Top 10 Myths of a Consumption Tax System

Much of the recent tax policy literature and political rhetoric suggests that moving to a consumption tax (value added tax, goods and services tax, national sales tax, income minus investments) would be simpler, and less expensive to administer and comply with. Therefore, according to the rhetoric, the United States should drastically overhaul its tax system and repeal the income tax as we know it and substitute a consumption tax like a VAT or a GST that our trading partners are subject to. What those positions fail to mention is that our trading partners have a higher compliance and administrative cost than we do, and they have both an income tax (corporate and individual) and a VAT. Interestingly, Jeffrey Owens, OECD tax commissioner, who has the advantage of worldwide perspective on various tax systems, has observed that ‘‘there is no crisis (in the U.S. tax system), but lots of room for improvement.’’1