Law & Economics Working Papers
This paper examines the implementation of two-tier consumption taxes, which are business-level VAT-like taxes with a progressive wage tax at the employee level and a wage credit or deduction at the business level. The focus is on a proposal known as the x-tax. The x-tax has many desirable features, and is worth serious attention. Nevertheless, designing a workable two-tier system will be a challenge. The paper examines three issues in particular. First, the x-tax and all two-tier consumption taxes raise implementation problems because they must be origin-based under the GATT yet origin-based systems, it is argued, have significant avoidance problems. Second, the x-tax and most U.S. proposals purport to be based on the subtraction method. The credit invoice model, however, may be more appropriate. Finally, the paper discusses transition.
David A. Weisbach, "Does the X-Tax Mark the Spot?" (John M. Olin Program in Law and Economics Working Paper No. 163, 2002).