Federal Reserve Board chair Alan Greenspan’s recent call for tax simplification and his acknowledgement of arguments for a consumption tax may help to place the question of such taxes, including a value-added tax (VAT), on the national political agenda. If the possibility of imposing a VAT does receive significant national attention, the debate it occasions will obviously, and appropriately, focus in part on a variety of technical questions. But normative questions will likely be at issue as well. A VAT is like a sales tax, but is applied at each stage in a product’s development and not merely when it reaches the retail market. Because of disagreements about the reach of a VAT, and because of negative reactions to the label VAT, the proposal outlined here calls for the enactment of a Universal Transaction Tax (UTT). On the model envisioned here, the UTT would apply to consumable goods—both tangible and intangible—and services (including financial ones). It would replace state and federal personal and corporate income taxes, state and federal gift and inheritance taxes, and Social Security and Medicare taxes. States would enact their own UTTs and would be responsible for collecting tax revenues from businesses. Arguments for indirect taxes like UTTs are regularly mounted by commentators on the political right. Not surprisingly, then, progressives often challenge proposals for such taxes as products of conservative efforts to cripple government. And criticisms of the income tax and of abuses by the Internal Revenue Service may, in turn, be dismissed by progressives as smokescreens designed to hide attempts to shift the tax burden from wealthy to middle- and low-income taxpayers. I want to argue, however, that progressives should find the adoption of a UTT attractive because of the ways in which it could help to foster both equity and liberty. A UTT is a classic example of a consumption tax—a tax that does not apply to resources saved or invested. Because people with lower incomes spend proportionately more on consumption than do people with higher incomes, consumption taxes can fall more heavily on poorer taxpayers. Thus, it is regularly assumed that a commitment to social justice requires support for the direct taxation of income and wealth. However, I begin by suggesting that a simple strategy designed to guarantee the progressivity of a UTT—the provision of a fixed refund to all taxpayers—could also help to ensure that a variety of useful social goals were met. Then, I argue that individual liberty and privacy considerations make a transaction tax like a UTT preferable to an income tax. Thus, a UTT could help to meet key progressive goals of equity and liberty alike.
A Progressive Case for a Universal Transaction Tax,
Me. L. Rev.
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