October 20, 2011

TAX WHAT YOU DON'T WANT, NOT WHAT YOU DO:

Flat Tax Seen as Savings Booster (JOHN D. MCKINNON, 10/20/11, WSJ)

While many voters appear to like the proposals for their simplicity--a flat percentage rate, for instance--sympathetic economists see them as a way of reducing the tax incentives encouraged excessive borrowing and spending in the past decade while laying a foundation for stronger growth.

A consumption tax "has always been popular, but what makes the notion attractive in some circles now is that we've just been through a consumption bubble," said Alvin Rabushka of the Hoover Institution, a co-author of the first major flat-tax proposal 30 years ago. "I think looking long-term, you'd like to have a healthy balance [of incentives] and a system that doesn't discourage savings and investment."

Mr. Cain's plan and the flat tax Mr. Perry has endorsed are versions of a consumption tax. They would largely exempt from taxation income that is saved and investment income. That would encourage saving, which would in turn increase investment, productivity and jobs, advocates say. A value-added, or national sales tax, is another form of consumption tax.

Posted by at October 20, 2011 8:59 PM
  

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