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written by China Watcher , November 27, 2007

There are ways to make a consumption tax work fairly. For one thing, it is the only practical way to collect a fair share of taxes from imports, illegal immigrants, and others in the underground economy. Next, the burden of income and payroll taxes has to be removed from working and middle class families (e.g. invert the FICA tax to be paid on income over a certain dollar level rather than on all income up to some level). Third, expand the refundable earned income tax credit to compensate lower-income families for consumption taxes paid. Fourth, expense (i.e. immediately write off) investment so that America can expand its exports and substitute domestic production for (more expensive) imports. That means more, better paying jobs for skilled American workers. After that, the possibilities get more controversial but are nonetheless worth considering. Principal among them is expanded government support for health care.

However, we as a country will not get to the point of designing and implementing such a system unless and until American producers -- farmers, ranchers, manufacturers and workers -- demand that that our tax system be fixed as a means of making America competitive again in world markets. The alternative to a fundamental tax reform is continuing depreciation of the dollar and higher inflationary pressures. The dollar cannot become legitimately strong again until America fixes its tax mess A consumption tax is an indispensable component of a competitive tax system. Everything else is mere tinkering.