David Frum

08.23.12

A Consumption Tax for Romney

Former FrumForum contributor Kenneth Silber makes the case at Research magazine that Romney would be wise to embrace both a progressive consumption tax, as well as a carbon tax:

An X tax is a VAT that has been revamped so as to maintain progressivity. As with any VAT, tax is due at every stage of production or distribution. However, as with a progressive income tax, household wages are taxed by brackets; also business cash flow is taxed at that scale’s top rate. The burden falls squarely on consumption. Firms can deduct their business investments, and households pay no taxes on interest, dividends and capital gains. All savings, in effect, are getting the advantage of being in a Roth IRA.

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There would be concerns about a carbon tax’s regressive effects, such as higher gas prices’ impact on low-income rural residents dependent on cars to get to work. Such concerns may be lessened dramatically if some other costly burden for low-income workers—such as the payroll tax—were to be eliminated as part of the bargain.

To sum up, the president inaugurated Jan. 21, 2013, could be the man who got rid of the income tax and payroll tax, improving the nation’s economic and fiscal prospects while aiding the environment and national security in the process. Not a bad way to navigate a stormy sea.