Number: RL32603
Title: The Flat Tax, Value-Added Tax, and National Retail Sales Tax: Overview of the Issues
Authors: Jane G. Gravelle, Government and Finance Division 
Abstract: The current tax system, with its graduated tax on individual incomes, its separate tax on corporate profits, its gift and estate taxes on the transfer of wealth, and its separate wage tax to fund the Social Security and Medicare systems, has many critics. It is said to cost the country in lost time, economic efficiency, trade, and contentment. Reform proposals have proliferated, ranging from a broader-based, flatter-rate income tax to scrapping the system altogether in favor of a national sales tax or some other form of national consumption tax. This report surveys some of the issues to be considered in debating such drastic tax changes, considering not only a broader based income tax but also three basic forms of consumption taxes: the Hall-Rabushka "flat tax," the value-added tax (VAT), and the national retail sales tax. After a brief overview of some of the current proposals, the sections that follow discuss economic efficiency issues, foreign trade issues, effects on different economic sectors, short-run adjustment costs, compliance and administration, and revenue and distributional implications.
Pages: 21
Date: March 14, 2008