A Federal Consumption Tax as Replacement for the Employer Payroll Tax

Research Report

A Federal Consumption Tax as Replacement for the Employer Payroll Tax

Abstract

Introducing a federal consumption tax as a replacement for the employer payroll tax would achieve the intended policy goals of prior consumption tax proposals while overcoming their policy shortcomings. The base and design of the consumption and employer payroll taxes are closely related, minimizing risks of economic dislocations and unintended consequences. The proposal is progressive, reduces horizontal inequities, and improves economic efficiency.

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