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In this article, Prof. Avi-Yonah argues that the legal academic debate about fundamental tax reform from 1974 onward has been skewed by the assumption that a consumption tax must replace the income tax. He addresses three of the major issue in recent writings on the income/consumption tax debate, and shows how none of the arguments in favor of the consumption tax are conclusive. Avi-Yonah also addresses the various consumption tax proposals that have been made and shows that they are all deficient in comparison with a VAT, as well as failing to achieve the goals of an income tax. Finally, he develops the proposal that the United States should adopt a VAT in addition to the existing income tax, and addresses some of its implications (for example, for the state and local sales tax). He then distinguishes the proposal from one made by Prof. Michael Graetz to substitute a VAT for the income tax on middle-class taxpayers, and argues that while the Graetz proposal is sensible, we cannot afford it.


This article was republished at: Avi-Yonah, Reuven S. "Risk, Rents, and Regressivity: Why the United States Needs Both an Income Tax and a VAT." Tax Notes Int'l 37, no. 2 (2005): 177-95. Reprinted with the permission of Tax Analysts.