Taxing saving properly is critical to America's future. Savings are the life-blood of economic growth because they finance investment in plant, equipment, and technological innovation. Economic research suggests that a switch to consumption taxation is likely to boost the economy's long-run output by several percent.

When people hear "consumption tax," they usually think of regressive sales taxes and value added taxes collected at the cash register. In fact, replacing the income tax with those taxes would sacrifice fairness for growth, unacceptably shifting the tax burden to those who are less well off.

The X tax, in contrast, is a progressive consumption tax that would both promote growth and maintain fairness.

The X tax has two components. Individuals file annual tax returns and pay tax on their wages. There are higher tax brackets for workers with higher wages and lower brackets for low-paid workers. Exemptions and credits can be included to add further progressivity or meet other policy objectives. Business firms are taxed on their cash flow at a flat rate equal to the rate on the highest-paid workers.

At first glance, the X tax looks a lot like an income tax. But, two key features make it a consumption tax.

On the individual side, interest, dividends, capital gains, and other income from saving are tax-exempt, eliminating today's tax penalty on those who save. On the business side, firms immediately write off all of their investment rather than depreciating them over a period of years. This up-front write-off exactly offsets the tax penalty for new investments, although the tax system still pulls in revenue from investments made before the X tax was adopted and those with extra-high returns.

Because the X tax doesn't penalize saving and investment, it is a consumption tax. But, it's definitely not a sales tax, because it doesn't tax all consumers at the same rate. The highest-paid workers pay the top rate. Investors who saved before the X tax was adopted and those who earn extra-high returns are taxed at the same rate through the business tax. Middle-class workers pay lower tax rates and those at the bottom of the economic spectrum pay nothing.

The X tax design also promotes simplicity. Individuals report only the wages listed on their W-2s, not their harder-to-measure income from saving. And, the up-front investment write-off banishes depreciation, inventory accounting, and a host of other complications from business tax returns.

Of course, any tax reform faces some challenges. There are difficult questions about how to transition to the new system and the tax rules that will apply to pensions, housing, international trade, financial institutions, and so on. Reform proposals often gloss over these issues, but no reform will be seriously considered until these concerns are addressed. In our new book about the X tax, we offer concrete answers to these questions, explaining how to make the X tax a reality.

The Bradford X tax is a game-changing idea - an efficient, fair, and simple tax that will help build a prosperous future for the American people.

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Robert Carroll is a principal with Ernst &Young LLP’s Quantitative Economics and Statistics group.