Progressive Consumption Taxation The X-Tax Revisited

The United States is alone among industrialized countries in having no broad-based consumption tax at the national level. Yet, economic analysis suggests that consumption taxation is superior to income taxation because it does not penalize saving and investment. This book proposes to completely replace the income tax system with a progressive consumption tax, known as the X-tax. The X-tax achieves progressivity by applying graduated tax rates to wages and a high flat tax rate to business cash flow, which reflects consumption financed from wealth accumulated prior to the reform and from above-normal business investment returns, which largely accrue to well-off households. Because the X tax is relatively unfamiliar, there is concern about how it can be implemented. The X-Tax Revisited sets forth solutions to commonly perceived problems concerning the taxation of pensions and fringe benefits, business firms, financial intermediaries, international transactions, owner-occupied housing, state and local governments, and nonprofit institutions. By adopting these approaches, the United States can move to a progressive tax system that no longer penalizes saving and investment.