Richard: Get a hold of several articles by Jane Gravelle of the Congressional Research Service for a theoretical case that consumption taxes *reduce* efficiency. I don't have the cites but remember reading them back in 1990, and I think I remember the punch line. I believe that the offset to the usual neoclassical case--based on incentives to greater capital formation--comes from modelling the impact on labor supply of increasing the tax on labor. When I saw them they were working papers; I don't know where they were published. If you call her, she may be able to give you these papers and direct you to other literature. Good luck! On Sun, 19 Nov 1995, Richard Ira Lavine wrote: > Here's the reality of trying to deal with state and local taxes: > > Arguments for progressivity are nice, but the reality is that only > the very best state and local systems (Minnesota, Vermont) are even close > to proportional when all taxes are considered -- sales, property, > cigarette, gasoline, etc. -- and that's not including the notoriously > regressive state lotteries. > > I would consider it a great step forward if we could direct the current > public discussion on tax reform in Texas toward a consideration of > distributional impact. Once there, we could get into ability to pay, etc. > and I would be happy to settle for moving toward proportionality. In > fact, Gov. Bush is pushing hard to replace $9 billion in local school > property taxes (and $1 billion in corporate franchise taxes, tipping off > who is really pushing tax reform to begin with) with some kind of > consumption tax. His argument is that a consumption tax would promote > savings, and thus economic growth (the Holy Grail of all state > politicians). The fight will probably not be over the regressivity of > any changes (although I'll do my best), but instead over the role of > consumption taxes. > > So I need something to say about the role of consumption taxes > (broad-based sales tax, VAT) in a state economy. This may be a big > national issue if the Republicans keep their Congressional majorities in > Nov 96, but Texas could serve as the out-of-town opening. Bush has > made this his major issue and if he succeeds here, he could easily ride > consumption taxes (and his famous name) onto the national scene. > > Therefore I need something other than equity arguments to combat a move > from property taxes (which are at least partially absorbed by landlords > and owners of capital) to consumption taxes (which are paid strictly > according to the percentage of income spent, i.e. regressive as hell). > > Your help would be greatly appreciated and could make a real difference > in the real world. > > Dick Lavine > Center for Public Policy Priorities > Austin, TX >
