'The Unequal Taxation of Equals' in a Consumption Tax World?

Abstract

The goal of this chapter is to explore what would become of some of the fundamental inequities in the current income tax laws, as described in the first six chapters of the book, "Unequal Taxation of Equals", in an integrated consumption tax. Assuming Congress were to adopt a consumption tax (other than a stand-alone sales or value added tax), which is merged with current tax law, which of the problems with our current law would carry over (or become worse) under a tax regime which encourages more savings. For example, what would (or should) happen to employer provided tax-free fringe benefits, the home mortgage deduction (is it savings or consumption?), the charitable contributions (gifts of real estate vs. securities), the elusive distinction between "business" vs. "investment" expenses, different tax treatment of salaries and dividends, tax losses, tax basis issues, and taxation of the family unit? After first summarizing some basic concepts of consumption taxes, the chapter then discusses specific examples of the inequities in current law in the context of an integrated consumption tax.

Keywords: tax, consumption tax, tax policy, unequal taxation, tax reform, double take

JEL Classification: K34, E62, H20, H21, H22, H23, H24, H25, H26, H71, J11, J12, J14, J16, J18, J78, Z10