National sales tax won't hurt the poor

"It is relatively easy to construct a national sales tax that protects the poor from paying any tax and is roughly as progressive as the current income tax," contends Gilbert E. Metcalf in a new study from the Cato Institute. As widespread discontent with the current income tax and the Internal Revenue Service has generated interest in various ways of replacing the income tax, some people have criticized consumption tax proposals as a burden on the poor. In "The National Sales Tax: Who Bears the Burden?" (Policy Analysis no. 289), Metcalf contends that that criticism is flawed.

"How we rank people-by annual or lifetime income-makes a big difference when we measure the progressivity of a national sales tax." If lifetime income is used for analysis, he points out, a sales tax looks much less regressive than if annual income is used.

Metcalf notes, moreover, that there are several ways to minimize or eliminate any adverse impact on the poor of a national sales tax. The Schaefer-Tauzin bill (HR 2001), for example, provides for a universal rebate tied to poverty thresholds and is thus "about as progressive as the current income tax." Another approach, providing a payroll tax rebate to low-income families, "is only slightly less progressive than the current income tax system."

In any case, Metcalf says that the choice of a method of taxation shouldn't focus on whether it's progressive or regressive. "When evaluating the merits of major tax reform. . . policymakers should not focus unduly on distributional considerations. Rather, Congress would be better advised to focus on the efficiency gains and the broad economic benefits of moving to a consumption tax system."

For more information, contact Mr. Metcalf at Tufts University at 617-627-3652, Cato Director of Fiscal Policy Studies Steve Moore at 202-789-5252, or Cato Director of Communications Dan Greenberg at 202-7895225. 'The National Sales Tax: Who Bears the Burden?" is available on the Internet at www.cato.org/pubs/pas/pa/289es.html or can be purchased for $6 by calling 1-800-7671241.

Copyright Human Events Publishing, Inc. Jan 16, 1998
Provided by ProQuest Information and Learning Company. All rights Reserved