The Impact of Shifting to a Personal Consumption Tax on

W hat would happen to the pension system if we replaced the federal income tax with a consumption tax? With more than $10 trillion in retirement savings at stake and with the baby boom generation rapidly approaching retirement age, the answer to this question is of considerable importance. In particular, policy makers need to be concerned about the impact that shifting to a consumption tax would have on the work, savings and retirement behavior of workers, and on the retirement security of present and future retirees. To get at these important issues, this article considers what would happen if the United States were to replace the income tax system with a consumption tax. Specifically, this article considers the impact of shifting to a personal consumption tax on the economy and on the private pension system. This article also considers some alternative approaches for increasing savings that would not jeopardize the current pension system.