The Hill News

Consider two different U.S. tax worlds:

Today, the U.S. government gets virtually all of its revenue from an income tax, which many Americans believe is unfair, incomprehensive, and an impediment to economic growth. Virtually every American is calling for some kind of reform. 

Tomorrow, the U.S. government gets its revenue from a consumption tax.  Familiar examples are a European Value Added Tax (VAT) or a U.S. retail sales tax.  Implicit are measures to prevent the tax from becoming too regressive and a “money machine.” 

Tomorrow, a zero capital gains tax is not considered a “loophole” or the “poster child” of an inequitable tax system but rather a predicate for entrepreneurship and investment. 

Tomorrow, Americans will invest their hard earned income into IRAs and 40lks without a second thought about tax penalties or repercussions.  It rewards Mr. Thrift rather than Mr. Spendthrift.   Today, they are considered “specia! l tax breaks” or “tax expenditures.”

Tomorrow, a business can expense or immediately deduct the cost of new equipment from its tax bill and be competitive.  Today, it is considered a corporate break.

Is tomorrow’s dream “voodoo” tax policy?  Definitely not.  The U.S. is one of a few global players that relies almost entirely on an income tax for its revenue.  In our current tax system, exempting saving and investment is a tax loophole or tax expenditure rather than a necessity for economic growth. This must change. The time is ripe to do so.

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