The consumption tax proposals considered and analyzed include direct consumption taxes (like a consumed income tax and yield exemption tax), indirect consumption taxes (like a retail sales tax and various forms of value added taxes), and combinations of the two (like the Flat Tax, X Tax, and E Tax proposals), which involve a two-tier tax structure.
They are (1) a consumed income tax, (2) a value added tax (VAT), which could take the form of a subtraction method VAT, a credit invoice VAT, or a retail sales tax (RST), which is analytically equivalent to a VAT, (3) a two-tier consumption tax based on a VAT, and (4) a yield exemption tax.
(For an illustration of this type of tax, see Ed McCaffery's proposal for a "consumed income tax
* Consumed income tax
, such as the unlimited savings allowance (USA) tax.
The proposals described below are all, in fact, variations on the consumed income tax plan described almost twenty years ago in Blueprints for Basic Tax Reform, a study directed by David F.
The bill replaces the current individual and corporate federal income tax with a flat tax modeled after the consumed income tax proposals by Stanford Economist Robert Hall and Alvin Rabushka of the Hoover Institution.
Most commentators conclude that replacement of the current hybrid income tax with a consumed income tax
would simplify the law.
This makes taxes such as a valued added tax, a national sales tax, a consumed income tax
, or a similar consumption tax, much more a current issue for discussion than might have been considered possible a few years ago.
Rather, under a cash-flow or consumed income tax system, we would measure the amount of cash that the taxpayer received.
Opponents also argue that a cash-flow or consumed income tax would present formidable transition problems.
A commission headed by Senators Sam Nunn (D., Ga.) and Pete Domenici (R., N.M.) endorsed a fundamental change in the tax system to encourage saving and investment: the conversion of the income tax to a consumed income tax
(107) In that manner, the consumed income tax
would levy the tax directly on consumption.