SUBSTITUTING CONSUMPTION-BASED DIRECT TAXATION FOR INCOME TAXES AS THE INTERNATIONAL NORM

Abstract

There would be significant advantages to a worldwide switch from conventional income taxation to consumption-based direct taxation as the international norm. This paper considers two direct consumption-based taxes. Both allow the immediate expensing of all business expenditures. One exempts interest and dividends and allows no deductions for them. The other includes the proceeds of borrowing in the tax base and allows a deduction for repayment of debt; interest is treated as under the income tax. Also examined are the distinction in international tax principles between the taxation of the normal return to capital and the taxation of economic rents, and the implications of the principle of "administrative independence" as an objective of international tax relations.