oversight

Tax Policy: State Tax Officials Have Concerns About a Federal Consumption Tax

Published by the Government Accountability Office on 1990-03-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

 c
                 United   States   General   Accounting   Office
                 Report to the Joint Committee on
’ GAO            Taxation



March   1990
                 TAX POLICY
                 State Tax Officials
                 Have Concerns About
                 a Federal Consumption
                 TaX             ‘.d
                                 xI*




                                                                   :
 GAO/GGD-90-50
General   Government   Division

B-236843

March 21. 1990

The Honorable Dan Rostenkowski
Chairman, Joint Committee on Taxation

The Honorable Lloyd Bentsen
Vice Chairman, Joint Committee on Taxation
Congress of the United States

This report provides an overview of state tax officials’ concerns related to the enactment of
a broad-based federal consumption tax, as determined by a survey of state tax policymakers
and administrators. The report was prepared, not at your request, but pursuant to GAO’S
basic statutory authority. We undertook the effort to assist Congress in its consideration of
options for reducing the federal budget deficit.

We are sending copies of this report to the Secretary of the Treasury and the Director of the
Office of Management and Budget as well as to appropriate congressional committees and
members of Congress.

If you have any questions, please call me on 2756407. Major contributors to this report are
listed in appendix VI.




Jennie S. Stathis
Director, Tax Policy and
  Administration Issues
Executive Summm


             The objective of this report is to provide Congress with an overview of
Purpose      state tax officials’ concerns related to the enactment of a broad-based
             federal consumption tax -in the form of a federal retail sales tax or a
             value-added tax. It presents the responses of state tax policymakers-
             Governors and their staff and chairs and staff of major tax policy com-
             mittees of state legislatures- to a GAO questionnaire on their preferred
             revenue options for dealing with the deficit and their concerns regarding
             a broad-based federal consumption tax. In addition, it discusses tax
             design alternatives that may address these concerns. It also presents the
             responses of state tax administrators to a separate GAO questionnaire on
             the effects of a federal consumption tax on state tax program
             administration.


             GAO  has previously issued several reports discussing consumption taxes.
Background   These reports discussed the various types of consumption taxes, the
             principal methods for calculating a value-added tax, and key tax policy
             issues US. tax policymakers would face if they consider a value-added
             tax based on insights from the international experience.

             A value-added tax is a consumption tax collected on the difference
             between a business’ purchases and its sales, otherwise known as the
             business’ “value added.” For example, if a business buys $150 worth of
             materials and equipment and produces a product that sells for $200. its
             value added is $50. A 5-percent tax on the value added to this product
             would yield $2.50 in tax revenue. The United States has very limited
             experience with value-added taxes, but they are widely used in other
             countries.

             A retail sales tax is collected on the total price of a good or service at the
             time it is sold to the final consumer. Forty-five states have a retail sales
             tax, and in 1987 state revenue from general sales and gross receipts
             taxes amounted to 32 percent of overall state tax revenue.

             Retail sales taxes and value-added taxes are collected at different stages
             of the production and distribution process. A retail sales tax is collected
             only once, when a good or service is sold to a consumer. A value-added
             tax is collected at various stages of production and distribution. Both
             taxes could raise about the same amount of revenue given the same tax
             rate and tax base.




             Page 2                       GAO/GGD-So-50   State Officials’   Consumption   Tax Concerns
                             Executive   Summary




                                     asked what potential revenue sources the federal government
Results in Brief             should use to reduce the deficit. 54 percent of the policymakers selected
                             existing federal taxes exclusively: 8 percent selected a broad-based fed-
                             eral consumption tax exclusively; and 18 percent selected both existing
                             taxes and a new consumption tax. Only 20 percent did not select a rtve-
                             nue option, indicating the federal government should not raise taxes to
                             reduce the deficit.

                             A broad-based federal consumption tax was opposed by over tuo-thirds
                             of all state tax policymakers responding. Both a federal retail sales tax
                             and a value-added tax were viewed as an intrusion into state tax pro-
                             grams. Policymakers were especially concerned about the impact of a
                             broad-based consumption tax on their ability to increase the future rev-
                             enue generated by their own state retail sales taxes. Other concerns
                             included the possibility of increased federal spending and inflation, and
                             the impact of a broad-based consumption tax on the poor, i.e.,
                             regressivity.

                             Desiglting a consumption tax to address state tax officials’ concerns
                             would involve trade-offs. For example, design features incorporated to
                             reduce state regressivity concerns, such as exemptions or multiple rates.
                             would add to administrative complexity and limit revenue. According to
                             responding tax administrators from states with retail sales taxes, the
                             impact of a federal consumption tax on the administration of their state
                             tax programs would depend on the type of tax and its visibility to the
                             final consumer.


                             Forty-five percent of the policymakers indicated that additional revenue
GAO’s Analysis               for deficit reduction should come from corporate income taxes. Thirty-
                             seven percent would use individual income taxes. (More than one source
                             could be selected by respondents.) Policymakers supported raising tax
                             rates and broadening the base of both corporate and individual income
                             taxes. (See pp. 14-16.)


Intrusion on State Revenue   Intrusion into a major state revenue source was cited as a concern by 80
                             percent of the policymakers opposed to a federal sales tax and 70 per-
Source                       cent of the policymakers opposed to a federal value-added tax. This con-
                             cern stems from the states’ dependence on consumption taxes as well as
                             the desire to maintain the independence of their state tax systems. (See
                             pp. 16-18.)



                             Page 3                      GAO/GGD9060   State Officials’   Consumption   Tax ~‘onrrrus
                     Executive   Summary




                     Policymakers are concerned that a federal consumption tax could ( 1 i
                     limit the states’ ability to raise additional revenue from state sales
                     taxes, (2) pressure the states to alter their tax bases to conform with the
                     federal tax base, and (3) confuse taxpayers about the distinction
                     between state and federal consumption taxes. Offering to share federal
                     consumption tax revenue with the states received little support. Less
                     than a fifth of the respondents indicated they would reduce their oppo-
                     sition to a federal tax if states received a share of revenue. (See pp. 16-
                     23.)


Effect on the Poor   Over half of the state tax policymakers responding were concerned
                     about the regressivity of a federal consumption tax. A tax is regressive
                     if low-income families pay a larger proportion of their income in taxes
                     than high-income families. Several alternatives can be used for reducing
                     the regressivity of a consumption tax, including (1) exempting basic
                     necessities from the tax base or adopting multiple rates which would tas
                     necessities at a lower rate than other goods, (2) providing a tax credit
                     for low income taxpayers on their income tax return, or (3) raising enti-
                     tlement payments and ceilings to compensate for the increased cost of
                     the consumption tax. (See pp. 24-26.)

                     These alternatives have potential drawbacks, including increased
                     administrative costs and reduced federal revenue for reducing or elimi-
                     nating the deficit. (See pp. 27-29.)


State Tax Program    Tax administrators from states with retail sales taxes varied in their
                     opinions on how much a federal consumption tax would complicate the
Administration       administration of their state sales tax programs. A federal sales tax was
                     expected to have more impact than a value-added tax, and a visible tax
                     more than an invisible tax. For a federal sales tax, 31 percent of the
                     administrators expected the impact to be great, 26 percent placed it in
                     the moderate category, and 43 percent predicted some to no impact. For
                     a federal value-added tax, 59 percent expected no impact. (See p. 33.)




                     Page 4                      GAO/GGD90-50   State Offkiald   Consumption   Tax Concerns
                  Executive   Summary




                  (;.Aois not making any recommendations.
Recommendations

                  Survey results were discussed with officials from the Advisory Commis-
Comments          sion on Intergovernmental Relations, the National Governors’ Associa-
                  tion. the National Conference of State Legislators, the National
                  Association of State Budget Officers, and the Federation of Tax .Admin-
                  istrators. The results generally confirmed what they perceived to be the
                  concerns of their constituents.




                  Page 5                     GAO/GGIMO-SO   State Officials’   Consumption   Tax Concerns
Contents


Executive Summary

Chapter 1
Introduction          Explanation of Consumption Taxes
                      Objective. Scope, and Methodology

Chapter 2
State Tax             Existing Federal Taxes Preferred Over Other Revenue
                           Options
Policymakers’ Views   Concerns Focus on Potential State Tax Program Impacts                                16
on a Broad-Based      Other Frequently Cited Concerns of Policymakers                                     23
                      Conclusion                                                                          :31
Federal Consumption
Tax
Chapter 3
Tax Administrators’   Impact on State Tax Administration
                      Conclusion
Views on a Broad-
Based Federal
Consumption Tax
Appendixes            Appendix I: Operational Differences Between a Federal
                          Retail Sales Tax and a Value-Added Tax
                      Appendix II: Methodology for GAO Consumption Tax
                          Questionnaire
                      Appendix III: Level of Concern by Respondent                                        47
                          Characteristics
                      Appendix IV: Questionnaire and Responses From State                                 52
                          Tax Policymakers
                      Appendix V: Questionnaire and Responses From State
                          Tax Administrators
                      Appendix VI: Major Contributors to This Report                                      70

Bibliography                                                                                              71

Tables                Table 1.1: Selected Federal Revenue Options for 1992                                11
                      Table 2.1: State Officials’ Interest in Piggybacking                                ,>*7
                                                                                                          II




                      Page 6                    GAO/GGD9O-50   State Officials’   Consumption   Tax Concerns
          Contents




          Table II. 1: Summary of Questionnaire Respondents by                               42
              Type of Official
          Table 11.2:Level of Questionnaire Respondents by State                             43
          Table 11.3:State Characteristics                                                   4.5
          Table III. 1: Percentage of Responding Executives and                              49
               Legislators Who Were Greatly or Very Greatly
               Concerned With Federal Consumption Tax Issues
          Table 111.2:Percentage of Responding Policymakers Who                              Is0
               Were Opposed or Not Opposed to Raising Taxes and
               Who Were Greatly or Very Greatly Concerned With
               Federal Consumption Tax Issues
          Table 111.3:Percentage of Responding Policymakers From                              .51
               States With a Level of Retail Sales Tax Dependence
               Below and Above the Average Who Were Greatly or
               Very Greatly Concerned With Federal Consumption
               Tax Issues

Figures    Figure 2.1: Policymakers’ Preferences for Federal                                  1.5
                Government Deficit Reduction
           Figure 2.2: Policymakers’ Preferences for Changing                                 16
                Corporate and Individual Income Taxes Expressed by
                Those Policymakers Favoring the Use of Those Taxes
                for Federal Deficit Reduction
           Figure 2.3: Policymakers’ Most Frequently Cited                                    li
                Concerns, Very Great or Great, About the Impact of a
                Federal Consumption Tax on State Tax Programs
           Figure 2.4: Degree of Concern About Potential Confusion                            "0
                Between State and Federal Taxes If a Federal
                Consumption Tax Is Enacted
           Figure 2.5: Policymakers’ Other Frequently Cited                                    “4
                Concerns, Very Great or Great, About the Impact of a
                Federal Consumption Tax
           Figure 2.6: Degree of Concern About a Federal                                       28
                Consumption Tax Financing Additional Federal
                 Spending Rather Than Deficit Reduction
           Figure 2.7: Degree of Concern About the Impact of a                                 30
                 Federal Consumption Tax on Inflation
           Figure 3.1: State Tax Administrators’ Concerns About the                            34
                 Impact of a Federal Consumption Tax on State Sales
                 Tax Revenue




            Page 7                    GAO/GGD!W50   State Officials’   Consumption   Tax Concerns
Contents




Figure 3.2: State Tax Administrators’ Concerns About the                            3.7
     Impact of a Federal Consumption Tax on State Tax
     Evasion
Figure 3.3: State Tax Administrators’ Concerns About the
     Impact of a Federal Consumption Tax on States’
     Costs to Administer State Sales Taxes




Abbreviations

ACIR       Advisory Commission on Intergovernmental             Relations
CBO        Congressional Budget Office
IRS        Internal Revenue Service


Page 8                     GAO/GGD-!%50   State Officials’   Consumption   Tax Concerns
Page 9   GAO/GCD90-50   State Officials’   Consumption   Tax Concerns
Chapter 1

Introduction


                    Income taxes are the present principal source of federal revenue. Con-
                    gress responded to concerns about the perceived unfairness of the
                    income tax system by enacting the Tax Reform Act of 1986. The -Act
                    was designed to be revenue neutral. i.e., it provided no additional reve-
                    nue to reduce the budget deficit or national debt. Because many mem-
                    bers of Congress believe they made a tacit agreement with taxpayers to
                    lower income tax rates in return for broadening the base, it may be diffi-
                    cult to reach congressional consensus on efforts to raise revenue by
                    increasing income tax rates.


                    If changes to the income tax system are ruled out, a broad-based con-
Explanation of      sumption tax represents one of the few single revenue alternatives for
Consumption Taxes   raising large amounts of revenue. A consumption tax is levied on tax-
                    payers’ expenditures for goods and services rather than on their total
                    income. The part of the taxpayer’s income that is saved is not subject to
                    current taxation from a consumption tax. Some economists believe that
                    this would induce people to save more and consume less. However, the
                    evidence on the strength of this belief is inconclusive. Consumption
                    taxes also differ from income taxes in respect to who is responsible for
                    collecting and remitting tax payments- businesses rather then house-
                    holds. Another basic difference is that a consumption tax is levied on
                    individual transactions without regard for the taxpayers’ personal cir-
                    cumstances, and income taxes generally attempt to take these circum-
                    stances into account.

                    The two most commonly used broad-based consumption taxes are the
                    retail sales tax and the value-added tax. A retail sales tax is imposed at
                    the point of final sale and is generally collected by the retailer directly
                    from the consumer. Currently, 45 states have retail sales taxes, In addi-
                    tion, many states’ sales taxes are combined with local sales taxes, such
                    as counties, cities, special districts, and transit authorities. For example,
                    California has a 6 percent statewide sales tax rate. Of the 6 percent,
                    4.75 goes to the state, and the remaining 1.25 percent goes to the coun-
                    ties and cities. However, in several California counties the rate is 6.5 or
                    7 percent; the additional .5 to 1 percent is used to finance local transpor-
                    tation and other local government services.

                    A value-added tax is a multistage tax on goods and services. In princi-
                    ple, it is equivalent to a retail sales tax on goods sold to consumers, but
                    it is calculated differently and collected at each stage of the production




                    Page 10                      GAO/GGD9@30   State Officials’   Consumption   Tax Concerns
                                          Chapter 1
                                          Introduction




                                          and distribution process. For each stage the tax is calculated as a pry-
                                          portion of the difference between the value of goods and ser\,ices pur-
                                          chased and the value of goods and services sold. In effect. this
                                          difference is the measure of the value firms add to the goods and ser-
                                          vices they buy from suppliers. While the Irnited States has \.er)- limIted
                                          experience with value-added taxes, they are widely used in other coun-
                                          tries. -4 comparison of some of the operational differences bctlvetln a
                                          federal value-added and a federal retail sales tax is in appendix I.

                                          A federal consumption tax could raise large amounts of revenue. The
                                          Congressional Budget Office (CBO) estimates that a comprehensive
                                          value-added tax imposed at a rate of 5 percent could raise $13 billion
                                          in 1992. Even if food, housing, and medical care were exempt. the tax
                                          could still yield $72 billion annually. A retail sales tax with the same tax
                                          base and rate could raise similar amounts. Table 1.1 compares selected
                                          federal revenue sources.

