Files

Download

Download Full Text (16.7 MB)

Description

Recent intellectual and political forces have moved the consumption tax to the forefront of tax policy debate. Since traditional flat-rate consumption taxes like the VAT raise serious distributional concerns, tax scholars have responded with innovative progressive consumption taxes. Two such taxes - the Hybrid Approach and the X-tax - were independently analyzed in a recent symposium on fundamental tax reform. These two proposals contain striking similarities. Both would tax individuals at progressive rates on their wages, with a separate tax on consumption less wages. Important differences exist, though, regarding the latter tax. The Hybrid Approach would impose such tax on individuals while the X-tax contemplates a VAT-like tax on all businesses.

The X-tax and the Hybrid Approach are intriguing as they address the distributional objections to conventional consumption taxes. Standing alone, however, each raises problematic implementation tradeoffs. On the one hand, the X-tax simplifies individual tax reporting compared to the Hybrid Approach and current law. On the other hand, the X-tax would change current law significantly more than the Hybrid Approach, thereby exacerbating transition costs. Blending the respective strengths of the X-tax and the Hybrid Approach, I propose a new consumption tax consisting of three parts: a progressive wage tax, a business tax solely on corporations, and a limited individual tax on consumption less wages. This combination minimizes both individual tax reporting and changes to current law, thereby easing the way to a more equitable, efficient, and administrable tax system.

Publication Date

2005

Volume

57

Publisher

Hastings Law Journal

First Page

55

Keywords

taxes, tax law

Disciplines

Law

Download

Included in

Law Commons

COinS