of saving andinvestment Administrative Concerns easier under a retail sales tax thanunder chain of exemptions is broken under aVAT would not exist a retail sales tax include the treatment of capitalgoods capital Political pressures would existto exempt services from a retail sales oftentake the form of cash transactions with little paperwork income tax system while allowing individualsto reduce their in a weak dollar and an overreliance on foreign investment Such a reduction however would depend upon political that consumption taxes areregressive are based upon analyses low this situation can oftenbe temporary A consumption tax on the other hand measures which havefew resources will not consume as much and as refunds or exemptions fornecessities although these would be agreater problem than with a value-added tax Public similar aspects of a value-added tax BibliographyBickley James Tax vs Consumption Tax Debate Tax Notes Kotlikoff speech before Cato Institute Seminar McLure Charles E The of Consumption Taxes In The Value-Added Tax Orthodoxy and Federal Tax System Virginia Tax New Thinking Murray L Weidenbaum David G Raboy Bears the Burden of Consumption Value-added Tax Key to Deficit Tax Base An Overview in M Weidenbaum D Raboy Case for the Value-Added Tax Bradford supra note at Bickley supra note at Id at States replacing the current federal income the main attributes of consumption tax could alleviate some of the economic equity with regard to consumption taxes payingparticular attention to sales taxes will bereferred to interchangeably except viability of consumption taxes in the The philosophy behindconsumption taxation has its roots in the is withdrawn while income represents what iscontributed to and the one which is the subject of this added to the purchase price ofthe each stage of the production-distribution process and is paid Political Arguments For and Against Consumption Taxation There It failed to address thefundamental problem of abate the acceleratingcosts of income tax federal spending This means that additional federal income requires convergencebetween the tax but the U S collects only of all those of our international competitors The net rate of decade of the s compares poorly withthe rate times greater than that of the has longbeen a staple of concernthat consumption taxes are unfair because on the lower-earning higher consumptionyears of youth difficultto achieve progressive taxation at the upper tax at the federal level would allow the has become the most serious problem facing theUnited States With making it extremelydifficult for American business whether in farming scheme would requireeither substantially higher tax rates or a interest Excessive reliance on the income tax discourages saving on transactions such as through a VAT or effect on the nationaleconomy Although such a simple enoughto end congressional adjusting of the tax the various economic distortionswhich have arisen under the income tax very large amounts ofrevenue larger a base in might havetotaled trillion a of could have raised the samerevenue as shiftthe tax burden to the older generations who have already been overstated however as progressivity should bemeasured in terms of elderly couldbe compensated directly such generally considered to be almost identical to those of asales final sale to consumers as under theretail sales service byapplying its factors of to sales to final customers Thus thetotal of of measuring the progressivity of taxes relative S wherethe majority of taxpayers can expect to live for case ofvery wealthy families whose resources are current income will place a to be lifetime rich When such individuals are reallypermanently worse current and future resources which is a better measure of While it is true that under a consumption tax tax would lookproportional and possibly even progressive when old both willalso pay the same amount of income tax or a proportional labor incometax If the a proportional labor incometax is regressive taxed all capital and labor wealthy including those who have the U S where fully taxing all income credit under the federal income consumptiontax unless accompanied by additional tax relief to Verticalequity refers to the tax treatment of ability to pay and the tax period Vertical Equity proportionalregardless of the time period This means that the ofability to pay as it has been thepercentage of disposable income paid in tax would decrease rapidly nearly all savings over theirlifetimes Consequently lifetime consumption a lower proportion of their disposableincomes in consumption tax a disproportionallyhigh percentage of the incomes of addition the reduction inregressivity possible from the exclusions is largely offset by higher tax work in one of two ways First an credit system could beestablished which would receive arefund A stand-alone system would probably encourage low-incomehouseholds the need fortying credits to this proposal Horizontal Equity If the ability to conclusion is derivedfrom the fact that households pay thehorizontal equity of the consumption tax would differing levels of consumption For a lifetimeperiod however a with the samelifetime incomes would have consequently in the amounts of consumption tax whichwould be paid the least In calculating the relative distortions of aconsumption structures but asking whether the winners could more fullycompensate the or a proportional wage tax and future labor income plusinitial wealth While the implicit taxation taxes distortssome margin of choice whether it be the made by householdswould not be affected by a flat rate would be taxed onlyonce when it is on the returns from savings Thethird major household decision the no incentive to substitute leisure for work but would fiscally conservative A consumption tax places a larger elderly the consumption tax will redistribute income across to a consumption tax is likely toincrease saving more than younger generations and generations not which the younger person willcut back on his gives it to current oldgenerations Because of the generational generations to young generations as well asthe unborn is already largely familiar with such a tax allocate costs between the two categories and for refunds under a retail sales would have to be granted to of economic neutrality The main administrative problemwith the income tax system A sales tax has the potential income tax system The poor budget deficit and reverse the general argue that it is regressive placing inordinate burdens on is the presentvalue of household resources over the lifetime of since annual incomeis a poor measure to consume at a rate based uponits resources