http://www.brookings.edu/research/interv...taxes-gale

 

<b>William Gale:</b> In theory you can set up a consumption tax to have any group of households pay it. In the real world, every consumption tax out there is going to hit low and middle income households to a greater extent than the income tax does.

<b>Ray Suarez:</b> Why?

<b>William Gale:</b> For two reasons: One is that, well, the main reason is that low and middle income households consume more of their income than high income households do. Another way of saying that is high income households save more of their income than low income households do.

So if you move the tax from income to consumption, you're raising the relative burden on low savers, which are low and moderate income households, so almost any revenue neutral shift from the income tax to a consumption tax will be regressive in that manner. There are ways, there are conceptual ways to do it that doesn't add burdens to low and middle income households, but I don't think that they would actually happen.


 

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