There is considerable interest in the United States both in academia and in politics, in “fundamental tax reform,” defined as the replacement of the income tax (corporate and individual), the gift and estate tax, and, in some cases, the payroll tax by some form of consumption tax. Proponents believe that fundamental tax reform would result in a much simpler and fairer tax system. A consumption tax, it is argued, would also be more conducive to capital formation and economic growth than the current income tax.

A national retail sales tax (NRST) that would be applied to sales of goods and services by businesses to households is one of the alternatives being discussed. Examples include H.R. 2001 (1997, 1999), introduced by Representatives Schaefer and Tauzin in 1997 (ST) and a similar proposal made by the lobbying group Americans for Fair Taxation (AFT). The tax base under both plans would, in principle, consist of all personal and government consumption expenditures on final goods and services. The main difference between the two plans is that AFT would replace the payroll tax in addition to the income tax and the gift and estate tax. The proposed NRST would be collected by the states, most of which have considerable experience with this form of consumption tax.

Outside the United States, extensive experience with retail sales taxes (RSTs) is confined to the Canadian provinces.