A tax expert who worked in the U.S. Treasury Department during the Reagan era is warning against the perils of shifting to a “consumption-based” approach to taxation.[@@]
The expert, Leonard Burman, a senior fellow at the Urban Institute, Washington, spoke Wednesday at a House Ways and Means Committee hearing on tax reform.
Some Republican tax theorists have argued that the federal government could simplify the federal tax system and increase its fairness by moving to tax consumption rather than income.
The current tax system is unfair, and “it imposes vastly different tax burdens on people with similar abilities to pay,” Burman told lawmakers, according to a written version of his testimony.
But Burman said shifting to a consumption-based tax system would be impractical, could end up increasing the burden on low-income and moderate-income workers, and efforts to protect the poor could lead to even greater pressure on moderate-income workers.
Some researchers have predicted that taxing consumption, rather than income, would increase the U.S. retirement savings rate, but Burman said he believes the shift could cut the retirement savings rate.