Income versus Consumption Tax Baselines for Tax Expenditures
25 Pages Posted: 3 Oct 2008 Last revised: 22 Feb 2010
Date Written: February 19, 2010
This paper explores the implications of evaluating income tax preferences, or tax expenditures, under a consumption tax baseline. First it examines the conceptual differences between income and consumption tax baselines. Next, an X-tax prototype of a consumption tax is employed to gauge the sensitivity of the estimates to the two baselines, i.e., current law income tax and the X-tax. The tax expenditure estimates for capital income preferences are vastly different under the two regimes.
Keywords: Tax Expenditures, Income Tax, Consumption Tax
JEL Classification: H23, H24
Suggested Citation: Suggested Citation