urrent rates the income tax will be unable to keep pace with federal spending and there will be no solution to the budget deficit in the near future. As will be explained below, a consumption tax generally has a broader base than an income tax and can collect more revenue without increasing the tax burden on most individual taxpayers.
Third, the globalization of capital markets, with their rapid transfers of capital across borders, has made it more difficult for any country to impose substantial taxes on capital income. Individuals and corporations can easily shift capital from one country to another, searching for the lowest tax rates or nonexistent taxation. As a result, industrialized countries have discovered that they must formulate similar economic and trade policies if they are to retain capital within their borders. This requires convergence of the tax systems of the developed countries. U.S. trading partners rely upon consumption taxes, while the U.S. utilizes an income tax. The OECD countries collect about 30% of their tax
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