Tax Consumption, Not Work

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For more than 70 percent of American families, the payroll tax is the largest tax they pay. Yet the tax is regressive, inefficient, and insufficient to fund the programs it finances. As a 15.3 percent wage tax levied on employers and employees, it deters job creation and depresses wages at the low end of the scale.

By replacing the payroll tax with a national and progressive consumption tax, the United States could stimulate job creation, higher wages, and higher levels of personal saving at the same time, all in a revenue-neutral manner. Families would pay taxes on what they spend each year, rather than on what they earn. Higher levels of spending would be taxed at higher rates, encouraging saving, strengthening the economy, and increasing the overall progressivity of the tax code.

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