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1 Michael Schuyler, An Analysis of Senator Cardin's Progressive Consumption Tax 1 (2015)

handle is hein.taxfoundation/ascapctx0001 and id is 1 raw text is: FOUNDATION FISCAL FACT July 2015 No. 473 The Tax Foundation is a 501(c)(3) non-partisan, non-profit research institution founded in 1937 to educate the public on tax policy. Based in Washington, D.C. our economic and policy analysis is guided by the principles of sound tax policy: simplicity, neutrality, transparency, and stability. (02015 Tax Foundation Distributed under Creative Commons CC-BY NC 4.0 Editor, Melodie Bowler Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 An Analysis of Senator Cardin's Progressive Consumption Tax By Michael Schuyler Senior Fellow Executive Summary Senator Ben Cardin (D-MD) proposes to dramatically scale back the individual and corporate income taxes. Most people would no longer owe the individual income tax, and the corporate income tax's rate would drop below the average in other countries. Senator Cardin would finance this with a value added tax, which he calls the Progressive Consumption Tax (PCT). Large rebates would make the overall package progressive. According to the Taxes and Growth Model, the Cardin plan would be pro-growth. This is because the individual and corporate income taxes are biased against saving and investment while the PCT would be saving-consumption neutral. Key Findings At a PCT tax rate of 10 percent, the Taxes and Growth Model (TAG) estimates that in the long run the plan would raise the level of gross domestic product (GDP) by 4.4 percent, increase the stock of capital used in production by 15.2 percent, and boost the number of jobs by 1.1 million. The Senator is prepared to adjust the PCT's rate to achieve static revenue neutrality, and the TAG Model estimates that would push up the PCT's rate to 14.2 percent. At that higher PCT rate, the model predicts the plan would still be pro-growth but not as strongly. The TAG model estimates that Senator Cardin's tax reform plan would be progressive and increase after-tax income across all income groups on both a static and dynamic basis. One option to enhance the plan's growth effects, which would lift the level of GDP by 5.3 percent in the long run, would be to add full expensing to the plan while increasing the PCT's rate to 14.75 percent for static revenue neutrality (and a large dynamic revenue surplus). taxfoundation org

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