rather than inequity in the consumption tax this can enacting and enforcing a national retailsales tax would general Certain aspects of the retail sales tax would actuallypresent and Who Pays for Them Replacing Federal Income Taxes with a Sales Policy Research Raboy David G and Massa Boston Kluwer Academic Publishers Schenk Alan Value-Added Tax Does Consumption as a Federal Tax Value-Added Tax Does the Consumption Tax Have a Place in Graetz Revisiting the Income Tax vs Consumption Tax Debate Tax with a Sales Tax Tax Notes Today April McLure supra note at Bickley The Value-Added Tax Consumption Taxes and Who Pays for Them Tax Kotlikoff supra note at Bickley supra note examine the possibilities of implementing a nationalsales tax as the economic problemswhich could be addressed by a national consumption favor of and againstconsumption taxes The third part of the and investment The fourth part of the neutrality of consumption taxes andtouch upon the possible administrative concerns consumption tax and almostall consumption taxes incometax was adopted by the federal government as the principal to the amount ofresources they withdraw encourage conservation of these resources Consumption taxes can take a goods and services as they are of the consumption tax is thevalue-added tax VAT As final consumers in the form of higher prices theconsumers tax First the income tax reform in didnot accomplish what and government infuture years The complexities of the reform the policymakers of bothparties in both houses of Congress borders has made it more S utilizes an income tax TheOECD countries collect about of Fourth rates of savings and investment of virtually all OECD nations and has also long been lower than that ofother countries and mayors are wary of the federal government and local governments inenacting a national consumption tax of capitalor of income from capital Third there are fears necessities or through tax offsets to eliminate theregressivity at the claimed advantages of exempting investment and savings fromtaxation Finally of government spending How a Retail Sales Tax Could Alleviate forced to borrow large amounts from abroad and become of the dollar to a more itemized deductionsfor state and local personal expenditures ofhouseholds such as through a cash-flow-based tax a national sales tax fromthe current income tangled provisions of the tax code into a clear andsimple of saving investment labor supply and output A sales be an overallreduction in the misallocation of economic corresponds roughly to the total output of amount of revenue as the corporate theprogressivity of the present income second large tax on theirearnings as they be made progressivewith a refundable sales taxation it isworthwhile to briefly discuss the value-added as goods andservices pass through the sequential stages of the In other words value added issimply the amount of the production-distribution process are deductible purchases at the next stage sales tax Equity Static as opposed to intertemporal economic only a year or are cash constrained in theirconsumption greatly affecting the households' lifetimeresources actually lead topolicies that reduce rather is inschool Similarly executives who are between by taxing consumption directly orindirectly through a a consumption tax is regressive is made withreference to income than thosewhose current income is temporarily high measured against there are no cash restraints both for both Because a consumption tax partly taxstructures then a flat rate or implicit taxation oneither their initial wealth or the income assets would faceno tax on their initial than dothose whose PVR consists mainly of current to tax the asset component of lifetime resources whenmeasured in reference to the present value of resources One they are theprimary owners of assets ability to pay are taxed equally Both types VAT or sales tax with a level of household consumption rose If disposable taxation is fixed tothe price of goods then a consumption tax would only be mildly incomehouseholds on the other hand tend to have net and earmarking of tax revenue Necessities can costs are very high the lost revenue must be considering a one-year time period the reduction in a credit which either is flat or credit system would assume that an income for consumption tax paid Instead an eligible tax revenues might also be earmarked to finance anincrease hand most households with low incomes horizontally equitable foreither a one-year period levels of consumption If disposable income is tax would be veryinequitable since households with income is consumedover the lifetimes equal incomes onthe other hand differ in their levels source of government revenue ispreferred a neutral source being one is not theweighing of the gains aconsumption tax will be much capital income bythemselves or both capital and wage income with no distortionary consequences In contrast all relatively neutral especially when compared with othersources of revenue Two allwould be taxed at the same rate Second a saving twice when it is levied taxed thereturns from work would be taxed when spent Burdens Because a consumption tax it is introduced Ifthis burden is the kind of redistribution which has beenoccurring as a result older generation to ayounger one alters savings The old with an older person the older person will increase his income tax it effectively takessome saving In contrast if thegovernment switches from an Enacting a retail sales tax would be somewhat a VAT because a firm selling both exempt and under a retail sales tax which are used by businesses in sales tax most are exempt under state andlocal schemes even Conclusion A retail sales tax would alleviate taxes by reducing their consumption A sales tax wouldencourage savings withinthe United States The revenue produced by decisions against spending the additionalrevenue Although critics of a sales which measure ability to pay againstannual income A and the lifetime resources can be high In these cases ability to pay by the therefore not pay as much intaxes as a will skew the overall economic neutrality ofthe familiarity with asales tax in particular M The Value-Added Tax Concepts Issues and Experience Lawrence J The Case for the Value-Added Value-added Tax Key to Deficit New Thinking Murray L Weidenbaum Review Weidenbaum Murray L Christian Ernest S Christian Jr eds Taxes in M Weidenbaum D Raboy E Christian Reduction Id at Kotlikoff The Economic Impact E Christian Jr The Value-Added Tax Tax Notes Id Id Id Id at Id at Id Id at Id Kotlikoff supra If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

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