Table 1.1: Selected   Federal   Revenue
Options for 1992                          Dollars     in bllllons
                                                                                                                                                    Estimated
                                                                                                                                                  added 1992
                                                                                                                                                revenue from
                                                                                                                                                  each option
                                          Individual       income taxes
                                          Raise marglnal            tax to 16 and 30 percent                                                             $35 7
                                          Add a 5 percent            surtax                                                                               26 0
                                          Eliminate      deductlbllity        of state and local income   and property    taxes                           29 6
                                          Consumption               taxes
                                          Impose a 5 percent value-added      or federal retail sales tax with
                                            comprehenstve   base                                                                                         1255
                                            - with exemptions    for food, housing, and medtcal care                                                      72 0
                                            - with low-Income    relief by lncreaslnq funds for social programs3                                         193 5

                                          ?ncludes Increased outlays for Food Stamps, Supplemental Security Income, and Aid IO Lamliles .wth
                                          Dependent Children
                                          Source Revenue estimates from “Reducing the Deflclt Spending and Revenue Options      Part ,I Scr
                                          gresslonal Budget Offlce, February 1989




                                          Page 11                                         GAO/GGD90-50      State Officials’      Consumption    Tau (‘oncrms
                            Chapter 1
                            Introduction




                            We have previously issued reports discussing consumptlou   t;lsc>s. ‘l’tl(+(i
Objective, Scope, and       reports focused on the various types of consumption tast>s. t htl I)I.II~~.~I);I~
Methodology                 methods for calculating a value-added tax, and key t~al~le-acltit~tlt ;is p01-
                            icy issues based on international experience.

                            Unlike the United States, most countries that have a national (‘IIINII~I)-
                            tion tax do not have independent federal-state tax systems. lh~wt’~)tx~.
                            their tax systems do not have the complexities of overlapping go~.ebrn-
                            ments. If the federal government were to adopt a broad-based (~)n~~rnp-
                            tion tax, the federal tax and a state retail sales tax would be in forw in
                            45 states. In 1987, general sales taxes provided 32 percent of total state
                            tax revenue. It is unclear what impact a federal consumption tax ~\~~~lti
                            have on state retail sales tax systems, but many people. including state
                            policymakers, believe the states would resist a federal consumption tas
                            because of its perceived potential impact on state tax systems and state
                            tax prerogatives.

                            The objective of this report is to provide Congress with an o!.er\,itxw ot’
                            state officials’ concerns related to the enactment of a broad-based fed-
                            eral consumption tax and of possible ways to mitigate these concnerns.
                            To address these issues this report

                        . identifies state tax policymakers’ views about how to reduce the dtlficit.
                          including their preferred revenue options;
                        . identifies the nature and extent of state tax policymakers’ concerns
                          related to a broad-based federal sales tax or value-added tax:
                        . discusses how to address policymakers’ concerns through the design of
                          the tax or other methods; and
                        l identifies state tax administrators’ opinions on the effects of a federal
                          consumption tax on state administration, revenue. and tax evasion.

                            To obtain state officials’ views of a federal consumption tax and its
                            potential impact, we sent 261 questionnaires to state policymakers i go\--
                            ernors, state budget officers, state fiscal officers, and chairs of state ley-
                            islatures’ major tax policy committees) in ail 50 states. We received 1.53
                            responses; 42 declined to answer; and 66 did not respond. We recei\.ed at
                            least one response from tax policymakers in 49 states. We also sure-eb-ed
                            the 50 state tax administrators (using a different questionnaire ) to
                            assess their concerns about the impact of a value-added tax on state tas

                            ‘Choosing Among Consumption Taxes (GAO/GGD86-91. Aug. 20. 19%). Tax Pcjliq T;I\-( I,o(!:I ,~~i(i
                            S~Methodsue-Added                                 Tax (GAOiGGD-89-87. June 20. I1Wr I T:I\ I’rli-
                            icy: Value-Added Tax Issues for U. S. Tax Policymakers (GAO/GGD-SS-123BR. Srpr. 1.5.I!NJ



                            Page 12                            GAO/GGD90-50     State Officials’   Consumption Tax (‘onwrr~s
    Chapter 1
    Introduction




    administration. We received 44 responses and 3 declinations. Three
    administrators did not respond. We entered the answers into a comput-
    erized database and analyzed them. Responses from policymakers are
    discussed in chapter 2, and responses from tax administrators are dis-
    cussed in chapter 3. (See app. II for a detailed explanation of the ques-
    tionnaire methodology.)

    Part of our questionnaire analysis included, where appropriate. compar-
    ison of responses based on specific respondent characteristics. These
    included the following:

9 the type of respondent-legislators     (state senators, state representa-
  tives, state fiscal officers) versus executives (governors and state
  budget officers);
. the degree to which a state is dependent on individual income taxes for
  revenue;
l the degree to which a state is dependent on retail sales taxes for
  revenue.

    The results are discussed in appendix III.

    To identify ways of addressing policymakers’ concerns, we reviewed
    published sources, including economic textbooks, government reports.
    professional journals, and accounting firm and trade association publi-
    cations (see bibliography). To get a wide range of opinions on consump-
    tion tax issues, we met with academic experts and knowledgeable
    officials of several states.

    Our work was done between January 1988 and August 1989 and in
    accordance with generally accepted government auditing standards.

    Survey results were discussed with officials from the Advisory Commis-
    sion on Intergovernmental Relations, the National Governors’ Associa-
    tion, the National Conference of State Legislators, the National
    Association of State Budget Officers, and the Federation of Tax Admin-
    istrators. The results generally confirmed what they perceived to be the
    concerns of their constituents.




    Page 13                     GAO/GGD90-50   State Officials’   Consumption   Tax Concrrns
Chapter 2

State Tax Policymakers’ Views on a
Broad-Based Federal Consumption Tax

                         The majority of state tax policymakers responding to our questionnaire
                         believed the federal government should use existing federal revenue
                         sources to reduce the deficit.’ Increasing existing income and excise
                         taxes was preferred over a new broad-based consumption tax. Some
                         policymakers also suggested such revenue sources as increasing user
                         fees, having a national lottery, or charging the National Atlantic Treaty
                         Organization for troops stationed in Europe. Only 20 percent selected no
                         revenue option, indicating the federal government should not raise taxes
                         for deficit reduction.’ Several of these policymakers indicated that
                         spending should be cut instead.

                         Both a federal retail sales tax and a value-added tax were perceived as
                         intrusions into state tax programs. Policymakers were especially con-
                         cerned about the impact of a broad-based consumption tax on their abil-
                         ity to increase revenue generated by their own state retail sales taxes.
                         Other concerns included the possibility of increased federal spending
                         and inflation, and the impact of a broad-based consumption tax on the
                         poor.

                         A federal consumption tax could be designed to mitigate some state tax
                         policymaker concerns. However, some mitigating features may produce
                         other undesirable effects, such as increased administration costs and
                         reduced revenue for federal deficit reduction.


                         When asked which potential sources of additional federal revenue they
Existing Federal Taxes   preferred to be used to reduce the deficit, 72 percent of state tax policy-
Preferred Over Other     makers responding selected existing federal taxes. Fifty-four percent
                         selected existing taxes exclusively; 18 percent selected existing taxes
Revenue Options          and a broad-based federal consumption tax; and 8 percent selected only
                         a consumption tax.

                         As illustrated in figure 2.1, corporate and individual income taxes were
                         the revenue options chosen most frequently by state policymakers to
                         raise revenue, followed by federal excise taxes and broad-based federal
                         consumption taxes. Of the policymakers who chose a federal consump-
                         tion tax, two out of three preferred a value-added tax over a federal
                         retail sales tax.

                         ’ Includes governors. state budget officers, chairs of state legislatures’ major tax policy committees
                         and state fiscal officers.
                         ‘An additional 10 percent of respondents indicated federal taxes should not be raised but also
                         selected one or more revenue optlons for reducmg the deficit.



                         Page 14                                GAO/GGD!WSO       State Officials’   Consumption   Tax Concerns
                                           Chapter 2
                                           State Tax Policymakers’ Views on a
                                           Broad-Based Federal Consumption Tax




Figure 2.1: Policymakers’    Preferences                                                                           . ._ _    _
for Federal Government      Deficit        55     Porcml   ot Respolldwlts
Reduction
                                           50

                                           45

                                           40

                                           35

                                           30

                                           25



                                           15

                                           10

                                            5

                                            0
                                           20               BB                   h




                                           Note   More than one revenue      source   could   be selected   by respondents


                                           Forty-five percent of the policymakers indicated that additional revenue
                                           for deficit reduction should come from corporate income taxes. Thirty-
                                           seven percent would use individual income taxes. As shown in figure
                                           2.2, these policymakers supported raising tax rates and broadening the
                                           base of both corporate and individual income taxes.




                                           Page 16                                     GAO/GGDM-SO           State Officials’ Consumption Tax Concerns
                                             Chapter 2
                                             State Tax Policymakers Views on a
                                             Broad-Based Federal Consumption  Tax




Figure  2.2: Policymakers’   Preferences
for Changing Corporate and Individual        75   Peranl   01   Reepondent8
Income Taxes Expressed by Those
                                             70
Policymakers     Favoring the Use of Those
                                             55
Taxes for Federal Deficit Reduction
                                             so
                                             55
                                             50
                                             45
                                             40
                                             35




                                                  corponw
                                                  kloome Tex
                                                                            IfldlV#Ul
                                                                            lnoomeTex

                                                            Increase Tax Rate

                                                            Broaden Tax Base

                                                            Both Increase   Rate and Broaden Base



                                             Overall, state policymakers responding opposed a broad-based federal
Concerns Focus on                            consumption tax. Eighty-one percent of the policymakers were opposed
Potential State Tax                          to a federal sales tax, and 68 percent were opposed to a federal t’alue-
Program Impacts                              added tax. Policymakers’ most frequently cited concerns (as shown in
                                             figure 2.3) focused on the impact of a federal consumption tax on state
                                             tax programs. Specifically, 80 percent of the policymakers opposed to a
                                             federal sales tax and 71 percent of the policymakers opposed to a fed-
                                             eral value-added tax cited intrusion into their traditional source of
                                             revenue.




                                             Page 16                                    GAO/GGD90-50   State Officials’   Consumption   Tax Concerns
                                           Chapter 2
                                           State Tax Policymakers Views on a
                                           Broad.Based Federal Consumption  Tax




Figure 2.3: Policymakers’ Most
Frequently Cited Concerns, Very Great or   9o   P.rwt      o,Rgpond,nts
Great, About the Impact of a Federal
Consumption Tax on State Tax Programs      so



                                           60




                                            Pollcymakon’    Concert-m

                                                   n
                                                   L        1
                                                                National Retail Sales Tax
                                                                National ValueAdded Tax



                                           State  tax policymakers are very concerned about the federal govern-
                                           ment’s budget policies that lead to higher national debt and annual defi-
                                           cits and their impact on state finances. Over the last few years, as the
                                           national debt increased. state and local governments have lost federal
                                           revenue sharing and have seen reductions in federal grant funds. In
                                           addition, the Tax Reform Act of 1986 reduced federal tax rates and
                                           broadened the tax base. in part by repealing a provision that allowed
                                           individual deduction of state sales taxes, thus creating the potential of
                                           increased resistance to state and local sales taxes. Finally, growing pub-
                                           lic opposition to increases in property taxes has left the state officials
                                           feeling they have few, if any, ways to increase revenue.

                                           Therefore. the prospect of a federal consumption tax intruding into
                                           state revenue sources concerned state officials. A majority of the
                                           respondents were greatly concerned that a federal consumption tax



                                           Page 17                                          GAO/GGDSQ50   State Officials’   Consumption   Tax Concerns
                             Chapter 2
                             State Tax Policymakers’ View on a
                             Broad-Based Federal Consumption  Tax




                             could affect their ability to increase state retail sales taxes. Specifically.
                             80 percent of the policymakers from states with a retail sales tax indi-
                             cated that a federal consumption tax could discourage their state from
                             increasing their sales tax rate. Sixty-four percent of these policymakers
                             indicated that a federal consumption tax could discourage their state
                             from broadening their tax base. However, five out of nine policymakers
                             responding from states with no retail sales tax indicated that a federal
                             consumption tax would have little? if any, effect on their decision to
                             adopt a state retail sales or value-added tax.

                             States’ concern about federal intrusion is understandable given their
                             reliance on retail sales taxes for revenue. States have used the consump-
                             tion tax base extensively as a major source of state general revenue. In
                             states with a retail sales tax, sales tax revenue represents approxi-
                             mately 31 percent of the total state tax revenue collected for fiscal 1987.
                             This percentage has remained relatively stable around 30 percent since
                             1970. As shown below, 31 of the 45 retail sales tax states generated 30
                             percent or more of their tax revenue from retail sales taxes.

                         l   Four states obtained over 50 percent of state tax revenue from state
                             retail sales tax.
                         l   Ten states obtained between 40 and 50 percent of state tax revenue
                             from state retail sales tax.
                         l   Seventeen states obtained between 30 and 40 percent of state tax reve-
                             nue from state retail sales tax.


States May Be Pressured to   Policymakers felt the federal government would be encroaching upon
                             state taxing autonomy by enacting a federal consumption tax. They
Match Federal Tax Base       were concerned that a federal consumption tax would put pressure on
                             their state to match their state tax base with the federal tax base. One
                             policymaker commented that a federal consumption tax would trespass
                             on the states’ tax base and would affect the states’ independence and
                             control over their revenue source. Another believed the federal con-
                             sumption tax may have an “evening” effect: over time the bases of the
                             federal and state retail sales taxes may move closer together-if   the
                             federal tax were a federal retail sales tax.

                             Interviews with other state officials and our literature review suggest
                             that the tax base concern may also stem from some states’ use of retail
                             sales taxes to implement state social or economic policies or gain an eco-
                             nomic advantage over other states competing for businesses to locate in
                             their state. For example, Virginia exempted basic research. fish farming,


                             Page 18                          GAO,GGtMO-50   State Officials’   Consumption   Tax Concerns
                          Chapter 2
                          State Tax Policymakers’ Views on a
                          Broad-Based Federal Consumption   Tax




                          and computer software from state retail sales tax in order to encourage
                          certain industries to locate there. Nebraska exempted farm machinert
                          from its sales tax base, so farm equipment dealers would not lose sales
                          to a neighboring state that had exempted the same items.

                          Another viewpoint, expressed by AC’IR,’ suggests that a federal consump-
                          tion tax may not be competitive with the state retail sales tax, particu-
                          larly if the tax is an invisible value-added tax not separately identified
                          in the final price.

                          It can be argued that some states could realize revenue gains by replac-
                          ing their current sales taxes with their own add-on to a federal con-
                          sumption tax. States doing this could capitalize on the potentially
                          broader base of the federal tax. If similar to federal consumption taxes
                          in other countries, the federal consumption tax base would cover items
                          not presently included in most state retail sales tax bases, such as pro-
                          fessional and personal services.


Taxpayers May Confuse     Another issue was potential taxpayer confusion between state and fed-
                          era1 consumption taxes, especially for a federal retail sales tax. This
State and Federal Taxes   concern focuses on difficulties that retailers and consumers may have
                          distinguishing between the potentially different tax rates and tax bases.
                          Figure 2.4 shows the degree of state policymakers’ concern about tax-
                          payer confusion of state and federal taxes.




                          “3Advisory Commission on Intergovernmental Relations, “Strengthenmg the Federal Revenue Sys-
                          tern: Implications for State and Local Taxing and Borrowing,” pp. 89-96, Washmgton. D.C October
                          1984.



