Abstract

Proponents of consumption taxation claim that one of its major advantages is simplification. They argue that a consumption tax would be considerably less complicated technically than the present income tax and that it would lead to a drastic reduction in the resources devoted to tax planning, compliance, and administration. This chapter considers whether the idealized proposals for consumption tax reform in the United States could survive the political process. It discusses numerous ways in which the pure proposals might be modified and concludes that such highly plausible political adjustments would reduce or eliminate the gains that otherwise might be realized from fundamental tax reform. In analyzing the possible politics of consumption-based tax reform, the chapter discusses two plausible scenarios: bipartisan consumption tax reform and consumption tax reform led by the Republican Party. It also looks at the significance of the fiscal gap for consumption-based reform and important political interests that might affect the end product of consumption-based reform (for example, homeownership, charities, state and local governments, health insurance and healthcare). Finally, it considers the politics underlying the X-tax.

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