Replacing the federal income tax with a national sales tax would not be regressive if the sales tax were appropriately constructed, says Tufts University economist Gilbert E. Metcalf.

Using data from the Bureau of Labor Statistics' Consumer Expenditure Survey, Metcalf found that if lifetime income -- rather than annual income -- is used to rank households, a sales tax becomes much less regressive.

He argues that using a household’s lifetime income provides a better picture of the incidence of the sales tax, since consumption varies widely from year to year and takes a greater proportion of the income of the young and old than those in middle age -- but for different reasons.

Furthermore,

• If a sales tax provides a payroll tax rebate to the poor, it would be only slightly less progressive than the current income tax.

• Alternatively, a universal rebate tied to poverty thresholds could be coupled with a national sales tax -- the formula of H.R. 2001, the Schaefer-Tauzin bill.

• In that case, the sales tax would be roughly as progressive as the current income tax system.

Metcalf examined the effects of a universal family rebate equal to the poverty level times the sales tax, and a sales tax that provides a $2,000 per worker refund on payroll taxes. He cautions that the debate about shifting to a sales tax should not center on progressivity or regressivity factors -- but on efficiency gains and broad economic benefits.

Source: Gilbert E. Metcalf, "The National Sales Tax: Who Bears the Burden," Policy Analysis No. 289, December 8, 1997, Cato Institute, 1000 Massachusetts Ave., N.W., Washington, D.C. 20001; (202) 842-3490.