                          Page 19                             GAO/GGIMO-50     State Officials’   Consumption   Tax Concerns
                                         Chapter 2
                                         State Tax Policymakers’ Views on a
                                         Broad-Based Federal Consumption   Tax




Figure 2.4: Degree of Concern About
Potential Confusion Between State and
                                                                                        Moderate to Some
Federal Taxes If a Federal Consumption
Tax Is Enacted



                                                                    25%   l+            Little to None




                                                                                        1.1%
                                                                                        No Basis to Judge

                                                                                        Great to Very Great

                                         Federal Retail Sales Tax

                                                                                        Moderate to Some



                                                                                        Little to None




                                                                                        6.3%
                                                                                        No Basis to Judge




                                                                                        Great to Very Great




                                         Federal Value-Added Tax




                                         Page 20                           GAO/GGDWSO    State Officials’   Consumption   Tax Concerns
                             Chapter 2
                             State Tax Policymakers’ Views on a
                             Broad-Based Federal Consumption   Tax




                                                                                            .



                             Concern about taxpayer confusion may be well-founded. Eighty percent
                             of the tax administrators responding to our questionnaire indicated that
                             retailers are currently having some difficulty in determining ivhich
                             items are subject to the state retail sales tax. This is generally the result
                             of the exemption of certain items from state retail sales tases. and the
                             taxation of similar products. This is discussed in more detail in the
                             regressivity section of this chapter.

                             Interviews with some tax administrators indicated that, since state
                             retail tax bases differ among the states, a federal consumption tax with
                             a different base could cause confusion among consumers and among
                             retailers collecting the tax. Confusion regarding which items are tasable
                             under which tax system coupled with potentially different reporting
                             requirements and the higher combined state-federal tax burden may cre-
                             ate an opportunity for underreporting and tax evasion.

Mitigating Concerns Over     Because states have used the consumption tax base extensively as a
                             major source of general revenue, mitigating state policymakers’ con-
Federal Intrusion Could Be   cerns about intrusion could be difficult. Some experts believe this con-
Difficult                    cern might be alleviated if any federal consumption tax proposal \r-ore
                             coupled with provisions attractive to state governments. Such provi-
                             sions might include sharing consumption tax revenue directly with the
                             states, letting states piggyback onto the federal tax, or enacting legisla-
                             tion that would require out-of-state vendors to collect and remit state
                             taxes on mail-order sales.

Sharing Consumption   Tax    Of the large majority of state tax policymakers who opposed a federal
Revenue                      consumption tax for deficit reduction, very few would reduce their
                             opposition if offered an opportunity to share in the revenue generated.
                             Less than 20 percent of the policymakers indicated their opposition
                             would be reduced if the consumption tax revenue were shared without
                             conditions or if the federal government agreed to pay a larger share of
                             federally mandated social programs.

Piggybacking                 Piggybacking was also rejected by most state officials. Piggybacking
                             would allow states to add on a percentage to the federal consumption
                             tax rate while the federal government administers and collects the
                             entire tax and remits to the states their portion. Piggybacking would
                             give the states added revenue without decreasing the federal revenue
                             available for deficit reduction. As shown in table 2.1, only about “0 per-
                             cent of the state tax policymakers expressed interest in piggybacking on
                             either a federal sales or a value-added tax.



                             Page 21                            GAO/GGD9@50   State Officials’   Consumption   Tax (‘oncrrns
                                              Chapter 2
                                              State Tax Policymakers’ Views on a
                                              Broad-Based Federal Consumption   Tax




Table 2.1: State Officials’   Interest   in
Piggybacking                                  Figures      in percent
                                                                                                                                     Federal          Federal
                                                                                                                                retail sales    value-added
                                                                                                                                          tax              tax
                                              Deflnltely     or probably   yes                                                           100               1 j‘3
                                              Uncertain                                                                                  24 8              ?; v;
                                                                                                                                                           La
                                              Deflmtely      or probably   no                                                            45 8              53 1
                                              No basis to judge                                                                          105               -1 1
                                              Total                                                                                    100.1a           100.0
                                              3Total does not add lo 100 percent     due IO rounding


Ma.il Order Sales                             While not directly tied to the passage of a federal consumption tas. one
                                              option for increasing state sales tax revenue would be to include in the
                                              consumption tax legislation provisions which would allow states to
                                              require out-of-state vendors to collect and remit state retail sales taxes
                                              on mail order sales. This would provide states with additional sales tax
                                              revenue from their existing tax systems. States estimate that over 8:!
                                              billion of sales tax dollars are lost because sales tax is not collected on
                                              these purchases. The state of Texas estimates that it loses about .j;1:30
                                              million annually on mail-order sales and that local governments in Tesas
                                              lose another $30 million.

                                              State sales tax is a destination-based tax-it applies to imports ( into the
                                              state) but not to exports. Goods shipped to out-of-state purchasers are
                                              commonly exempt from state sales taxes, and consumer purchases are
                                              commonly subject to the tax of the state of residence of consumers. ivith
                                              one exception. In National Bellas Hess,’ a case decided in 1967. the
                                              Supreme Court decided that mail-order houses cannot be required to col-
                                              lect and remit sales taxes to the state of residence of a customer unltlss
                                              they have a business presence in the state.

                                              Since the Supreme Court decision, a variety of bills have been intro-
                                              duced in Congress to resolve this issue. For several reasons, including a
                                              strong mail-order industry and a lack of consensus on whether local
                                              sales taxes should be included, none have been enacted. However.
                                              within the past few years, 21 states have passed statutes to extend thei
                                              reach to out-of-state mail-order catalog firms. Further. 23 states have
                                              entered into regional compacts to cooperate on sales tax compliance. The
                                              purpose of many of these efforts is to test various aspects of the original


                                              ‘Satlord      Bellas Hess. Inc. v Department of Revenue of the State of Illinois. 3Xli I’ S. Y.ii:S.I!~II~



                                              Page 22                                    GAO/GGIMlO-50       State Officials’    Consumption    Tax (‘o~~rrrns
                        Chapter 2
                        State Tax Policymakers’ Views on   a
                        Broad-Based Federal Consumption        Tax




                        Bellas Hess decision before the Supreme Court. To date this has not
                        taken place.

                        A federal consumption tax could be designed that would allow the states
                        to make out-of-state vendors responsible for collecting and remitting
                        state sales tax, whether or not the firm has a physical presence in a
                        state. However, it is likely that these provisions would face the same
                        obstacles as past proposals.


                        State policymakers’ concerns went beyond the direct impacts a federal
Other Frequently        consumption tax could have on state tax programs (see fig. 2.5). Many
Cited Concerns of       policymakers were concerned
Policymakers            about the potential economic impacts of a federal consumption tax on
                        low income taxpayers;
                        about the federal government’s   use of the revenue from a federal con-
                        sumption tax for something other than to reduce the deficit;
                    .   about the prospect of increased inflation; and
                    .   about the cost of enforcing a new federal consumption tax, especially a
                        federal value-added tax.




                        Page 23                                GAO/GGD90-50   State Officials’   Consumption   Tax C’oncems
                                           Chapter 2
                                           State Tax Policymakers’ Views on a
                                           Broad-Based Federal Consumption Tax




Figure 2.5: Policymakers’ Other                                          .-
Frequently Cited Concerns, Very Great or
Great, About the impact of a Federal       90    Psrant of Rapondants
Consumption Tax
                                           80

                                           70

                                           60

                                           50

                                           40

                                           30

                                           20

                                           10




                                           Pdkymakof8’    Conams


                                                 1       1 National Retail Sales Tax

                                                           National Value-Added   Tax




Regressivity                               Almost 60 percent of policymakers indicated that they were greatly con-
                                           cerned about the regressivity of a federal consumption tax. ,4 broad-
                                           based consumption tax on basic necessities would likely be regressive
                                           because lower income households spend a greater portion of their
                                           income on food, clothing, medical care, and shelter than higher-income
                                           households. Therefore, a broad-based consumption tax would fall most
                                           heavily on those taxpayers who are least able to afford it.

                                           While there is little doubt that a single-rate, broad-based consumption
                                           tax is regressive, the degree of regressivity can vary depending on the
                                           time period over which the regressivity is measured. In general, the tax
                                           appears to be more regressive when taxes on annual consumption are




                                           Page 24                                      GAO/‘GGDSO-50   State Officials’   Consumption   Tax Concerns
                                   Chapter   2
                                   State Tax Policymakers      Views on a
                                   Broad-Based   Federal    Consumption   Tax




                                   compared with annual income. However. if taxes on lifetime consump-
                                   tion are compared with lifetime income, the degree of regressivity is
                                   generally reduced.

Mitigating Regressivity Concerns   Several methods could be used to offset the regressivity of a consump-
                                   tion tax. These methods include taxing necessities at a lower rate (a mul-
                                   tiple-rate taxj, refundable tax credits. and increased transfer payments.
                                   However, each method has drawbacks either in terms of reduced reve-
                                   nue generation, more complicated administration, or the degree to which
                                   they address the regressivity concerns. For example, compensating low
                                   income individuals would reduce consumption tax revenue and using
                                   multiple rates would complicate tax administration.

                                   Tax Necessities at a Lower Rate. In most European Economic Commu-
                                   nity countries, the value-added tax is made less regressive through the
                                   use of multiple rates which tax necessities at a lower or zero rate. Most
                                   state tax policymakers favored exempting from the tax base such basic
                                   necessities as prescription drugs, medical and dental services. food,
                                   household fuels, and housing.

                                   CBO   estimates that a broad-based federal consumption tax imposed at a
                                   rate of 5 percent could raise $125 billion in 1992. However, if food,
                                   housing, and medical care were removed from the tax base. it would
                                   yield $72 billion annually. Thus, if the government needs to raise $125
                                   billion annually the tax rate would have to be almost doubled in order to
                                   raise the same amount of revenue. Also, because high income house-
                                   holds spend a significant portion of their budgets on the low tax rate
                                   goods, one of the drawbacks of using multiple rates is that the offset to
                                   regressivity is not well targeted to low income households. The tax
                                   break is provided to anyone, regardless of income level, who consumes a
                                   good taxed at a low rate.

                                   Multiple rates can also interfere with the neutrality of a broad-based
                                   consumption tax system. Goods with tax rates below the standard can
                                   become more attractive to consumers, and goods with above-standard
                                   rates can become less attractive. For example, a medicated shampoo
                                   that is considered a non-taxable medicine may be less expensive and
                                   have competitive advantage over a non-medicated shampoo that is
                                   taxable.

                                   ‘Issues concernmg and methods for mitigating the regresslvity of the tax are discussed m more detail
                                   in our reports titled Tax Policy: Tax Credit and Subtraction Methods of Calculating a Value-Added
                                   Tax, (GAO,GGD-89-8i, June 20. 1989) and Tax Policy: Value-Added Tax Issues for L.S. Tax Policy-
                                   makers (GAO,GGD-89-125BR. Sept. 15. 1989).



                                                                            GAO/GGIMMO    State Officials’   Consumption   Tax Concerns
    Chapter 2
    State Tax Policymakers’ Views on a
    Broad-Based Federal Consumption   Tax




    Xnother drawback of multiple rates is the effort and costs of adminis-
    tration associated with this type of system. The federal agency adminis-
    tering the tax would be faced with the same administration problems
    facing the 28 states that exempt some foods from their retail sales tax
    bases. For example, New York does not tax food and medicine. As a
    result

l small marshmallows are not taxable because they are considered cook-
  ing ingredients (food), but large marshmallows are considered candy
  and taxed;
l a wafer covered with chocolate is taxable when put on the store shelves
  with candy, but it is considered a cookie and not taxable when shelved
  with cookies: and
L some items, such as soft drinks and plant seeds, are not taxable if pur-
  chased with food stamps, but they are taxable otherwise.

    Increase Social Transfer Payments. Increasing transfer payments to low
    income individuals could also provide relief from the regressivity of the
    tax. Programs such as Aid to Families with Dependent Children and
    other social welfare transfer payments could be increased to compensate
    for the tax. Which programs are indexed would affect how well targeted
    to the poor this approach would be and the amount of additional reve-
    nue that would be needed to finance these programs. If limited to needs-
    tested programs, this method would better target the poor than if
    extended to all social transfer payments. This is because some pay-
    ments, for example social security, go to eligible recipients, regardless of
    economic status.

    Establish Refundable Income Tax Credits. A third alternative to reduce
    regressivity would be to establish a refundable income tax credit for
    consumption taxes paid. Taxpayers could use this credit to offset their
    income tax liability. Those who pay less income tax than the amount of
    the credit would receive a refund from the government. To reduce the
    amount of revenue lost, the credit could decline as income increases and
    disappear at a designated level of taxable income. A disadvantage of
    this alternative would be the increased number of taxpayers who would
    have to file returns, many of whom are not currently required to do so.
    Currently, eight states use some form of tax credit to offset the regres-
    sivity of their state sales tax.




    Page 26                           GAO/GGD90-50   State Officials’   Consumption   Tax Concerns
                             Chapter 2
                             State Tax Policymakers’ Views on a
                             Broad-Based Federal Consumption   Tax




Revenue Might Not Be         ,As shown in figure 2.6, state policymakers were greatly concerned that
                             revenue from a federal retail sales tax or a value-added tax might be
Csed to Reduce the Deficit   used to finance additional federal spending, rather than to reduce the
                             deficit. Most noticeably. a higher proportion of those opposed to raising
                             federal taxes was greatly concerned that federal retail sales tax or
                             value-added tax revenue might not be used to reduce the deficit. Several
                             policymakers indicated that they did not “trust” Congress to earmark
                             new funds for deficit reduction and that a federal consumption tax
                             would only provide Congress with a new source of revenue for spending.
                             Figure 2.6 illustrates that this perception of unchecked government
                             spending seems to be more closely associated with a federal value-added
                             tax than a federal retail sales tax. This viewpoint may stem partially
                             from the influence of consumption tax opponents who oppose a federal
                             value-added tax as a money machine that will fuel more spending rather
                             than help to reduce the deficit, according to an interest group
                             representative.




                             Page 27                           GAO/GGD90-50   State Officials’   Consumption   Tax Concerns
                                        Chapter 2
                                        State Tax Policymakers’ Views on a
                                        Broad-Based Federal Consumption   Tax




Figure 2.6: Degree of Concern About a
Federal Consumption Tax Financing
Additional Federal Spending Rather            I                                          Moderate to Some
Than Deficit Reduction



                                                                                         Little to None


                                                                                         4.5%
                                                                                         No   Basisto Judge


                                                          44.4% -                 -      Greatto VeryGreat




                                        Federal Retail Sales Tax




                                                                                         3.2%
                                                                                         No Basis    to Judge




                                                           66.3% -                -      Great to Very Grel




                                                                   I   //



                                        Federal Value-Added Tax




                                        Page 28                             GAO/GGD9MO    State Officials’   Consumption   Tax Concerns
                               Chapter 2
                               State Tax Policymakers’ Views on a
                               Broad-Based Federal Consumption   Tax




Mitigating Concerns That       Several solutions may address the concern that a federal consumption
Revenue Might Not Be Used to   tax might be used to finance additional federal spending rather than
Reduce the Deficit             federal budget deficit reduction. These include (1) requiring the Gramm-
                               Rudman-Hollings deficit reduction target of zero in 1993 to remain in
                               effect with no changes; (2) reducing the debt ceiling each year by all OI
                               part of the revenue generated by the tax: and (3) making changes to the
                               rate or base of the tax allowable only by a two-thirds vote of both
                               houses of Congress. For example, in 1989 legislation was introduced to
                               enact a value-added tax for deficit reduction. That legislation contained
                               provisions requiring that revenue derived from the imposition of the
                               value-added tax be deposited in a deficit and debt reduction trust fund.
                               Money from this trust fund would be available only for payments on the
                               principal and interest of the federal debt.

                               Adding these or other provisions to consumption tax legislation would
                               provide some immediate assurance that the funds, for the most part.
                               would be used to reduce the deficit. However, future Congresses could
                               choose to change any such provisions. For example, the 99th Congress
                               enacted legislation requiring the elimination of the deficit by fiscal year
                               1991. The 100th Congress extended the deadline for the elimination of
                               the deficit to 1993.


