NCPA - National Center for Policy Analysis

Taxing Consumption

February 12, 2003

Last Friday, President Bush issued his annual Economic Report. Press coverage focused heavily on the chapter relating to taxation. The lead was that President Bush favors a shift toward consumption taxation.

As is so often the case, the news stories gave the barest hint of what the report actually said. And the spin was designed to frighten voters into thinking that a new tax was being imposed on top of all the others, one that will be especially injurious to the poor.

What the Bush Administration proposes is something much more sophisticated and workable.

  • It wants to work within the existing tax system to get rid of taxes that burden saving and investment.
  • If this were done consistently, we would have a tax system that falls only on consumption without the administrative and political problems inherent in trying to tax sales directly.

Supplementing the effort to explain this initiative, President Bush has included a section in his new budget detailing specific deviations from a consumption tax base. (Look on page 130 in the Analytical Perspectives volume.) Taken together with the Economic Report, these constitute the most powerful case for consumption taxation since the 1977 Blueprints study, and the first to come out of the White House itself.

Source: Bruce Bartlett, "Taxing Consumption," National Center for Policy Analysis, February 12, 2003.

 

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