In a recent editorial article the President and CEO of the American Council for Capital Formation called for consideration to be given to a change from the current income tax code to a “progressive consumed income tax” in the United States.
He suggested that it might be the time to consider a more radical option a consumption tax or, specifically, a (progressive) consumed income tax, which is similar to an income tax with an exemption for savings and investment. This tax could also include built-in provisions to protect lower-income people.
The article pointed out that under such a tax there would be no taxation of capital income at the household level. This would mean that there would be no need for special savings accounts to keep track of exemptions. All new business investment would be expensed immediately, which would encourage capital formation, economic growth, and job creation. Both individual and business cash flow would be taxed at three rates: 15, 25 and 35 percent.
In addition, he noted that the tax would also be much simpler than income tax. Taxpayers can fill out a one-page form and be done with it – income and savings are the only numbers needed to determine the tax owed.
However, to allow for some complexity, Bloomfield also confirmed that it would be possible to keep some provisions of the current system that are popular with middle-income taxpayers, such as tax deductions for interest on home mortgages, the exclusion from income of health insurance provided by employers, and tax breaks for charitable contributions.