Possible Inflationary          As shown in figure 2.7, inflationary impact was also an issue with state
                               policymakers. As a consumption tax can be passed forward to consum-
Impact                         ers in the form of higher prices, the introduction of a broad-based con-
                               sumption tax would probably cause a one-time increase in prices by the
                               amount of the tax. This is not the same as an increase in the ongoing
                               rate of inflation. This will increase the rate of inflation for about one
                               year, but the rate of inflation should not be any higher in subsequent
                               years than in the absence of a consumption tax.




                               Page 29                           GAO/GGD90-50 State Officials’   Consumption   Tax Concerns
                                          Chapter 2
                                          State Tax Policymakers’ Views on a
                                          Broad-Based Federal Consumption   Tax




Figure 2.7: Degree of Concern About the
Impact of a Federal Consumption  Tax on
Inflation                                                                                  Moderateto Some




                                                                     30.7%                 Little to None




                                                                          iii&T
                                                                                  t        4.5%
                                                                                           No Basisto Judge

                                                                                      .-   Great to Very Great




                                          Federal Retail Sales Tax

                                                                                           Moderate     to Some



                                                                                           Liile to None


                                                                                           6.3%
                                                                                           No Basis    to Judge




                                                           A                               Great to Very Great



                                          Federal Value-Added tax




                                          Page 30                           GAO/GGD90-50    State Officials’   Consumption   Tax Concerns
                            Chapter 2
                            State Tax Policymakers’ Views on a
                            Broad-Based Federal Consumption   Tax




Administration Costs        Many policymakers were concerned about the administration costs of
                            enforcing a federal consumption tax. particularly with a federal value-
                            added tax. In 1984. the Internal Revenue Service ([RS) estimated that a
                            federal value-added tax would require 20,000 additional IRS employees.
                            would cost about $700 million per year to administer, and would take
                            about 18 months to implement. However, these estimates were made
                            over 5 years ago, and according to IRS,assumptions about economic con-
                            ditions and other variables are subject to change. In addition, Customs
                            Service costs to administer border-tax adjustments with a value-added
                            tax would also have to be considered.

                            While there is no available estimate of the administration costs of a fed-
                            eral retail sales tax, some current literature suggests that a federal
                            value-added tax would be slightly more expensive to administer than a
                            federal retail sales tax. A federal value-added tax would require more
                            information to be reported and processed than a federal retail sales tax.
                            In addition to differences in staffing and equipment, cost differences
                            would also depend on factors such as filing requirements.

Mitigating Concerns About   Administration costs would vary depending on the tax imposed, the
Administration Costs        breadth of the tax base, and methods that could be included to offset
                            regressivity. International experience shows that the simpler the tax the
                            easier and less costly to administer. This is consistent with the responses
                            to our questionnaire. Almost all of the state tax policymakers and
                            administrators agreed that a single-rate federal consumption tax with
                            few or no exemptions would be easier to administer.


                            Most state policymakers responding to our questionnaire favored using
Conclusion                  additional revenue from existing federal tax sources to reduce the fed-
                            eral budget deficit. Eighty-one percent of them were opposed to a fed-
                            eral retail sales tax, and 68 percent were opposed to a value-added tax.
                            Their major concern about a broad-based federal consumption tax is
                            their perception that it would intrude on state tax systems and limit
                            their ability to raise additional revenue from state retail sales taxes.

                            The effect of a federal consumption tax on state revenue is somewhat
                            speculative and may ultimately depend on the type and design of the
                            tax adopted. For instance, a relatively low rate, invisible value-added
                            tax may not affect state sales tax revenue. Also, states could be given

                            “Border tax adjustments are attempts by countries using a consumption based value-added tax to
                            remove the tax from goods that are exported and apply it to goods that are unparted.



                            Page 31                             GAO/GGD90-SO     State Officials’   Consumption   Tax Concerns
Chapter 2
State Tax Policymakers’ Views on a
Broad-Based Federal Consumption   Tax




opportunities to realize added revenue by adding on to a federal tax. but
the independence of their own tax systems could be reduced-a concern
that could be difficult to mitigate.

State officials also were troubled by the potential regressivity. the
potential impact on inflation and increased federal spending, and the
administration costs of a broad-based consumption tax. These concerns
could be addressed but would involve trade-offs between competing con-
cerns in the design of the tax.




 Page 32                           GAO/GGD90-50   State Officials’   Consumption   Tax Concerns
Chapter 3

Tax Administrators’ Views on a Broad-Based
Federal Consumption Tax

                      &cording to responding state tax administrators from states with retail
                      sales taxes, the impact of a federal consumption tax on the administra-
                      tion of their state tax programs would depend on the type of tax and its
                      visibility to the final consumer.’ An invisible tax was expected to have
                      less impact than a visible tax, while a federal retail sales tax was
                      expected to have more impact than a value-added tax.

                      While there was no clear consensus on whether a federal consumption
                      tax would complicate state tax administration, in general tax adminis-
                      trators indicated that a federal consumption tax would have some
                      impact on their state’s existing tax program’s revenue, evasion rate, and
                      administration costs. The tax administrators overwhelmingly responded
                      that each level of government should collect its own tax.


                      Tax administrators from retail sales tax states varied in their opinions
Impact on State Tax   about how much a federal consumption tax would complicate the
Administration        administration of their sales tax programs. A federal sales tax was
                      expected to have more impact than a value-added tax. For a federal
                      sales tax, 31 percent of the administrators who had a basis to judge
                      expected the impact to be great; 26 percent placed it in the moderate
                      category; while 43 percent predicted some to no impact. For a federal
                      value-added tax, 59 percent expected no impact and 22 and 19 percent
                      expected moderate or great impact, respectively.’


Impact on State Tax   State tax administrators believe that the visibility of the federal con-
                      sumption tax will determine whether state sales tax revenue will be
Revenue               affected. As shown in figure 3.1, when asked what impact a federal con-
                      sumption tax would have on state retail sales tax revenue, almost half
                      of the tax administrators indicated that a visible retail sales tax,’ would
                      probably decrease state revenue, and 13 percent believed revenue would
                      increase. If the retail sales tax were invisible to the final consumer.
                      25 percent thought revenue would decrease, but 28 percent believed

                      ‘Responses from tax administrators in the five states without a sales tax were from such a small
                      population and so diverse that they could not be effectively analyzed.

                      “Percentages do not include respondents who indicated they had no basis to judge how much a fed-
                      eral consurnptron tax would complicate the administration of their state sales tax.

                      “An “invisible” tax would be included in the price of goods and services before the sale and would
                      therefore be less noticeable to a consumer than a “visible” tax which would be added to the pnce of
                      goods and services during the sale. For discussion of visibility and value-added taxes see Tax Policy.
                      Tax-Credit and Subtraction Methods of Calculating a Value-Added Tax (GAO/GGD-89-87. June 20.
                      1989).



                      Page 33                               GAO/GGDW50        State Offmials Consumption Tax Concerns
                                         Chapter 3
                                         Tax Administrators’        views   on a Broad-Based
                                         Federal Consumption          Tax




                                         revenue would increase. Eighteen percent indicated that they believed
                                         an invisible value-added tax would decrease state sales tax revenue, and
                                         31 percent thought they would increase.


Figure 3.1: State Tax Administrators’
Concerns About the Impact of a Federal
Consumption Tax on State Sales Tax       Peroenl   d l?mpmdds
Revenue




                                                         NoBaaism.hIdge
                                                         Deuease Revenue
                                                         Revenue Change Neutral

                                                         increase     Revenue



                                          State tax revenue may be expected to decrease with a visible tax
                                          because the higher combined federal-state tax rate would make tax eva-
                                          sion more financially attractive, according to our discussions with some
                                          state tax administrators and officials. Other tax administrators may
                                          have thought that revenue would increase because of the federal audit
                                          presence in the consumption tax area, and for an invisible tax, because
                                          the federal tax may be included in the state tax base, according to an
                                          interest group representative.



                                          Page 34                                    GAO/GGD90-50   State Offlciala’   Consumption   Tax Concerns
                                          Chapter 3
                                          Tax Administrators’ Views on a Broad-Based
                                          Federal Consumption  Tax




Impact on Sales Tax                       There was also no clear consensus among the state tax administrators
                                          about the impact of a federal consumption tax on state sales tax evasion
Evasion                                   rates. About 40 percent of the tax administrators from retail sales tax
                                          states indicated that a federal retail sales tax would decrease or not
                                          affect their state retail sales tax evasion rate. An equal number believed
                                          that tax evasion would increase. With a value-added tax, 51 percent of
                                          the administrators thought state sales tax evasion rates would either
                                          decrease or not be affected, and 28 percent believed evasion would
                                          increase (see fig. 3.2).



&cerns    About the Impact of a Federal
                                          Perem d Roqmndtis
Consumption Tax on State Tax Evasion




                                           Impset of Tsx on Ststo Tu Evadon


                                                 I     1

                                                           Decrease

                                                           No Efba

                                                           Increase




                                           Page 35                            GAO/GGD90-SO   State OfYlcial.s’ Consumption   Tax Concerns
                                         Chapter       3
                                         Tax    AdministratOI’S’           views     on   a Broad-w
                                         Federal       Consumption             Tax




Concerns About                           Although no tax administrators thought administration costs would
                                         decrease, about 60 percent of them believed that administration costs of
Administration Costs                     the state retail sales tax would stay about the same with an invisible
                                         federal consumption tax. For a visible federal consumption tax, the
                                         respondents were nearly split between the opinions that state adminis-
                                         tration costs would increase or remain the same (see fig. 3.3).


Figure 3.3: State Tax Administrators’
Concerns About the Impact of a Federal
                                         70     Psfcenl       ol Aospondonts
Consumption Tax on States’ Costs to
Administer State Sales Taxes             65
                                         66
                                         55 n
                                         50
                                         45
                                         40
                                         35
                                         30
                                         25
                                         20
                                         15

                                         10
                                          5

                                          0




                                                   I           I Ccsts Increase
                                                                   Costs Stay About the Same
                                                                   No Basis to Judge




Joint Collection Not                     According to most tax administrators, the most efficient manner of col-
                                         letting consumption taxes is for the states to collect state taxes and the
Recommended                              federal government to collect federal taxes. For a federal sales tax, 69
                                         percent of them said the federal and state governments should each col-
                                         lect their own tax; for a value-added tax the percentage increased to 90
                                         percent.


                                         Page 36                                                 GAO/GGDSO-60   State Officials’   Consumption   Tax Concerns
             Chapter 3
             Tax Administrators’ Views on a Broad-Based
             Federal Consumption  Tax




             Ten administrators indicated that it would be most efficient for their
             state to collect both state and federal sales taxes. Only two administra-
             tors indicated that the federal government should collect both the state
             and federal taxes if a federal value-added tax were enacted. Lack of
             interest in federal collection of state taxes is not surprising, since none
             of the states have applied for federal collection of state individual
             income taxes, an option provided in section 6361(a) of the federal tax
             code as of October 1972.


             According to responding tax administrators from states with retail sales
Conclusion   taxes, the impact of a federal consumption tax would depend on
             whether the tax was visible or invisible and whether it was a sales tax
             or a value-added tax. An invisible value-added tax was expected to have
             less negative impact on state tax programs, and a visible retail sales tax
             was expected to have greater negative impact on state tax programs,

             In general, tax administrators indicated that a federal consumption tax
             would have some impact on their state’s existing tax revenue. evasion
             rate, and administration costs. The tax administrators responded that
             each level of government should collect its own tax.




             Page 37                             GAO/GGD9l%5O   State Oftlctale’   Consumption   Tax Concerns
Operational Differences Between a Federal
Retail SalesTax and a Value-Added Tax

                         The federal retail sales tax and the value-added tax are taxes on the
                         consumption of goods and services and have similarities and differ-
                         ences. Both could raise about the same amount of revenue, assuming the
                         same tax rate and the same tax base. The operating assumption of
                         policymakers and economists is that either tax would be fully shifted
                         forward onto the consumer in some form or another. The final after-tax
                         price of the product to the consumer may be the same for both taxes,
                         but the operating procedures of the two taxes differ.

                         These operating differences may have important policy implications and
                         include such factors as administration costs, tax collection, enforcement,
                         broadness of tax base, implementation time, evasion, and flexibility. In
                         addition, as the total taxes (federal, state, local) on consumption
                         increase (whether value-added tax or federal retail sales tax), the more
                         attractive tax evasion becomes. This may result in lower voluntary com-
                         pliance and higher administration costs.

                         Following is our discussion about how each type of federal consumption
                         tax (retail sales or value-added) may have some comparative advantage
                         over the other, given the following assumptions: (1) the federal con-
                         sumption tax will be a tax in addition to existing federal taxes and will
                         not replace any current taxes; (2) compliance cost is defined as the cost
                         incurred by businesses to comply with the new tax; and (3) the tax base
                         is broad and includes all goods and services, except those related to
                         financial institutions, education, religion, and housing rentals.


                         A federal sales tax is assumed to be less costly to the business commu-
Administration   Costs   nity as a whole because only those businesses selling at retail would
                         have to collect the tax. Under a value-added tax almost all businesses
                         would have to collect. Administration costs are also believed to be lower
                         for a sales tax, primarily because fewer businesses would be collecting
                         the tax.


                         For the business community as a whole, a value-added tax would proba-
Compliance Costs         bly have higher compliance costs than a federal retail sales tax because
                         almost all businesses, not just retail businesses, would collect taxes, If a




                         Page 38                     GAO@XHO-5O    State Official’s   Consumption   Tax Concerns
                     Appendix1
                     Operational  Differences Between a Federal
                     Retail Sales Tax and a Value-Added Tax




                     credit value-added tax is implemented,’ most businesses would have to
                     keep invoices for all sales to and all purchases from other firms. These
                     invoices would be subject to audit by tax authorities. The subtraction
                     method value-added tax would require less documentation. If certain
                     items (such as food, clothing, and shelter) were taxed at a lower rate or
                     not at all, compliance would be more complex, and costs would poten-
                     tially increase for businesses that sold both taxable and non-taxable
                     items. If multiple rates were used to offset regressiveness, complexity
                     would again increase and affect compliance costs.


                     The federal retail sales tax might have an advantage over the value-
Ease of Collection   added tax if federal and state sales taxes could be collected jointly-
                     either by the state or the federal government. Realistically, however,
                     states impose sales taxes on different items (some tax almost all goods
                     and services; others tax only certain items) and at different rates (3 to
                     7.5 percent). To have an efficient collection process, all 45 states with a
                     retail sales tax would have to conform their sales tax bases to the fed-
                     eral government’s base.


                     The biggest advantage a federal retail sales tax may have is the esti-
Start-Up Time        mated time it would take to implement it. A sales tax should not have a
                     long implementation period because it would fall mainly on retail outlets
                     in 45 states that currently charge state and local sales taxes. States and
                     retail businesses are familiar with the sales tax concept. Value-added
                     tax is a new concept to the United States, and many businesses are not
                     familiar with this form of taxation. The IRS estimates it could take 18
                     months from time of enactment to implement a value-added tax.


                     With a credit value-added tax, firms have a financial interest in ensur-
Enforcement          ing that the amounts of value-added tax paid on purchases made in pro-
                     ducing a good or service are accurately reported on their invoices, since
                     they receive credit against their value-added tax liabilities for previ-
                     ously paid value-added tax. This self-enforcing feature not only

                      ‘Credit and subtraction are two ways of calculating a value-added tax. Under the subtractron method
                     a firm calculates its value added by subtracting its total purchases from its total sales. Then It calcu-
                     lates the tax liability by multiplying its value added by the tax rate. The credit method calculates the
                     tax for each transaction. A firm’s tax liability is determined by adding up the taxes pard on all
                     purchases and the taxes collected on all sales, and subtracting the total tax paid from the total tax
                     collected. For a more complete discussion of these methods of calculating a value-added tax see Tax
                     Policy: Tax-Credit and Subtraction Methods of Calculating a Value-Added Tax (GAOiGGD-89-8r
                     June 20. 1989).



