As the economy has slumped and budget deficits have skyrocketed, lawmakers from both parties have expressed new interest in stabilizing the national debt and restructuring the tax code to make it more conducive to economic growth. That’s led some to give serious consideration to policies that were once thought unthinkable.
There is, however, something that remains missing from debates in the legislative arena.
For all the dire warnings about the debt and criticism of the tax system, policymakers still don’t seem ready to entertain the thought of a national consumption tax. It’s a measure that, according to many budget experts and economists, will almost certainly need to be adopted at some point if the country is to preserve some semblance of its social safety net and remain an economic powerhouse.
And so for some, the time seems right for a consumption tax. Across the country, Republican governors are considering or have already adopted legislation that would increase sales taxes to pay for lower income taxes or new infrastructure projects.
Dave Camp, the chairman of the tax-writing House Ways and Means Committee, who has launched the most ambitious effort to rewrite the nation’s tax laws since Congress overhauled the tax code in 1986, has not entirely dismissed the ideas behind consumption taxes, although the Michigan Republican is hardly a backer. According to proponents, “taxing consumption rather than income could have important economic benefits, and so as part of our efforts to reform the tax code, the committee needs to examine those proposals,” Camp said at a hearing on consumption taxation in July 2011.
However, in a meeting with reporters at the end of last month, Camp was asked whether he would include a consumption tax in the legislation that he plans to introduce by the end of 2013. Though usually careful to leave room to maneuver, Camp didn’t leave any doubts with his answer: “No.”
In contrast to many areas of tax policy, the issues surrounding a consumption tax are relatively simple. Economists like the taxation of consumption rather than income, because it encourages savings and investment.
According to a 2007 Treasury Department study, taxing businesses on their purchases instead of their profits would “ultimately increase the size of the economy by roughly 2 percent to 2.5 percent.”
Yet the notion of a consumption tax at the national level has traditionally been met on Capitol Hill with scorn, if not outright derision.