We at Rekonomics all agree the current U.S. tax code is a mess. The tax code is messy, frequently double taxes earnings, and hampers economic growth. Flat taxes are often attacked as being unfair to the poor whereas progressive income taxes reduce economic efficiency and harm economic growth. The X-Tax, a progressive consumption tax, is both pro-growth and economically “fair.”
There are two parts of the X-Tax: the personal side and the business side. On the personal side, households would pay taxes on their wages—they would not pay taxes on investment income, savings, or anything else. These taxes would levied in a progressive manner, with wealthier people being taxed at higher rates and poorer people being taxed at lower rates. The rates could be adjusted by policy makers to make it as progressive or flat as they wanted. On the business side, businesses would pay a flat tax rate on their cash flow equal to the highest rate paid by workers, and then would immediately deduct their investment income. The X-Tax would tax money people had taken out of the economy, but would leave what people put back into the economy untouched. This would eliminate double taxation and encourage people to save and invest more than they do today, prompting long-term economic growth.
A few empirical studies have looked at the X-Tax, and the results are resoundingly positive. A study reviewing the effects of multiple tax reforms—including flat taxes and VAT taxes—calculated that replacing the current tax code with an X-Tax would increase economic growth by 6.4% over the long-run, and by 1.8% and 3.1% over the short- and medium-run time periods, respectively. A flat VAT tax would increase growth the most over the long term, at 9.4%, but VAT taxes are regressive and harm the middle- and lower-classes. The X-Tax, on the other hand, increases the wellbeing of all income groups. Flat taxes were found to have only modest growth impacts.
The X-Tax would reduce tax complexity, which has been estimated to cost the economy $431.1 billion each year, and it would eliminate capital taxation, which is extremely bad for the economy.
The X-Tax is the closest thing to a free lunch in economic policymaking, and we should all hope policy makers begin to closely look at such reforms.
 Auerbach, David Altig, Lawrence Kotlikoff, Kent Smetters and Jan Walliser, “Simulating Fundamental Tax Reform in the United States,” American Economic Review 91 (2001): 587.
 Arthur B. Laffer, Wayne H. Winegarden, and John Childs, “The Economic Burden Caused by Tax Code Complexity” (The Laffer Center, 2011), 4.
 Jason Clemens, Charles Lammam, and Matthew Lo, “The Economic Costs of Capital Gains Taxes in Canada” (Fraser Institute, 2014), 3.