                     Page 39                                GAO/GGD90-50      State Offkial’s   Consumption    Tax Concerns
                      Appendix I
                      Operational  Differences Between a Federal
                      Retail Sales Tax and a Value-Added Tax




                      enhances compliance but also provides tax authorities with documenta-
                      tion for cross-checking the amount of value-added tax collected. X fed-
                      eral retail sales tax and a subtraction method value-added tax both lack
                      this self-enforcing feature.


                      Because of the better enforcement properties,               it may be possible to levy
Size of Base          a federal value-added tax on more goods and                services than a federal
                      retail sales tax. In fact, European nations, on            the average. levy value-
                      added taxes on more goods and services than                 most state sales taxes in
                      the United States.


                      Goods and services may be exempted from the tax base under either a
Exemptions From the   federal retail sales tax or a value-added tax. Under a retail sales tax
Base                  exemption the entire tax is removed, but under a value-added tax
                      exemption only the tax at the final point of distribution or production is
                      removed.

                      If the intention is to remove the tax completely under a value-added tax,
                      “zero-rating” can be used. A zero-rating under a value-added tax applies
                      a tax rate of zero on the sale of a good and allows a full deduction, or
                      credit, for any tax paid on items purchased to produce the good. Zero-
                      rating differs from exemption because zero rating keeps the firms pro-
                      ducing zero-rated goods “in the system,” that is, they are registered with
                      the tax authority and must file a tax return.


                      Most taxpayers are reluctant to attempt to evade their tax obligations-
Evasion               until the tax rate becomes so high that the potential financial gain from
                      evasion exceeds the cost of the potential punishment if caught. A credit
                      value-added tax with the self-enforcing feature increases the probability
                      of exposing tax evaders. A federal retail sales tax has no such feature.
                      Therefore, up to some given tax rate, a value-added tax would be
                      expected to have better voluntary compliance than a federal retail sales
                      tax. Thus, the federal value-added tax rate that would trigger signifi-
                      cant levels of evasion would probably be higher than the federal retail
                      sales tax rate that would trigger significant levels of evasion.




                      Page 40                            GAO/GGlMO-50   State Official’s   Consumption   Tax Concerns
Appendix II

Methodology for GAO Consumption
Tax Questionnaire

                  These GAO questionnaires were developed on the basis of information
                  collected from published sources. including economics and accounting
                  textbooks, government reports, professional journals, and accounting
                  firm and trade association publications. We spoke with academic
                  experts and with knowledgeable officials of the Canadian government
                  and the states of Maryland, Michigan, Nebraska, New York, Oregon. Vir-
                  ginia, and Washington. We also spoke with representatives of several
                  business associations, including the Michigan State Chamber of Com-
                  merce and Tax Executives Institute.

                  Four separate questionnaires were developed to send to ( 1) policymak-
                  ers in states with a retail sales tax, (2) policymakers in states without a
                  retail sales tax, (3) tax administrators in states with a retail sales tax,
                  and (4) tax administrators in states without a retail sales tax. Prelimi-
                  nary drafts of the questionnaires were reviewed by officials of the XCIR.
                  the National Governors’ Association, the National Conference of State
                  Legislators, the National Association of State Budget Officers, and the
                  Federation of Tax Administrators. Based on their suggestions, changes
                  were made where appropriate. These officials did not in any way
                  endorse or sponsor the questionnaires but did supply GAO with the
                  names and addresses of the appropriate state officials to receive ques-
                  tionnaires. State senators and representatives who received the ques-
                  tionnaires were chairpersons of the tax policy committees in their
                  respective states.

                  A draft of the questionnaires was pretested with the appropriate state
                  officials in New York, Oregon, and Washington. These states were
                  selected for the following reasons:

              l   New York because it has both a retail sales tax and a state income tax;
              l   Oregon because it has an income tax but no retail sales tax; and
              l   Washington because it has a state retail sales tax but no state income
                  tax.

                  The first mailing was done on August 17, 1988. Follow-up letters and
                  questionnaires were mailed on September 30 and November 17, 1988.
                  Telephone follow-up was done in December 1988 and January 1989. Our
                  analysis includes all responses received by March 15, 1989. The answers
                  received by respondent type are shown in table II. 1.




                  Page 41                     GAO/GGIWlMO   State Official’s   Consumption   Tax Concerns
                                                 Appendix II
                                                 Methodology    for GAO Consumption
                                                 Tax Questionnaire




                                                                                  _        ,,.                                                        .-
Table 11.1: Summary     of Questionnaire   Respondents      by Type of Official
                                                                                                                                                        Percent
                                                                                                                Declined to           Answered        response
PolicvmakerlAdministrator                                             Total mailed          No response              answer           questions             rate
Governors                                                                             50                  18                  7                25             50
Budget      officers                                                                  50                  13                  6                31             62
Senators                                                                              54                   19                 9                26             48
Rewesentatlves                                                                        49                  10                  6                33             67
Ftscal officers                                                                       58                    6                14                38             66
Tax admlnlstrators                                                                    50                    3                  3              44              88
Total                                                                             311                     69                45               197              63



                                                 We analyzed and quantified responses for all policymakers and adminis-
                                                 trators in states with a sales tax. Responses from tax administrators in
                                                 the five states without a sales tax were such a small population and so
                                                 diverse that they could not be effectively analyzed. The level of respon-
                                                 dents in each state is shown in table 11.2.




                                                  Page 42                                        GAO/GGD90-SO    State   Official’s   Consumption   Tax Concerns
                                               Appendix          II
                                               Methodology    for GAO Consumption
                                               Tax Questionnaire




Table 11.2: Level of Questionnaire   Respondents  by State
                                               Executive Branch                                Legislative    Branch
                                                              Budget                                                           Fiscal                    Tax
State                                        Governors       officers         Senators             Recwesentatives           officers       administrators
Alabama                                                      N         C                  N                            C               C                       N
Alaska                                                       D          D            N,N                               C               N                       N
Anzona                                                    C             C                 C                            C               C                       C
Arkansas                                                     N         C                  C                            C               C                       C
California                                                   D          D            NC                                D               D                       C
Colorado                                                     N          C                 N                            C               D                       C
Connecttcut                                                  N          C                 D                            C               D                       C
Delaware                                                  C             C                 N                            C               D                       C
Florida                                                      C          C            cc                                 .         c,c                          C
Georgia                                                      N          C                  .                           C               C                       C
Hawati                                                       C          C                 C                            C                D                      C
Idaho                                                     C             C                 C                            C               C                       C
Illinois                                                     N          C                 C                            C               C                       C
Indiana                                                      C          N                 C                            C                C                      C
Iowa                                                         N          N                 C                            C                D                      C
Kansas                                                       N          D                 C                            N                D                      C
Kentucky                                                     C          C                 N                            C                N                      C
Louisiana                                                    N          C                 C                            N                N                      C
Maine                                                        C          C                 N                            N               C                       C
Marvland                                                     C          C                 C                            N                D                      C
Massachusetts                                                N          N            NJ                                N                C                      N
Michigan                                                     C          C                 C                            C          cc                           C
Minnesota                                                    C          C                 D                            C                N                      N
Mississippi                                                  N          N                 C                            C                C                      C
Missouri                                                     C          C                 N                            N                C                      N
Montana                                                      D          N                 D                            D                C                      C
Nebraska                                                     C          C                 C                             .               C                      C
Nevada                                                       D          N                 N                            N                C                      N
New Hamcshire                                                C          C                 D                            D                D                      C
New Jersey                                                   C          C                 N                            D                N                      C
New Mexico                                                                                                             C                C                      C
New York                                                                                                               N          C,N                          C
North Carolina                                                                                                         N                C                      C
North Dakota                                                                                                           C                C                      C
Ohlo                                                                                                                   C                D                      C
Oklahoma                                                                                                               D                D                      C
Oregon                                                                                                                 C                C                      C
                                                                                                                                                 (continued)




                                                   Page 43                          GAO/GGD9060              State OMdal’s   Consumption      Tax Concerns
                  Appendix Ill
                  Methodology    for GAO Consumption
                  Tax Questionnaire




                   Executive       Branch                            Legislative     Branch
                                        Budget                                                        Fiscal                   Tax
State            Governors             officers       Senators           Representatives            officers      administrators
PennsylvanIa                   N                  N              N                            C          cc                       c
Rhode Island                   C                  C              C                            C          cc                       C
                                                                                                                         ~____
South Carolina                 C              C                  N                            C               C                   C
South Dakota                   N                  C              C                            C               C                   C
Tennessee                      N                  C              C                            C               C                   C
Texas                          N                  N              D                            C               D                   C
Utah                           N                  N              C                            C               C                   C
                                                                                                                       .-__-
Vermont                        C                  N              N                            C               C                    C
                                                                                                                        ..~
Virgmia                        D                  D              D                            C          C.D                       N
Washington                     C                  C              N                            C          c.c                       C
West Vlralnia                  N                  D              N                            C               C                    C
Wisconsm                       C                  C         D.N                             NC                D                    C
Wyomrng                        C                  C              C                            C          c,c                       C

                   Note C-Completed Questlonnacre. D-Declined to Respond, and N-No Response                Two letters lndlcate
                   two persons In a pollcymakmg posItIon In that state were sent questionnaires


                   Sales tax dependence was calculated with data from the Department of
                   Commerce report Government Finances in 1986-87 (Bureau-of the Cen-
                   sus, Series GF-87-5). High and low retail sales tax dependence was
                   determined by calculating the revenue from retail sales tax as a percent
                   of general revenues for each state. If a state’s percentage was above (or
                   below) the national average of 24.578 percent, it was considered to have
                   a high (or low) dependence on its state retail sales tax. States without a
                   sales tax were included in the low retail sales tax dependency group.
                   State data is shown in table 11.3.Where there was a significant differ-
                   ence in the answers given by these various groups, it was noted in our
                   report.




                   Page   44                              GAO/GGDs(Mo              State Offlciah   Gmsumption      Tax Concerns
                                   Appendix II
                                   Methodology    for GAO Consumption
                                   Tax Questionnaire




Table 11.3:State Characteristics
                                                                                                              Dependence on retail
                                                                              States having a                        sales tax
                                                                        retail sales       individual             Above          Below
                                   State                                           tax   income tax             average        average
                                   Alabama                                         X                 X                                       X
                                   Alaska                                                                                                    X
                                   Anzona                                          X                 X                  X
                                   Arkansas                                        X                 X                  X
                                   California                                      X                 X                  X
                                   Colorado                                        X                 X                                       X
                                   Connecticut                                     X                     a              X
                                                                                                                                        --
                                   Delaware                                                          X                                       X
                                   Flonda                                          X                                    X
                                   Georgia                                         X                 X                  X
                                   Hawall                                          X                 X                  X
                                   Idaho                                           X                 X                  X
                                   iillnols                                        X                 X                  X
                                   lndlana                                         X                 X                  X
                                   Iowa                                            X                 X                                       X
                                                                                                                                  __-
                                   Kansas                                          X                 X                  X
                                   Kentuckv                                        X                 X                                       X
                                   Loulsiana                                       X                 X                                       X
                                   Maine                                           X                 X                  X
                                   Maryland                                        X                 X                                       X
                                   Massachusetts                                   X                 X                                       X
                                   Mlchlgan                                        X                  X                                      X
                                   Minnesota                                       X                  X                                      x
                                   Mississlppl                                     X                  X                 X
                                   Mlssoun                                         X                 X                  X
                                   Montana                                                            X                                      X
                                   Nebraska                                        X                  X                                      X
                                   Nevada                                          X                                    X
                                   New Hampshire                                                          b                                  X
                                   New Jersey                                      X                  X                                      X
                                   New Mexico                                      X                  X                 X
                                   New York                                        X                 X                                       X
                                   North Carolina                                  X                  X                                      X
                                   North Dakota                                    X                  X                                      X
                                   Ohlo                                            X                  X                 X
                                   Oklahoma                                        X                  X                                      X
                                   Oregon                                                             X                                      X
                                                                                                                              (conttnued)




                                   Page 45                              GAO/GGD9&50      State Official’s     Consumption   Tax Concerns
Appendix II
Methodology    for GAO Consumption
Tax Questionnaire




                                                                                          Dependence on retail
                                                       States having a                           sales tax
                                                 retail sales       individual                Above          Below
State                                                       tax   income tax                average        average
Pennsylvania                                                   X                  x                 X
Rhode        Island                                            X                  x                                        X
South Carolina                                                 X                  X                 X
South Dakota                                                   X                                    X
Tennessee                                                      X                      3             X
Texas                                                          X                                    X
Utah                                                           X                  X                 X
Vermont                                                        X                  X                                        X
VIralma
Washlnqton                                                                                          X
West Vlrqtnia
Wisconsin                                                      X                  X                                        X
Wvomina                                                        X                                                           X

aConnectlcut          taxes only Interest dlvldends    and capital   gains and was counted    as a state not having   an
lndivldual     income     tax

“L\lew Hampshire   and Tennessee           tax only Interest   and dlvldends   and were counted   as states   not havtng
an lndlvldual Income tax




Page 46                                          GAO/GGD6@60          State Offlcids      Consumption    Tax Concerns
Xppendix III

Level of Concern by Respondent Characteristics


                   Our questionnaire analysis included, where appropriate, comparison of
                   responses based on specific respondent characteristics. These included
                   analyses based on

               l type of respondent- legislators (state senators, state representatives.
                 state fiscal officers) versus executives (governors and state budget
                 officers);
               l degree to which a state taxes personal income as determined by the
                 dependence of that state on individual income taxes for revenue-40
                 states with a broad-based individual income tax versus 10 states with a
                 low or no individual income tax;
               . degree to which a state is dependent on a retail sales tax-states above
                 the national average were determined to have high dependency versus
                 states below the national average (low dependency)-25       states with
                 above average dependence versus 25 states below average.

                   Limited comparisons of policymakers’ responses were made between
                   states with and without a retail sales tax because of the low level of
                   response from policymakers in states without a retail sales tax.

                   Policymakers indicated their level of concern regarding either a federal
                   value-added tax or a retail sales tax based on their preference for some
                   type of federal consumption tax. Those not favoring a federal retail
                   sales tax indicated their concerns about a federal retail sales tax. Those
                   not favoring a federal value-added tax indicated their concerns about a
                   value-added tax.

                   Questionnaire responses indicated that the level of concern for many
                   issues varied depending on whether the respondent was a legislative or
                   executive branch policymaker and whether the policymaker opposed
                   raising taxes. Concerns about issues also varied depending on the pro-
                   portion of state revenue derived from retail sales tax in the respondent’s
                   state.

                   Executive branch policymakers were more concerned than legislative
                   branch policymakers about the regressivity of a consumption tax.
                   Policymakers opposed to raising taxes were more concerned about the
                   impact of a consumption tax on inflation or that the tax might not be
                   used to reduce the deficit. Policymakers from states with a relatively
                   lower retail sales tax were more concerned about the regressivity of a
                   federal consumption tax.




                   Page 47                     GAO/GGLMO-60   State Official’s   Consumption   Tax Concerns
    Appendix Ill
    Level of Concern by
    Respondent Characteristics




    A higher proportion of executive branch policymakers than legislative
    policymakers indicated concern about the regressivity of a federal sales
    or value-added tax. These executive branch policymakers indicated
    greater concern about the regressivity of both a federal sales and a
    value-added tax. For a value-added tax, they were especially concerned
    about the invisibility of the tax, its potential impact on inflation. and the
    administrative costs associated with enforcing the new tax.

