Study Finds Benefits in Consumption Tax

By Jones, Walter C. | The Florida Times Union, June 27, 2011 | Go to article overview

Study Finds Benefits in Consumption Tax


Jones, Walter C., The Florida Times Union


Byline: Walter C. Jones

ATLANTA The conservative politicians and talk-show hosts calling for a switch to a consumption tax rather than income taxes are on to something, according to a recent study by Georgia State University.

Such a change would bring many benefits, if it could be pulled off. But the study Mark Rider, associate professor of economics, produced for the Fiscal Research Center at GSU's Andrew Young School of Policy Studies says it's nearly impossible for Georgia to do it.

Rider quotes other studies that estimate switching the entire U.S. tax system could boost the overall economic output by 9 percent. That's because corporate profits would no longer be double taxed - when the corporation earns them and then when the shareholder receives them - and would no longer be at a tax disadvantage with corporations in other countries.

That would essentially increase the rate of return on stock, bonds and other aspects of business ownership, which should attract investment funds from abroad, money that can create jobs.

Rider's study lists other benefits as well.

For one thing, the government could have a steady revenue stream that would reduce the temptation to raise taxes in a recession, cut services or lay off government workers. That's because consumption amounts to a steady 60 percent of the economy when food and medicine are taxed, so the actual rate wouldn't have to be high.

Consumers' money would go further, too, he argues, since there would be no tax cascading as there is on the current retail sales tax. That's where a product gets taxed at several steps in its production and the end price has to reflect each tax.

Ending tax cascading would also result in wages rising faster than inflation, he argues. Plus, it would reduce the cost of compliance because there would be no need for hiring accountants to complete income-tax forms anymore.

He also addresses one of the major objections to a consumption tax from liberals. They consider such a tax harmful to those with low incomes because they have to spend a greater portion of their money on necessities than the rich. …

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