What is a consumption tax anyway?
Or, to put it another way, will people support a tax system that only economists seem to love? There are three ways to tax what economists call consumption — what the rest of us call spending. It can be taxed at the cash register through a retail sales tax. That’s what states do today. It can be added to the cost of goods, through a European-style value-added tax (VAT). Or it can be taxed through a 1040-type system. That’s what the tax panel suggested — sort of. Think of it like this: There are only two things you can do with your money — save and invest it, or spend it. Whatever you don’t save/invest, you spend. And that’s what gets taxed. In the perfect system, if you make $100,000 and put away $20,000, you pay tax on $80,000. The professors say that is no different from a sales tax or a VAT, which also taxes what you spend. The only difference is how it is collected. Bush isn’t likely to adopt either of these proposals exactly as they were suggested by the panel. But there is a g
