Consumption Tax: An Idea Whose Time is Coming?

January 1, 1983

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Foreword “Reagan Studying Taxing Income That Is Spent, Not Saved”—“Administration Weighs Shift to Consumption Tax: ‘Reform’ Would End Income Levy.” So went news headlines last January when the idea of a “consumption tax” became a hot number in Washington’s tax reform follies of 1983. What explains the revived interest in a tax proposal that was considered and rejected more than 40 years ago, in 1942, as a World War II financing measure?

The basic impetus springs from the seemingly unstoppable rise in government spending. That spawns added demand for government revenue, which can be met only by higher taxes in one form or another. At the same time, the present tax system—wonder of the world for so mans decades—shows signs of strain and maybe terminal illness.

In this situation, politicians of both major political parties and all shades of opinion, from Far Right to Far Left, are casting about for new ways to raise revenue. And a consumption-based tax which could stimulate savings and investment—the vital medicine for long-range economic health—is in the spotlight for congressional study and maybe a trial run, some day.

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