Inquiry from Chairman Hill, Senate Fair Tax Study Committee, Regarding Taxable Consumption of Households at Different Income Levels and Other Matters

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• February 10, 2014 Create Date
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Policy Memorandum, February 10, 2014, Robert Buschman

In follow-up to the analysis of alternative consumption tax structures for Georgia, presented to the committee on September 20, Sen. Hill asked for additional information to address certain
related questions, which are restated/summarized as follows:

1. How do household consumption expenditures that are taxable under each of the following tax base scenarios vary across the income distribution?
a. Current law sales and use tax base.
b. Current law plus currently exempt groceries.
c. Broad household consumption base modeled on South Carolina Fair Tax Act.

2. What would be the implications of taxing state and local government purchases as is done under the proposed South Carolina law? Secondarily, how are Medicaid expenditures treated in that model, where federal government expenditures cannot be taxed.

3. What is the feasibility of combining income tax reductions to, say, a 3 percent or 4.5 percent flat rate, and elimination of all itemized deductions except for a) charitable contributions, and b) a maximum of $20,000 annually of mortgage interest?