THE PRESIDENT=S ADVISORY PANEL ON FEDERALTAX 总统的咨询小组，联邦税.pptVIP

THE PRESIDENT’S ADVISORY PANEL ONFEDERAL TAX REFORMINCOME AND CONSUMPTION TAXATION:CENTRAL CONCEPTSLouis KaplowFebruary 16, 2005 BASIC STORY In the First Period - Our Taxpayer Works . . . ? Earns labor income consumes a portion, and saves the rest In the Second Period - Our Taxpayer Retires . . . ? Receives return (e.g., interest) on savings ? Consumes what was saved, along with the return (e.g., interest) on the savings WHAT IS AN “INCOME TAX”? ? Tax Base Is All Income: What is Income? ? Income = Consumption + Change in Wealth so-called “Haig-Simons” definition of income What is Taxed? ? First period’s tax base: labor income ? Second period’s tax base: return on savings (interest) Pure Implementation of Income Tax: Income is Taxed as It Accrues ? Gains and losses taxed as they occur ? No realization event required WHAT IS A “CONSUMPTION TAX”? Tax Base is All Consumption ? so-called personal, “cash flow” consumption tax What is Taxed? ? First period’s tax base: consumption in first period ? Second period’s tax base: consumption in second period Pure implementation of Consumption Tax ? Consumption Tax Base = Income Tax Base - Change in Wealth Recall: Income = Consumption + Change in Wealth, which implies that Consumption = Income - Change in Wealth Possible Real World Version: ? Income tax with all savings in 401k / IRA-type vehicles: savings untaxed when earned and as interest accrues; taxed on withdrawal EQUIVALENCE IINCOME TAX PERSPECTIVE ON CONSUMPTION TAX A Consumption Tax is Equivalent to a Labor Income Tax ? In other words, a Consumption Tax is equivalent to an Income Tax that exempts capital income (return to savings) Intuition: Consider a 25% tax . . . ? 25% Consumption Tax → individuals can consume 75% as much, each period, as they could with no tax ? 25% Labor Income Tax → leaves individuals with 75% of their earnings, allowing them to consume 75% as muc