In looking through our publications, one recent edition of the Cummings’ Corporate Tax Insight there was an article referring to the possibility of a consumption tax in the future.
Essentially, a consumption tax is a value added tax, much as the one that is in place in Canada. It is a tax based on spending, and it happens at every level of the spending chain. In other words, a farmer buys grain to plant in the ground, and he pays a tax on the grain. The farmer then harvests that grain, and sells it to the bakery, and the bakery pays a tax on that purchase. The bakery bakes the bread and sells it to the stores, and the stores pay a tax on that bread. Then the store turns around and sells it to the public, who also pays a tax on that bread. In Canada this has caused simple things, such as postage stamps, to increase in excess of the tax rate change.
The Economic Report of the President very clearly favors the following tax policies: First, they favor a reduction of business income taxes; second, they favor the adoption of some form of consumption tax; and third, they favor a reduction of tax on foreign source business income.
An observation that I have had is that value added taxes, while pushed as being an alternative to the current tax situation, do not replace individual and corporate income taxes. If that were the case, our Canadian friends would not be paying any income tax! However, if you speak to anyone from Canada, you know that they are still paying approximately the same amount of income tax as they did before the value added tax.
Is there anything that you can do about this? You may want to write your Congressperson and your Senators. And if you really feel so inclined, send a letter to George W.
If you have any questions about this matter, please do not hesitate to contact our office.
