Customer Reviews

The USA Tax: A Progressive Consumption Tax

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Seidman presents a useful introduction to one of the current proposals to replace the existing income tax. He demonstrates that the 'consumption tax' is clearly superior to the existing income tax on both a practical and conceptual basis. However, he should have emphasized the practical case for the consumption tax, because judgements on the conceptual merits of income taxation vs. consumption taxation will always be subjective. I.e., advocates of the consumption tax cannot 'win' the argument solely on conceptual grounds.

The main difficulties with the income tax are that it is difficult to comply with (even when you're honest); avoidance schemes (legal ways to minimize tax); and evasion (cheating). No alternative to the income tax will eradicate cheating, but the author is correct that the consumption tax would police cheating better than the current system does. Perhaps he should have emphasized this more.

Avoidance schemes under the income tax (sometimes called 'tax planning' by their creators) are rampant and a cause of significant complexity, as the Revenue Service and Congress try to deal with each scheme on an ad hoc basis. Because the consumption tax is much simpler n concept than an income tax, the opportunities for avoidance schemes would be reduced. Additionally, the 'garden variety' avoidance schemes that would be expected to crop up under a consumption tax have been identified and could be dealt with up front in the implementing legislation

For those who desire more information on what's wrong with the current system, read Michael Graetz's recent book on that topi