April 21, 1995
TO: BOARD OF GOVERNORS No. 47-95
ACCOUNTING/TREASURERS MEMBERS No. 21-95
TAX MEMBERS No. 21-95
RE: INSTITUTE PAPER ON CONSUMPTION TAXES
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A number of prominent politicians and economists have, in recent months, urged a major
overhaul of the US income tax system. Some of the proposals, including one advanced on a bipartisan
basis by Senators Nunn and Domenici, have suggested the substitution of a consumption-based tax for
our current income tax as a means to increase national saving.
The Institute has published the attached paper, entitled "Reducing the Tax Burden on Saving," to
contribute to the on-going public debate on this important policy issue. The author of the paper, Dr.
Rudolph Penner, is a nationally known authority on federal budget and tax policy.
The paper describes several possible consumption tax systems and the effects of their adoption
on national saving. It also addresses some of the practical problems that would arise upon conversion to
a consumption-based system, such as the need to develop transition rules for taxpayers who have
accumulated financial assets on which they have previously paid taxes.
We will keep you informed of developments in this area.
Catherine L. Heron
Vice President & Senior Counsel