June 6, 2012 12:26PM

X‐​Tax Book by Viard and Carroll

Two of Washington’s top tax scholars have authored an excellent new book on overhauling the federal tax code. Alan Viard and Robert Carroll’s new book, Progressive Consumption Taxation, is a great introduction to tax reform for young policy wonks who want to understand the economics of savings, investment, tax base neutrality, efficiency, and other factors that are important in tax design.

I discussed the book at an AEI forum on Capitol Hill on Monday. The video is available here.

The X‐​Tax is a compromise version of the Hall‐​Rabushka Flat Tax created by the brilliant former tax economist David Bradford. The Flat Tax itself is a “progressive” or graduated tax system because it has a large basic exemption, but the X‐​Tax would be even more graduated. I’m a fan of more proportional tax systems, so I like the Flat Tax. But the X‐​Tax would represent a huge simplification of the tax code and remove the income tax bias against savings and investment, which harms economic growth.

The X‐​Tax and Flat Tax are consumption‐​based tax systems, which Viard and Carroll favor. In their book, they wisely reject a VAT, which is an often‐​discussed consumption‐​tax option. In my view, a VAT would be a money machine for the federal government, simply throwing fuel on the fire of overspending in Washington.

Viard and Carroll seem particularly interested in the Flat Tax/​X‐​Tax idea of cash‐​flow business taxation. If we are going to impose a tax on business entities at all, cash‐​flow taxation seems to be the way to go, as I explored in this Cato paper.

Anyway, great book. My tip for readers, however, would be to substitute the word “proportional” whenever the authors talk about “progressive” consumption taxation.