    As shown in tables III. 1,111.2, and 111.3,a higher       proportion of those
    opposed to raising federal taxes indicated great         concern about potential
    drawbacks of a consumption tax than those not            opposed to raising fed-
    eral taxes. Most noticeably, a higher proportion         of those opposed to rais-
    ing federal taxes was greatly concerned that

l   federal retail sales tax or value-added tax revenue might not be used to
    reduce the deficit;
l   a federal retail sales tax or value-added tax would increase inflation;
    and
l   a federal value-added tax would create pressure on the state to match
    its tax base with the federal tax base.

    A higher proportion of those who did not oppose raising federal taxes
    was greatly concerned about the regressivity of a federal retail sales
    tax.

    Levels of concern also varied depending on whether the respondent’s
    state’s retail sales tax revenue as a percentage of total state revenue
    was below or above the average level for all states. A larger proportion
    of policymakers responding from states below the average was greatly
    concerned about regressivity and inflation. A slightly higher proportion
    of policymakers from states with sales tax revenue exceeding the aver-
    age was greatly concerned about the impact of a federal consumption
    tax on their state’s ability to increase its sales tax.




    Page 48                      GAO/GGMJO-50   State Official’s   Consumption   Tax Concems
                                         Appendix       m
                                         Level of Concern by
                                         Respondent Characteristics




Table 111.1:Percentage of Responding
Executives and Legislators Who Were                                             Federal retail sales tax          Federal value-added    tax
Greatly or Very Greatly Concerned With                                               Exec.            Leg.              Exec.            Leg.
Federal Consumption Tax Issues           Revenue mav not be used to
                                         reduce the defrcrt                              43%               45%             68%              68°C
                                         Regressrve       nature   of the tax            71                53               72              47
                                         Impact     of the tax on tnflatron              21                15              60               40
                                         Admrnrstratrve      cost to enforce
                                         the tax                                         14                20              52               34
                                         lntrusron of the federal
                                         government    Into state revenue
                                         source                                          82                78              64               76
                                         Impact of the tax on state’s
                                         ability to Increase a state
                                         consumptron      tax                            71                72              64               68
                                         Confusion   between        state and
                                         federal tax                                     54                50              36               37
                                         Confusion   between        state and
                                         federal tax base                                54                53              32               45
                                         Pressure to match state tax
                                         base wrth federal tax base                      39               42               32               34
                                         Vrsrbrlity of the tax to the
                                         consumer                                        21                18               16              16
                                         lnvrsrbrltty   of the tax to the
                                         consumer                                         4                10              60               24




                                         Page 49                                GAO/GGD9MO     State Official’s   Consumption    Tax Concerns
                                          Appendix m
                                          Level of Concern by
                                          Respondent Characteristics




Table 111.2:Percentage of Responding
Policymakers    Who Were Opposed or Not                                           Federal retail sales tax           Federal value-added   tax
Opposed to Raising Taxes and Who                                                 Opposed to                          Opposed to
Were Greatly or Very Greatly Concerned                                                raising            Not              raising            Not
With Federal Consumption    Tax Issues                                                  taxes       opposed                 taxes   -
                                                                                                                                       opposed
                                          Revenue may not be used to
                                          reduce the defrcrt                               7 1%              38%               79%             62”b
                                          Regressive       nature   of the tax             29                66                63              54
                                          Impact     of the tax on inflation               29                14                67        ~-    36
                                          Admrnrstrative      cost to enforce
                                          the tax                                          29                16                50              36
                                          lntrusron of the federal
                                          government    into state revenue
                                          source                                           82                79                75              69
                                          Impact of the tax on state’s
                                          abrlrty to increase a state
                                          consumptron      tax                             65                73                75              62
                                          Confusron between          state and
                                          federal tax                                      53                51                38              36
                                          Confusron between          state and
                                          federal tax base                                 53                54                42              39
                                          Pressure to match state tax
                                          base wrth federal tax base                       41                41                46               26
                                          Visrbrlity of the tax to the
                                          consumer                                         12                21                17               15
                                          lnvrsrbrlrty   of the tax to the
                                          consumer                                         13                  7               46               34




                                          Page 50                                GAO/GGDW-50      State Official’s    Consumption    Tax Concerns
                                          Appendix III
                                          Level of Concern by
                                          Respondent Characteristics




Table 111.3:Percentage of Responding                                                    .-.
Policymakers   From States With a Level                                          Federal retail sales tax          Federal value-added tax
of Retail Sales Tax Dependence   Below                                                Below          Above               Below        Above
and Above the Average Who Were            Revenue may not be used to
Greatly or Very Greatly Concerned With    reduce the deflclt                             42%               46%              72%                  65’
Federal Consumption Tax Issues            Regresstve       nature   of the tax                             51               72                   42
                                                                                          73
                                          Impact     of the tax on lnflatlon             21                 15              63                   32
                                          Admlnlstratlve      cost to enforce
                                          the tax                                         24                15              41                   32
                                          Intrusion of the federal
                                          government    Into state revenue
                                          source                                          79               80                66                  77
                                                                                                                            __~-       __~
                                          Impact of the tax on state’s
                                          ablltty to Increase a state
                                          consumption      tax                            67               75               59                   74
                                          Confuston between          state and
                                          federal tax                                    55                49               31                   42
                                          Confusion   between        state and
                                          federal tax base                               49                56               38                   42
                                          Pressure to match state tax
                                          base with federal tax base                     33                46               31        ___.....   36
                                          Vlslblllty of the tax to the
                                          consumer                                       21                 18              25                    7
                                                                                                                                       .__~
                                          lnvlslbllity   of the tax to the
                                          consumer                                         9                 7              44                   33




                                          Page 51                                GAO/GGD9@50    State Official’s   Consumption     Tax Concerns
Appendix 11

Questionnaire and ResponsesFrom State
Tax Policymakers

                                                                                                   -
              This appendix includes the questionnaire and responses of state tas
              policymakers. Responses to questions 3 through 9 and 11 through 18
              reflect the number of policymakers from states with and without a state
              retail sales tax. Responses to questions 10, 19. and 20 could not be com-
              bined for policymakers in states with and without a sales tax because
              the questions are not identical. Responses from policymakers in states
              with a retail sales tax are shown in sequence. Responses from policy-
              makers in states without a sales tax are on the last page of this
              appendix.




              Page 52                    GAO/GGLHO-50   State Official’s   Consumption   Tax Concerns
                    Appendix            Iv
                    Questionnaire              and Responses        From   State
                    Tax    Policymakers




                                             ualhed sma   Geaeral    AeoouatiBg    OMce

                                             Survey of State Tax Policymakers
                                             Concerning a Possible Federal Consumption Tax



LNTRODUCI’          ION

nlc U.S. ckaenl Aaaultlng           offke (GAO). M yency of
Use Congmu rapoosible for evaluating fcdcral policies and
pfopauu.      is conduc?ing 8 survey of state tax policyttkcrs                     Vahe4ded       US (VAT):      A mulfhagc tu that is
and&linisMon.l3cq-rcrrbyouIrrnrtcux                                                impo&onthcthcueaddaltogao6radrrvicesu
pokymhr          to prxwie your peqcctive    on the passibiiityl                   evay sage in the producdoa md diseibufion process.
feuibility   of federal conaurqaion taxes u a mans to                              Value-u&d     is dse diffmacc   bctwozn a busancss fitm’s
incraw     federal revenues. To clarify what is -I        by the                   salaand~purctuaesfmmaherfums.
tmm in the questionnaire, a glossary is tiluded.
                                                                                   h9drkrtaxtRSTk               Ataxthuiscalcukdand
‘Ihir qwtioruuife      is being uat to state tax policymakers in                   titotbepriceofgoodsascrvicessoldto
each state. The quesdonnaire skmdd be cm~leted by the                              am8umen.
8ddmsee or sameme be/she deaignrta. A simile
qu#damireisbeiagratIoruret8adminirpuDn.Youf                                        coswllptbotu:           Retds8lutuavdue-8dcldtAx.
wiption         is voluntary. However. our report to the
congress will be less dull complete WIthout your input. we                         LvkibleLu:      Aretaiisdoaxavdue-ddedtutha~is
encoumge you 10 reply.                                                             included in he price of goods or ~crv~cu sold to
                                                                                   amsumcninaedofbeingal&tcd~ddultodlc
This is net M anonymous sutvey. Your individual rc+mses                            bcforc-tax price at tk tune of sale.
uuy be provided to the Coqus.         After receiving the
replies. GAO will judgmencaUy select 8 number of states and                        Vbibk tax: A retail sales tax a value-ad&d tax rht IS
follow-up in prson to olxaul more daaikd infonnraon on                             cllculucd 84 8ddd 10 the price of go& or services
the quufionlllirr  feqoases. Therefore. it is important that                       sold to consumers instad of bctng included in the pnce
ntuceivethen8mcofrcomactpcrsoniaqucstionl.                                         bcforc tk sale.

Thccplenioclruircsbouidtakc20toMminuteatocootpke.                                  P&backtax:            Asatemailsalesuxavduc-added-
Mar of tk qu&oas          aa be quickly answered by checking                       dut is &3&d o(I to 8 fcdcral ruail ula ux or value-
boxa.placcraumthequestionNk                ill the enclosed                        8dbdt8XMdth8l8ppliCStOthCSMlC                  uMs8ctlals8sthe
poa8ge-pd       ellvelqJe within 10 days of receipt. If you hve                    federal lu. Adfnidmtion           8Dd wlkctial    of bah taxes
MyqllcshS.plu8eall.coua.Mr.GcorgeZik8on                                            are pufamed         by 8 federal l gency. which pcriod~cally
(415) 5564200 a Ms. Lyrda Willis on (202) 272.7904. In                             rcautSt0theauCtbcumuatscoUectcdforit.
ltEMXSttkCWClOpClSmirplrrd,duddwiS:
                                                                                   Bmd-lmdtax:Amxbuethuiacludualmost~
                   us. cha8l   l4csouatiag oftk                                    .goodsMd-.          Exchuioas would include rental value
                   Mr. George zh                                                   of oyrrr and teaant occupied housing. medical care.
                   San Fnnciwo Regional Ofkice                                     iasumm 84 ltnua.        education. religious, and welfare
                   SUitC900                                                        srNitks.
                   1275 Marka Stteet
                   SUI Fmacko,   CA 94103

nad      you fa your help.
                                      .a..




                    Page      53                                           GAO/GGLKt@SO            State   Official’s   Consumption      Tax   Concerns
                     Appendix      Iv
                     Questionnaire    and Responses                      From    State
                     Tax Policymakers




I.    BACKGROUND
                                                                                                If you checked elfher I or 2 (corponre or mdwldual
I.    PIeme indiutc the name. title. and telephone number of                                    Income taxer) I” quesuon 3. please answer question 4
      Q person we should contact if rddmonai mformauon IS                                       If you did IKII check I or 2 in quesuon 3. please shp
      IYqulrd lbout your rcqm.5cs.                                                              to qucstlon 5.

      NAME:
                                                                                         4. For corporate or mdw~dual taxes. would you favor
      TlTLE:                                                                                bradenmg the u.x base. mcrcasmg rhc tax rate. or both?
                                                                                            Khck one bax m each row. ,‘f youchecked only ON
      TELEPHONE             NUMBER:         L.-w                                            swcc m qursnm 3. check “N/A” for theothrr.I



2.    Fa wtucb sutc arc you I tax policymaker?




II.   FOTWTUL     SOURCES                   OF ADDITIONAL
      FEDERALREvENuE

3. In your opinion. which of the following sources. if my.
   would you prefer tbc federrl government use to reduce
   the dcficlr? (C7uck all rhor crpply.)

      1. cl Corporate         inconK cues               (69       )

      2. 0     Individual     income urcs               (57       )                             If you checked 3 (consumpuon uxes) m qucsuon 3.                ’
                                                                                                please answx quesuon J.
      3. 0     Broad-bawd       consumpuon              taxes (RST or VAT)       ( 41)      ’

      4. 0     Federal excise rues           (alcohol,        mbacca   motor    (49   ) 5 ux
                                                                                          Would~ you
                                                                                                 ~? favor  a federal
                                                                                                       (cheek  one,, retal s&s              Ux. a value-dded
               lilt:;, CIC)

      5. cl ckher (Pleuse qwcifi~                   (   28    )                             1. ORaailsalarprr            (IO)

                                                                                            2. 0     Value-addedtax      (24)

                                                                                            3. onoth                          (4)

      6. ~Tbcfederalgovenunm~shouldNOTnirtws                                                4. clotherIP&ws&wify~                   (2)
               to duce       Ibe deficit.          (46)



                 lfyouchcclredonly4.S.or6iqucs~ioo3.
                 pkase tip to question 6.                                        1




                      Page      54                                               GAO/GGD90-50            State   Official’s         Consumption     Tax   Concerns
                     Appendix    Iv
                     &estiOM&e       amI Responses                  From State
                     Tax Policymakers




m.   SATE        CONCERNS        ABOUT          A BROAD BASED FEDERAL CON-ON                               TAX.

 6. Would you favor or oppose a brad-bawd                      federal consumption   ux to dmuse       he nauonrl d&at?         (Check mu bat in
     each    r0w.J




     1.

     2.



          Uyarcbsc~4(oppac)aS(Itroo3yoppac)foreilherrruii~aavrluc-ddsdPxainquertioD6,pkuc
          answer qtwaiau 7-9. If you did na check thcac answers. skip to quadon                     10.


 7. Would your opposition to e bra&brrd  fahal  amumptim    tax (either retail vies a value-ad&d) be reduad if !he
    mta verc offered. share in UK rcvcauc wtthm   mnditioas (an ahags attached)? (C&e& ate box in each row.)



                                  JMKliUly         -lY                               MlY      DCfUlMy           No bau
                                     ya                  yes         uncenrin           Do       no             10 judge

                                      (1)                (2)             (3)           (4)           (5)              (‘5)
     1.Raildatu                             1            23                    7      40             51                 2
     2. vahlc-MIded        us            1               11                    6      43             40                 2




                      Page 55                                                  GAO,‘GGD!MMO        State Official’s         Consumption    Tax Concerns
                          Appendix Iv
                          Questionnaire   and      Responses       From State
                          Tax Policymakers




-                                                                                                                                                             -




                                         DC!iddy     MlY                                 Probably      DCflIUtdy     No basis
                                            Ya          Ye         Uuxnain                  no             no        IO Judge

                                            (1)         (2)             (3)                 (4)            (5)             (6)
        I.   Radsdaux                        1           6                 2               43             71                1

        2. Vdue-Kided         ax             0           0                 4               34             64                1

    10. In your opinion, would the existence of a breed-basal                  federal coawmptio~~ ux encauage             or d.ismuragc your state
        ~irrrrulnghrulesux~orbradcningiusrluuxbru?(C~ck-&Iu!eachr~~.)




        2.



    Il. Asmuniagtberewasgoiagtobeabroed-beeedfakral                            mnsunption         tax. would you prefer a federal consumption     tax tba~
        wurrruilvlauxarv~uc-ddcd~x?(~ckonr.)

         I. 0      Refer    mail   ala    mx (Skip 10 ~~sfian    13.)           (53)

        2. ORfervdutddedmx(Gnuineewqwsrian12.J                                    (78)

        3. 0      Other @leaat specify) Wuse          m.rwr     qnmon      12 and qwnon             13.1 ( 10 )


        ---____--------
        4.   q     NobaiswjudpfStipw+mianf4.)                       (12)




                          Page 56                                          GAO/GGD96-50                 State Official’s        Consumption    Tax Concerns
                   Appendix IV
                   Questionnaire   ad               Responses        From State
                   Tax Policymakers




12. To what extent. if any. do you believe the following issues xre rexsons why the fedcrrl govemmcnr                    should not lmpiement
    , brad-based &ail uks tax? (C7uck au box I” each row.)


