Ebook Tax Reform for Fairness, Simplicity, and Economic Growth

Chapter 4 evaluates several alternatives to a value-added tax: a retail sales tax, manufacturers and wholesale sales taxes, and a per sonal exemption value — added tax. Only a value-added tax or a retail sales tax would be basically neutral with respect to consumption and production decisions. That is, a properly designed tax of either type would not seriously distort the consumption behavior of individuals nor the production techniques and methods of business firms. In contrast, any pre — retail tax, such as a manufacturers or wholesale sales tax, would badly distort both consumption and production behavior. The result would be reduced consumer satisfaction and less tax revenue at a given rate. Pre — retail taxes also create substantial administrative problems that would not be present with either a retail sales or value — added tax. Though a retail sales tax and a value — added tax are similar, there may be both administrative and economic reasons for favoring a value-added tax, if a national sales tax is desired.