Greenspan Weak On Tax reform

Greenspan Testimony Transcript

I have linked to the testimony from Alan Greenspan, which most outlets are touting as a promotion of the consumption tax. Knowing that Greenspan veils his comments and resists too much enthusiasm for one method over another, I would suggest Alan Greenspan did more harm than good to the consumption tax.

"...one of the first decisions that you will confront is the choice of tax base; possibilities include a comprehensive income tax, a consumption tax, or some combination of the two, as is done in many other countries."

Though Greenspan makes the argument that a consumption tax is favored by economists as it promotes savings and capital formation, he throws a monkey wrench into the argument: his assertion that "many other countries" use a combination tax. That is true. It is also true that taxes as a percentage of GDP have remained steady in the US for some 40 years at around 27% while in Europe they have increased from 30% to 41% in the same time period (as reported by Daniel Mitchell).

The problem with allowing two forms of national taxation to exist in this context is that it adds to, not subtracts from (which Greenspan is arguing for), the inefficiency and makes it easier for the government to raise tax rates.

For reasons I will go into in a future post, I support a flat tax over a consumption tax. However, I will support either provided it replaces the current tax code in its entirety.