Columbia University law professor Michael Graetz introduced his “Competitive Tax Plan” more than a decade ago and has recently updated it. Broadly, the plan shifts the tax system, which is based on income, to one based on consumption. The plan is revenue neutral and would not change the overall income distribution.

The Competitive Tax Plan contains five components.

• A value-added tax (also called a goods and services tax) with a broad base and a single rate of 10 percent would be imposed. Businesses with less than $1 million in gross receipts would be exempt. There would be 18 to 24 months between enactment and implementation, which Graetz expects would accelerate purchases of durable goods and provide a short-term boost to the economy. The tax would be modeled after modern value-added taxes in New Zealand, Australia, Canada, Singapore, and South Africa. States would be given incentives to harmonize their tax policies with the federal tax.
• The individual income tax would exempt from tax the first $52,350 of income for single filers and $104,700 of income for married couples. The head of household filing status would be repealed. Above these thresholds tax rates would be 16, 26, 33, 36, and 37 percent. The alternative minimum tax and surtax on investment income would be repealed. With these reforms, less than one-third of the households now paying income tax would be required to file returns.
• The 21 percent corporate income tax rate enacted in the TCJA is retained. All credits except the foreign tax credit and the research and experimentation (R&E) credit would be eliminated, and the corporate alternative minimum tax would be repealed. The plan would eliminate the current double taxation of corporate dividends, and it may also subject large businesses (even if they are not corporations) to the corporate income tax while simplifying the taxation of small businesses.
• The current payroll tax will be retained.  The current earned income credit would be replaced with credits of 40 percent of wages for workers with earnings up to $5,750 and a credit of $2,300  for workers earning between $5,750 and $15,906. The credit phases out for higher of AGI or earnings  above $15,906 (AGI or combined earnings for married couples with AGI over $31,812).

Refundable child credits would be established and distributed through debit cards. The credit would be $2,050 (indexed from $2,000 in 2020) per child. The phaseout provision for high-income earners would be eliminated. Low- and moderate-income earners, on the other hand, would receive an additional rebate of up to $2,770 (in $2022) for one child and $4,180 for two or more children, phased out at AGI over $19,350 for single filers and $38,700 for joint filers.

Updated January 2024