Coase-Sandor Working Paper Series in Law and Economics

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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.



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