Imagining a Progressive and Comprehensive Consumption Tax


The income tax system has become quite a mess. Unfortunately, the brunt of that mess falls primarily on the backs of the individual taxpayer, who is required to sift through the tens of thousands of pages of instructions and tax rules just to calculate, file, and pay what they owe. The filing burden and costs of compliance are already exorbitant, but they are only increasing.

In response to the complaints over the increasing complication, economists and tax scholars have imagined ways to improve or replace the income tax. Yet, the alternatives are either regressive or fail to generate enough revenue on their own. Perhaps most disappointing, many of these models fail to even consider the one thing that taxpayers desire most.

The graduated consumption tax debuts in this article as a new income tax alternative. Designed primarily to relieve individual taxpayers of their filing burdens, the graduated consumption tax also seeks to progressively generate revenue comparable to the income tax system at reasonable tax rates. Since the graduated consumption tax would be implemented as a true sales tax, individual taxpayers would have no filing burdens or responsibilities other than simply paying the bill.

The graduated consumption tax model proposes to tax consumption along the entire chain of production and distribution at differential rates. The differential tax rates are designed to ensure tax progressivity by attaching rates that correspond to the inherent luxury and necessity of the item consumed. Meanwhile, the model’s comprehensive tax base would allow for the lowest possible average tax rate. This article also anticipates both the major potential benefits and weaknesses of implementing such a model and attempts to set the stage for further exploration and debate.

Although this article proposes a radical alternative to the present income tax system, the purpose of this article is largely heuristic. By offering such a radical alternative, this article hopes to force an honest evaluation of the shortcomings of the present income tax system, the circumstances where the proposed alternative could actually work, and the policies that could serve as the inspiration for replacing the income tax or finally enacting some meaningful change.


Economics | Law and Economics | Taxation-Federal | Taxation-Federal Estate and Gift | Taxation-State and Local | Tax Law

Date of this Version

January 2007