                                                                                                                          Little
                                                                                      Gm      Mndcrmc       sane          or no      No brrts
                                                                                      CXICM     extcm       exum          extent     t0 Judge

                                                                            (1)

    A. Tte mvenue my            be uud 10 fi-            dditiolld
          fc&alspxiiqrathcrttunforMicit
          duction                                                           24
    B. Repasive llpure of I rrrril ukr UI - 8
       ~ru8ildamxauytakepmphady
       macfromrlow-incam       kuabddlhnfrcnnr                              15        37         18              9          8           1
          high-income     bousdmld

    C. Imputrf&rdmdsdamxnuyluwon
       iI?dl&m                                                                2       13         22         20             27           4

    D.M        ”        Live cost IO alforce    l    fe&aJ retail
          datax                                                               a          8        16         14            40           2

    E. Fe&ml govanmem ‘siauusiomimowhchas
       been exclusively l slate murce of revenue                            46        24           6             5           7          0
    F. I~~~rf&nlmil&smxmayhveon
       state’s ability to incrUWauerctiulatu                                30        25           7             7           9           2
    G. c2mfushbuwa?osmtcdfcdcnlraailuies
       uxes                                                                 19        26          15             5         22            1

    H.Co&sionbUwenstatc~fedenluxbues                                        20        27          10         13            17            1
    I. Prusuremmatchmumxbuewithfakr8I
       axbae                                                                16        20          20         11            20            1

    J. Visibilityofrf&nlraail&smatothc
       camulmr                                                                5        12         12         16            37            6
    K.hvidilkyofrfeddreuiluiamstotbe
                                                                              2          5        11         17            42            9
    L. olberfPfmreqmi~~                   (3)




                                                                 SICIITOQIJESTIONI4




                    Page 57                                               GAO/GGIMO-50        State Official’s       Consumption    Tax Concerns
                  Appendix N
                  Questionnaire   and Responses               From State
                  Tax Policymakers




13. To wim extent. if my.      do you believe the following issues ue ruwns                  why the federal govemmenr should na ~mpiemcn1
   a brad-bad         mh~e-addcd tax? Gcck one box in each row.)



                                                                         V-Y                                                     IAllc     ’
                                                                        IF-           Grul          Moderate       some          or no         No basis
                                                                        CXIClll       extent         extent        extent        CXlClN        IO judge

                                                                          (1)          (2)             (3)          (4)           (5)             (6)
   A. T-be rweouc may be used to fl-    dditioMl
      f&ml spending ndw than for deficit                                                                7           5              6               2
                                                                         24             19
         dUObOll

   8. Rcpssivc    Mtilrc of I value-added ux - .
      federal value-added tax may take prcqonioorily
                                                                                                                                          Ii
         awe from a low-mcomc         howehold    than fraa     a        21             15              9            9             6               3
         high-income household                                                                                                            11
                                                                                                                                          ’
    c. Impa
         iduion
    D. Adfnihuative
                   a fedelal value-added tu    may hve


                            coxt 10 cafora I f&ml
                                                          oo


                                                       vxlue-
                                                                          12            18              8            6           15       Ii 4
       ddcdtax
                                                                                                                                          I/
    E. Fcdcral government’s mmsion            into whu has
         been exclusively    I sue sours      of revenue                 30             15              5            4             9               0
    F. Iqwt     a federal value-adda! tax may have on
       state’s rbtity to iocreae state umwmption
       taxa                                                         j     24      /     18      j       6      1     8       1     3      11       4      1
                                                                                                                                           I
    G. Confusion tetwcen Iute and federal
       COPUllllPjOQtaxes                                                  10            13             13          11             12       j       4
    H. confusioll buwun state and federal tax baa3                        14            11             12            9            13               4
    I. Praurelomuchxtatctxxbuewlrhfcdcnl
       taxbaac                                                            13              a            11          10             19               2
    1.   Viibility of a federal vabe-ddal        tax to the
         comcnmer                                                           4             6             6          10             33               4
    K. Wixibilityofrfedcralvaluc-ddedtxxtotbe
         comumr                                                           16              8             6            9            17               6
    L. otkrfPlcptrq?ecl~)             (7)




                   Page 58                                              GAO/GCD!+O-50           State Official’s          Consumption          Tax Concerns
                   Appendix      N
                   Questionnaire   and Responses        From State
                   Tax Policymakers




    IV.   DESIGN   OF A FEDERAL     CON!SJMPTION       TAX

    14. III your opinion, which of rhe followmg items. If +ny. should be cxempl from a broad-based federal rem11 sales tax
        (RST) or value-added (u (VAT)‘? (Check one box for “RST” andoneboxfor “VAT” m each row )




                                         QUESTION     14 CONTINUED       ON THE    NEZ[T PAGE




L




                    Page 59                                   GAO/GGDSO-50        State Official’s   Consumption      Tax Concerns
                 Appendix N
                 Questionnaire   and Responses      From State
                 Tax Policymakers




-



                                                   QUESlTON    I4 CONTINUED




    IS. To what CXUCI~.if lay. would you favor or oppose l brad-    f&ml   IUJII ukr or value-&led ux thu WL( ia*bibk
       mthemasumer?      (Checkonebcuinaachrow.)




                  Page 60                                  GAO/GGDSO-50       State Official’s   Consumption   Tax Concerns
                       Appendix      N
                       Questionnaire    and Responses                    From     State
                       Tax Policymakers




16. To wha extent. If any. would you favor or oppov a broad-ba& federal rem1 sales or value-added tax that was visible
      to the consumers (Check mu box m each IOH’ I



                                                    /                    NClthU                    I
                                        Strongly    I                favor nor                         Strongly      No bass
                                         favor           Favor      / w-                  oppose       oppo=         10 Judge

                                           (1)             (2)      i      (3)             (4)           (5)             (6)
      1. Rail     vies w                   4             12                16               55           59                7
      2. Vllue-added       rax             3             17                17               49           55             12

V. ADMINISIlUTION                     OF A FEDERAL            TAX

17. la your qwuon. which of the followmg                      fcaures.    if any. would facihre        the adrmmrtration       of a broad-based federal
      wosumpioa         tax? (CAeck all ha         apply.)

      I. q Lownu                  (61)
      2. 0 Singk rate             ( 118 )

      3. 17 Mulrlple rates ( 1 0 )

      4.   q    Fewornoexempoow                  (111)

      5. 0 lnvsible al rhe retail level                 ( 3 1)

      6. 0 Visible a~ the reti             level    ( 46 )

      7. 0      Small bu51ocsscxempuon ( 12 )

      8. 0      aber    (PleaYe SpcciJy            ( 25)

VI.   SHARING          CONSUbUTION               TAX     REVE..           WITH       SfATES

18. Strppc he federal government eoacted a broad-based retail sales or value-added tax In your opimon. would your state
    be mtcrcaed in piggybpchg   upon the federal tax If the opportunity to do so were avadable? (Check one 60x m each
    -.J




                       Page      61                                               GAO/GGD90-50            State   Official’s      Consumption     Tax     Concerns
                      Appendix      N
                      Questionnaire        and R.espon~es    From State
                      Tax Policymakers




19. In your opinion, would your st~fc agree to pIggyback OII              w.    COMMENTS
    I bnxd-haed     federal retail uks tax if the federal
    gowament     r-upkd     your state to repeal ns retd sales            2 1. Plure use the space below to provide any comments
    tax IS l coodnion   of parmpauon?      Check one.)                         you may have about this qucsuonnaue. a federal retail
                                                                               dcs tax. or a federal value-added ux. Anach addltlonal
    1.q          Dcfmtclyyes        (12)                                       sheets. If IKceamy.

    2. q         FWlbabiyyes        (20)

    3. Cl umrrairl                  (28)

    4. cl        Probably    no     (47)

    5. q Dcfiaitelyno
    ----------
                      (25)

    6. q Nobasistojudge(12)

20. In your opinioo. would your stare          agree to piggyback on
    a broad-bad     federal mlue-dded           tax if the federal
    govenurml    mquued your state to          repeal its retail sales
    tax as a amdiuon of parncipation?           (Check me.)

    1.   q       lDcfinitelyyes     (15)

    2. 0         Probably    yes    ( 14 )

    3. cl        urrcnvn            (26)

    4. 0         F’robably no       (44)

    s. cl Delinitely           no   (28)
    ---_------
    6.   q Nobaaistojudgc
                       (17)




                                                            look   you for your klp.




                      Page 62                                      GAO/GGIMO-50        State Official’s   Consumption      Tax Concerns
               Appendix IV
               Questionnaire   and R~S~OIISM        From State
               Tax Policymakers




                                  “W
                                 8-f         ch-w   Mo&rru
                                 CXU(II      exum    extent

                                  (1)         (2)      (3)

  1. Rsluctantlosdopl
     rraailsderux

  2. ReluctMrtodop
                                   2           1      0             1-I 5 jlro-1
     1 VaIlIt-lddd mx              1           2      0             1         j       5         j/    0       1



19. In your opinion. would your state agree to pigOybrck on      20. In your opinion. would your sutc ~TCC to fxggyback on
    a broad-baaed federA v&madded      t4xiftbefe&rll                a biuad-hrod    federal retaIl yks taa if the fcdcrrl
    pv-lX~UirsdyOUflUUnOtavct~StlUd                                  govemrmix    required your sutc nU cnw a stale raail
    nla tu as a amdiiioa of puucipuion?        (Check me.)           sales tax as I con&on     of putic~p~tion? Khck mu.)

    1. 0   Definiuly    yes (1)                                      1.   q   Dcfmitclyycs           (1)

   2. 0    Probably yu      (1)                                      2. 0     P&ably       yes       (2)

   3. 0    Uncertain        (1)                                      3. Cl Uncmain                   (1)

   4. q    Prchblyno        (4)                                      4. 0         Probably no        (3)

   5. 0 Ikfiniuly       no (2)                                       > infinitely            M- LZl- _
   ----------
    6. 0   No basis to judge           (0)                           6. 0 No b&r 10judge Cc”>




               Page 63                                    GAO/GGDSQ50              State official’s        Consumption   Tax Concerns
Appendix V

Questionnaire and ResponsesFrom State
Tax Administrators

              This appendix includes the questionnaire and responses of state tax
              administrators from states with a retail sales tax. Because only five
              states do not have a retail sales tax. a limited number of responses was
              received, and these showed no patterns sufficient for data analysis.




               Page 64                   GAO/GGD9MO    State Official’s   Consumption   Tax Concerns
Appendix V
Questionnaire    and Responses   From State
Tax Administrators




             United !Sta!m General kcamting   Offica

             Survey of State l?ax Administrators
             Concerning a Possible Federal Consumption ‘Ihx




Page 65                               GAO/GGD9fMO      State Official’s   Consumption   Tax Concerns
           Appendix V
           Questionnaire    and Responses   From State
           Tax Administrators




                                                                                                                     -


1. RKlCGROUND                                            II. ADMIMSraAnON          OF SIATE TAXES
 1. pleuc india!c the name. title. uld t&phoDe              3. In your opinion, m what aPot, d at ti. do yw
    number d the permn we should conpn d additional            believe jVUr SUtC’SOZUikS haVediffificulty dctcrmm-
    hfonnation IS mqumd dmut your responses.                   ing which items arc SUbpI to he Sac sales QX?
                                                              t-k     o=.)
    N-:
                                                              1. q wIygreucxtcnt          (0)
   Titk:                                                      2. q lGrutuunt              (3)
    Tek@one Number: (       )                                 3. 0 Maknuatcnt           (13)
                     wmcodr                                   4. Cl Some aunt           (15)
                                                              5. q Litueornoautlt (7)
                                                              ;,-i ;, -& ; judge- ;; )

                                                            4. Dwspurstatcprovitksomcrypofcrcditor
                                                               date to low-income axpyen to lumen the burden
                                                               dthcsdcstax?(cbeck0ac)
                                                               1. OYCS       (8)
                                                               2. q ]No (30)




                                  0)           (2)          (3)              (9           (5)            (6)
    1. Rmilsaiarax               21           15             1                1           0               1
    2. wuc-ukkdrax                18          16             2                1           0              2




           Page 66                                 GAO/GGD90-60     State Offkial’s    Consumption     Tax Concerns
                 Appendix V
                 Questionnaire    and Responses        From State
                 Tax Administrators




7. To what extent. if al all. wwld a broad-based feded rellll sales tax or nluc-added tax complicate the xlmuur~uon                of
   your state sales tax? (Check ooc box in each row)




8. In ywr opinion, weld the administnti~         UJSS d your IPY nkr tax program incluse.dccrusc.orroyrbourlhcs8me
   ifthe~~numntimposedcitherrbrod-hrsd(edcnlukspxorrnlue-ddedtpx~uns~bktothe
   consumer? (Check one box b ach row.)



                                    Gltdy           fiomewtmt          soy           somtrrt                              No Basis
                                                                      About                             GUY
                                    lnc-             lncras8                          Decrusc          D8clwse            to Judge
                                                                     tJld8mc

                                       (1)             (2)              (3)              (4)                 (5)             (6)

   I. Rctailsrla~x
                                       4               17               17                0                  0               1

   2. wuc-8ddcd mx                                                                                                           3
                                       4                15              17                0                  0


9. In ywr opinion, -Id      the dministntivc    costs d your sate sales tax prqnm       increase, dca-eau.     or stay about the same
   ifthckdcnl     Bcmnvnentimposcdeither~brod-brcdkdmluksuaor~nluc-sddedpxthatwrrinvMbktorhe
   consurncr?(cb8ckoa8hoxlaachnJw.)




                 Page 67                                        GAO/GGD-sob0        State Official’s     Consumption        Tax Concerns
                Appendix      V
                Questionnaire      and Responses        From    State
                Tax Administrators




10. In pur   qmion.   wuld      rhe revenue from your sta~e’s sales fu mcrcasc. decrease. or stay hour he same If the federal
    gwemmentunposed          errber a broad-has& federal sales tax or a nluc-added tax thar was visible IO the consumer?
    Kheckonehoxbeachnw.)




1 I. In ywr opinion, would the nxnue from your smtc’s sales tax incrcax. dcac8.u. or smy about the sane if the Metal
     government unposed either a broad-basal fcdcnl sales tax or a rzluc-a&cd ux that was iuvisibk IO the conwmerv
     (cbeckoneboxinedlrow.)




               Page   68                                       GAO/GGLMO-50       State   Official’s   Consumption    Tax   (‘cmcen:s
                 Appendix V
                 Questionnaire    and Responses                   From State
                 Tax Administrators




IV. ADMINXlTUTlON            OF A FEDERAL TAX                                    IS. If the Meni    gownmcnf erwcd I brad-based,
                                                                                    wlue-added w. in yuur opdon, wtuch of the
   13. In your opinion, which of the fOlkwm8 fCNuEs. If                             following methods. if any, uwld be the most
       any. would hc~hlatc dK admrnistratlon of a broad-                            e4Tkknl in mllecting this tax? (Check oak)
       based f&ml     consumption tax?
       (-k     ail that apply.)                                                      1. 0   FukralgovcntmausbotddmUectboth         (2)
                                                                                            bderd lad IOU mxcs.
       1. 0 lawnu               (22)
                                                                                     2. 0   SutcsshouldmUcctthemxkarbotbkdcnl            (1)
       2. 0   Single rate       ( 38 )                                                      and smu gowYnmmls.

       3. 0   Multiple    nus      (0)                                               3.oFcdcnl      ~tshculdmU&rit’sown                  (35)
                                                                                            mxcsandentcsabouldmUccttbeirwn
       4.0    Fewornoumnptioas                  (39)                                        taxes.

