RE: taxes

["Alan G. Isaac" <AISAAC@xxxxxxxxxxxx>]

Doug, The figures you offer are interesting, but I'm not sure
they would extrapolate to a change in tax system. Just for
some context, the last time I looked (some years ago)
federal revenues were roughly proportional to income--
slightly progressive at the lower end, somewhat regressive
toward the very top. Is this still a fair characterization?

Some other questions. The basic goods exemption comes
closest to what I've been describing. However, I've
proposed exempting only rental housing with a cap on
the amount. Does this match what the CBO considered?
Also, while it may still be that my guess is wrong,
as Bill Mitchell observed it is the system not the
components that matter, and I did suggest including
an earned income credit in the system. (Let me make
another wild guess: I guess that this is the source
of most of the progressivity, to the extent it
exists,in the current structure.)

Thanks for any additional insights you might have
time to offer.

--Alan G. Isaac

On Sun, 2 Apr 1995 15:29:40 -0600 Doug Henwood said:
>In a 1992 report, the Congressional Budget Office estimated the burden of
>three possible versions of a VAT and compared it with an income-tax
>surcharge. (The income tax in 1992 was significantly less progressive than
>it is now.) The three versions were a broad-based tax; one that exempted
>merit goods like health and education; and one that exempted food,
>utilities, motor fuels, and housing. The merit good exemption reduced the
>tax base to 61% of total consumption; the basic goods plus merit goods
>version left only 38% of total consumption available for taxing. To raise
>equal amounts of money, the VAT rates were 3.5%, 4.4%, and 6.9% for the
>three versions, and the income tax surcharge was 16%.
>
>DISTRIBUTION OF IT SURCHARGE AND VAT BURDEN BY INCOME QUINTILE
>
>                                            VAT
>                          inc tax  ---------------------
>                         surcharge broad   merit   basic
>percent of income
>-----------------
>poorest                    0.2%     4.8%    4.7%    3.9%
>
>second                     0.7      3.2     3.1     2.9
>third                      1.2      2.8     2.7     2.8
>fourth                     1.6      2.3     2.3     2.4
>richest                    3.0      1.5     1.5     1.6
>
>all                        2.2      2.2     2.2     2.2
>
>percent of families with
>smaller tax burden under
>IT surcharge
>--------------------------
>poorest                             92%     90%     76%
>second                              93      89      80
>third                               87      84      79
>fourth                              69      68      68
>richest                             29      30      36
>
>all                                 72      70      66
>
>
>source: Congressional Budget Office, "Effects of Adopting a Value-Added
>Tax," February 1992, table 9.
>