FUNDAMENTAL TAX REFORM AND STATE AND LOCAL GOVERNMENTS

Abstract

Recent years have witnessed calls for radical reform that transforms the federal income tax into a consumption-based tax. The debate, however, has been largely devoid of consideration of the issues related to state and local governments. This paper attempts to, in part, fill this void by addressing the considerable normative and positive difficulties related to state and local governments under a federal consumption-based tax. Consumption provided via the government sector will be difficult to tax efficiently and fairly, and attempts to do so will have potentially dramatic effects on the amount, financing, and production of government services.