       5. 0   Invisible   II the retail kvel           (   18 1                      4.OOtkr(pkucspecify)                                (1)

       6. 0   Visible at the repi        kvcl     ( 4)

       7. 0   Small busintrs acmptios                  ( 3)

       8. 0   Other (please specify) (2)




   14. If the fcderrl8overnmcnt     enacted. bmad-based
       retail sales tax. III your opimon, which of the
       following methods. if any, wuld be fhc most
       effkiettt in mUDZlln8 this tax? (C&k     one.)

       1.0kdCrZl8      cwcrnmcnrshouldmllaxboth                    (0)
              kdenland5muraxa.

       2. 0   StatesshouidmUecttbetaxforbothfakral                       (10)
              and state gwanmcats.

       3. 0   Fdml    gwmunmf     should mkt      it’s own               (27)
              taxes ml otptes should mkt     their own
              taxes.

       4. 0   Other (please specify)                                       (2)




                  Page 69                                                GAO/GGIMO-50         State Offlciah     Consumption    Tax Concerns
Appendix VI

Major Contributors to This Report


                        Lpnda FVillis. Assistant Director
General Government      Mary Phillips, Evaluator
Division, Washington,
D.C.

                        George Zika. Evaluator-in-Charge
San Francisco           Ira Carter. Evaluator
Regional Office         #Julie Devault, Evaluator




                        Page 70                     GAO/GGD9@50   State Official’s   Consumption   Tax Concerns
Bibliography


               Aaron, Henry J., ed. VAT Experiences of Some European Countries. Bos-
               ton: Kluwer Law and Taxation Publishers, 1982.

               ---.  The Value-Added Tax: Lessons from Europe. Washington, D.C.:
               The Brookings Institution, 198 1.

               ---.  “The Impact of a Value-Added Tax on U.S. Competitiveness,”
               The Consumption Tax: A Better Alternative?, eds. Charls E. Walker and
               Mark A. Bloomfield, pp. 206-213. Cambridge, Mass.: Ballinger Publishing
               Company, 1987.

               ---.    “The Political Economy of a Value-Added Tax in the United
               States.” Tax Notes (Mar. 7, 1988) 1,ll l-1,1 16.

               ---.   “The Value-Added Tax: Sorting Through the Practical and Politi-
               cal Problems.” The Brookings Review (Summer 1988) 10-16.

               Advisory Commission on Intergovernmental Relations. “Value-Added
               Tax.” Strengthening the Federal Revenue System: Implications for State
               and Local Taxing and Borrowing. Washington, D.C., October 1984, 67-
               103.

               Ballentine, J. Gregory. “The Administrability of a Value-Added Tax.”
               The Consumption Tax: A Better Alternative?, eds. Charls E. Walker and
               Mark A. Bloomfield, pp. 296-300. Cambridge, Mass.: Ballinger Publishing
               Company, 1987.

               Beaman, Walter H., et al. “Technical Problems In Designing A Broad-
               Based Value-Added Tax for the United States.” The Tax Lawyer (Win-
               ter 1975) 193-220.

               Bickley, James M. National Sales Tax: Selected Policy Issues. Congres-
               sional Research Service, Library of Congress, Report No. 84-141 E.
               Washington, D.C., 1984.

               ---.   Value-Added Tax: Estimated Revenue Yields. Congressional
               Research Service, Library of Congress, Report No. 84-835 E. Washing-
               ton, D.C., 1984.

               ---.   Value-Added Tax for Deficit Reduction. Congressional Research
               Service, Library of Congress, Issue Brief 87097. Washington, D.C., 1988.




               Page 71                    GAO/GGD9MO   State   Offlcid’s   Coneumption   Tax Concerns
Bibliography




---.    Value-Added Tax Contrasted with a National Sales Tax. Congres-
sional Research Service, Library of Congress, Issue Brief 87 1.56.Wash-
ington, D.C., 1988.

Bierman, H. Scott and Harold Bierman, Jr. “Tax Reform for the Sumber
One Economic Problem in 1987.” Tax Notes (Feb. 2, 1987) 499-501.

Bradford, David F. “On the Incidence of Consumption Taxes.” The Con-
sumption Tax: A Better Alternative?, eds. Charls E. Walker and Mark A.
Bloomfield, 243-274. Cambridge, Mass.: Ballinger Publishing Company,
1987.

---.   “What are Consumption Taxes and Who Pays Them?” Tax Notes
(Apr. 18, 1988) 383-39 1.

Brannon, Gerard M. “Is the Regressivity of the Value-Added Tax an
Important Issue ?” Tax Notes (1979) 879-883.

Bullock, Bob. “Mail Order Sales: Texas’ Taxes, Merchants Stand to Gain
from Congressional Plan.” and “Texas Stats.” Fiscal Notes (June 1989)
3-5 and 9-11.

Carlson, George N. “Federal Consumption Tax: Design and Administra-
tive Issues.” The Consumption Tax: A Better Alternative’?, eds. Charls E.
Walker and Mark A. Bloomfield, pp. 275-295. Cambridge, Mass.: Ballin-
ger Publishing Company, 1987.

Chiu, Peter and Joel G. Siegel. “What the Value-Added Tax is All
About.” Taxes: The Tax Magazine, Vol. 67, No. 1 (Jan. 1989) 3-13.

Christian, Ernest S., Jr. “Consumption Taxes are not Regressive.” The
Consumption Tax: A Better Alternative?, eds. Charls E. Walker and
Mark A. Bloomfield, pp. 329-332. Cambridge, Mass.: Ballinger Publishing
Company, 1987.

Cnossen, Sijbren. “What Rate Structure for a Value-Added Tax’?”
National Tax Journal, Vol. 35, No. 2 (June 1982) 205-214.

Cohen, Edwin S. “Lessons from the European VAT Experience.” The
Consumption Tax: A Better Alternative?, eds. Charls E. Walker and
Mark A. Bloomfield, pp. 305-308. Cambridge, Mass.: Ballinger Publishing
Company, 1987.



Page 72                   GAO/GGD!MMO   State Official’s   Consumption   Tax Concerns
Bibliography




Collins, Stephen H. “A VAT in Your Future?” Journal of Accountancy
(Nov. 1987) 62-69.

Cox, William A. Deficit Reduction. Congressional Research Service,
Library of Congress, Issue Brief 87023. Washington, D.C., 1988.

Due, John F. and John L. Mikesell. Sales Taxation: State and Local Struc-
ture and Administration. Baltimore: The Johns Hopkins University
Press, 1983.

Durenberger, Dave. “The Consumption Tax Alternative.” The Consump-
tion Tax: A Better Alternative?, eds. Charls E. Walker and Mark A.
Bloomfield, pp. 167-177. Cambridge, Mass.: Ballinger Publishing Com-
pany, 1987.

Esenwein, Gregg A. “Revenue Raising Options.” Congressional Research
Service, Library of Congress, Issue Brief 87169. Washington, D.C., 1988.

Fowler, Henry H. “A Historical Perspective on Tax Policy.” The Con-
sumption Tax: A Better Alternative?, eds. Charls E. Walker and Mark A.
Bloomfield, 3-23. Cambridge, Mass.: Ballinger Publishing Company,
1987.

Gillis, Malcolm; Carl S. Shoup; and Gerado P. Sicat. “Lessons from Value-
Added Taxation for Developing Countries.” Paper prepared for Collo-
quium on Public Finance and Economic Development, Annapolis, Mary-
land, December 3-5, 1986.

Gravelle, Jane G. “Assessing a Value-Added Tax: Efficiency and
Equity.” Tax Notes (Mar. 7, 1988) 1,117-1,123.

Internal Revenue Service. Advisory Report on Implementation and
Administration of the Business Transfer Tax. Washington, D.C., 1986.

Jantscher, Milka Casanegra de. “Problems in Administering a Consump-
tion Tax.” The Consumption Tax: A Better Alternative?, eds. Char-Is E.
Walker and Mark A. Bloomfield, pp. 300-305. Cambridge, Mass.: Ballin-
ger Publishing Company, 1987.

Kotlikoff, Laurence J. “The Case for the Value-Added Tax.” Tax Notes
(Apr. 11, 1988) 239-244.




Page 73                    GAO/GGD!W-SO   State Official’s   Consumption   Tax Coneerm
Bibliography




Lent. George E.: Milka Casanegra; and Michelle Guerard. “The Value-
Added Tax in Developing Countries.” IMF Staff Papers, 20 (1973) 3 18-
378.

Makin, John H. “Income Tax Reform and the Consumption Tax.” The
Consumption Tax: A Better Alternative?, eds Charls E. Walker and Mark
A. Bloomfield, pp. 87-l 15. Cambridge Mass.: Ballinger Publishing Com-
pany, 1987.

&Lure, Charles E., Jr.! “Tax Restructuring Act of 1979: Time for an
American Value-Added Tax?” Public Policy, 28 (1980) 301-332.

---.   The Value-Added Tax: Key to Deficit Reduction? Washington:
American Enterprise Institute, 1986.

---.   “VAT, Income Distribution, and Tax Incidence.” Paper prepared
for Conference on Value Added Taxation in Developing Countries, The
World Bank, Washington, D.C., April 21-23, 1986.

---.   “The Optimal Consumption Tax for the United States.” The Con-
sumption Tax- A Better Alternative?, eds. Charls E. Walker and Mark A.
Bloomfield, pp. 265-27 1. Cambridge, Mass.: Ballinger Publishing Com-
pany, 1987.

---,       “Why We Need a VAT.” Tax Notes (Feb. 9, 1987) 529-530.

---.   “The State and Local Implications of a Federal Value-Added
Tax.” Tax Notes (Mar. 28, 1988) 1,517-1,535.

Messere, Kenneth and John Morregaard. “Taxing Consumption.” OECD
Observer, (Feb.-Mar. 1989) 24-27.

Pechman, Joseph A. Tax Policies for the 1980’s. Washington, D.C.: The
Brookings Institution, 1982.

---.       “Taming the Deficits.” Tax Notes (Apr. 16, 1984).

---.  “A Consumption Tax is Not Desirable for the United States.” The
Consumption Tax: A Better Alternative?, eds. Charls E. Walker and
Mark A. Bloomfield, 271-274. Cambridge Mass.: Ballinger Publishing
Company, 1987.




Page 74                       GAO/GGD!NMO   State Offkid’s   Consumption   Tax Concerns
Bibliography




Penner. Rudolph G. “The Federal Budget Context.” The Consumption
Tax: A Better Alternative?. eds. Charls E. Walker and Mark A. Bloom-
field, 35-40. Cambridge. Mass.: Ballinger Publishing Company, 1987.

Petterson, Richard D. “Tax Reform in Washington State.” Paper pre-
pared for Federal Tax Administrators Conference, June 1989.

Smith, Dan T.; .James B. Webber; and Carol M. Cerf. What You Should
Know About the Value Added Tax. Homewood, Ill.: Dow Jones-Irwin,
Inc., 1973.

Spain, Catherine L. “Will There Be a Federal VAT?” Government Finance
Review, 3 (June, 1987) 32-33.

Stockfisch, J. A. “The Value-Added Tax as a Money Machine.” The Con-
sumption Tax: A Better Alternative’?, eds. Charls E. Walker and Mark A.
Bloomfield, 225-237. Cambridge, Mass.: Ballinger Publishing Company,
1987.

Sullivan, Clara K. The Tax on Value Added. New York: Columbia Uni-
versity Press, 1965.

Ture, Norman B. The Value Added Tax: Facts and Fancies. Washington,
D.C.: The Heritage Foundation and Institute for Research on the Eco-
nomics of Taxation 1979.

Turnier, William J. “Designing an Efficient Value-Added Tax.” Tax Law
Review, Vol. 39, No. 4, (Summer 1984) 435-472.

---.   “VAT: Minimizing Administration     and Compliance Costs.” Tax
Notes, (Mar. 14, 1988) 1,257-1,268.

U.S. Advisory Commission on Intergovernmental Relations. The Value-
Added Tax and Alternative Sources of Federal Revenue: An Information
Report. Washington: Government Printing Office, 1973.

U.S. Congress, House Committee on the Budget, Task Force on Tax Pol-
icy. Tax Equity and its Budgetary Impact. Hearing, 98th Congress, 1st
session. Serial no. TF7-2, Washington, D.C.: Government Printing Office,
1983.




Page 75                    GAO/GGWJO-50   State Official’s   Consumption   Tax Concerns
Bibliography




U.S. Congress, Senate Committee on Finance. Flat-Rate Tax. Hearings,
97th Congress, 2nd session. Sept. 28-30, 1982. Washington, D.C.: Gov-
ernment Printing Office, 1983.

U.S. Congress, Congressional Budget Office. Reducing the Deficit: Spend-
ing and Revenue Options. A Report to the Senate and House Committees
on the Budget-Part   II. Washington, DC.: Government Printing Office.
1989.

U.S. Department of the Treasury. Blueprints for Basic Tax Reform.
Washington, D.C.: Government Printing Office, 1977.

---.   “Value-Added Tax.” Tax Reform for Fairness, Simplicity, and
Growth, Volume 3. Washington, DC.: Government Printing Office, 1984.

---.    Office of Tax Analysis. Value-Added Tax: European Experience
and Lessons for the United States. Washington, D.C.: Government Print-
ing Office, 1980.

US. General Accounting Office. Tax Policy: Choosing Among Consump-
tion Taxes (GAo/Gcn-86-91). Washington, D.C.: General Accounting Office,
1986.

---.  The Budget Deficit (GAo/ocG-%-1’rR).Washington, D.C.: General
Accounting Office, 1988.

---.  Revenue Options (GAomcG89-3'rR). Washington, D.C.: General
Accounting Office, 1988.

---.    Tax Policy: Tax Credit and Subtraction Methods of Calculating a
Value-Added Tax (GAO@X+%-87).     Washington, D.C.: General Accounting
Office, 1989.

--.     Tax Policy: Value-Added Tax Issues for U.S. Tax Policymakers
(GAO/GGD89-125BR).  Washington, D.C.: General Accounting Office, 1989.

Vasquez, Thomas E. “Addressing Issues of the Regressivity of a Con-
sumption Tax.” The Consumption Tax: A Better Alternative?, eds.
Charls E. Walker and Mark A. Bloomfield, pp. 3 11-328. Cambridge.
Mass.: Ballinger Publishing Company, 1987.




Page 76                    GAO/GGD9MO   State Official’s   Consumption   Tax Concerns
           Bibliography




           Walker, Charis E. and Mark A. Bloomfield. eds. “Foreward.” The Con-
           sumption Tax: A Better Alternative?. xvii-xviii. Cambridge, Mass.: Bal-
           linger Publishing Company. 1987.

           Walters. Ida. “VAT: Not Appropriate   as a Revenue Raiser.” -A
                                                                       Policv
           Report (July 1982).

           Zodrow, George R. “A Direct Consumption Tax as an ‘Add-On’ Tax.”
           Tax Notes (Mar. 2 1, 1988) 1,389- 1,400.




(268346)   Page 77                    GAO/GGD90-50   State Official’s   Consumption   Tax Concerns
Requests    for copies     of GAO reports     should   be sent to:

U.S. General Accounting            Office
Post Office Box 6015
Gaithersburg,  Maryland           20877

Telephone     202-279624      I

The first five   copies    of each report      are free. Additional     copies    are
62.00 each.

There    is a 25% discount        on orders   for 100 or more copies     mailed     to a
single   address.

Orders must be prepaid            by cash or by check    or money     order   made
out to the Superintendent            of Documents.
United States
General Accounting    Office
Washington,   D.C. 20548

Official   Business
Penalty    for Private   Use $300