Calling the existing U.S. tax code overly complex with an "overlapping web of deductions and exemptions, " Federal Reserve Chairman Alan Greenspan suggested a consumption tax could spur more personal savings and economic growth.
Greenspan spoke Thursday before an advisory panel on tax reform appointed by President Bush. He referred to the last tax code overhaul in 1986.
"Changes since the 1986 act have been largely incremental without the appropriate all-encompassing context that broad reform brings to the table," Greenspan told the group, according to The New York Times. "It is perhaps inevitable that, every couple of decades, drift needs to be addressed and reversed."
He said many economists would support a consumption tax, "particularly if one were designing a tax system from scratch." Since the United States is not starting from scratch, he said, enacting a consumption tax "raises a challenging set of transition issues.” He noted taxpayers have long planned their financial future based on the existing rules.
"Don't try for purity," Greenspan said, suggesting that some combination of a consumption tax and other levies might be appropriate. A consumption tax, which would be based on spending, not earnings, may encourage Americans to save more money, he said.
Democrats have expressed concern that a consumption tax, such as a sales tax, is regressive, hurting the poor. "But I would say let's go to the table," said U.S. Rep. Nancy Pelosi (D-Calif.), the House Democratic leader. "Democrats stand ready to sit down with the president to talk about a simplification and fairness in our tax code."
The panel, led by ex-senators Connie Mack III, a Florida Republican and John B. Breaux, a Democrat from Louisiana, was given six months to come up with a reform proposal.
President Bush's chief spokesman, Scott McClellan, would not comment on how Bush feels about a consumption tax. But he did say, “"Our tax code is a complicated mess."