What would a tax reform look like that would be acceptable to both political parties? At the moment it’s hard seeing Democrats and Republicans even agreeing on pizza toppings, so positing wholesale changes to the tax code that would be mutually amenable seems like an insurmountable barrier, but let’s give it a shot: Republicans would presumably insist upon a tax code that would have lower marginal rates and more incentives for savings and investment, and generally be more conducive to economic growth. Democrats would insist on greater progressivity as well as more revenue. In theory, a tax code that achieved all of those standards ought to be grist for a deal.

Does such a thing exist? Happily, it does, and economists Bob Carroll and Alan Viard spell it out in great detail in their new book, Progressive Consumption Taxation. I predict the book will soon be discussed and pored over on and off Capitol Hill—or at least its first 14 pages, which is all that the typical attention-deprived D.C. denizen can bother to read.

But skimming it would be a pity because Carroll and Viard lay out a comprehensive tax code that may represent the only way to thread the needle and come up with a full-fledged tax reform just as “Taxmageddon”—the legislated return to 1998 tax rates—begins to rear its ugly head. And in Washington, D.C., timing matters.

Taxing consumption | The authors (Carroll is a former treasury official and is currently a partner in the tax practice at Ernst and Young; Viard is a former academic and Federal Reserve Bank economist currently at the American Enterprise Institute) are apostles for the “X‑tax,” which forms the basis of their plan. The plan was first spelled out by the late David Bradford, who created a code that taxes consumption. Nothing is especially unique about that: nearly every country in the developed world, save for the United States, has some sort of consumption tax in the form of a value-added tax (VAT). In general, economists would prefer taxing consumption rather than income because any tax produces less of whatever is taxed, and our economy does better if we deter consumption rather than income and the concomitant work that creates it. The problem for the political left is that the VAT is not progressive, and the right hates the VAT because of the perceived ease with which it could be raised without the citizenry being aware.

However, an X‑tax is less stealthy than the VAT. Under such a plan, people would still pay a tax on their labor income, but any income received from interest, capital gains, or dividends would not be taxed. There would be no deductions for IRAs or health savings accounts, although any money set aside for retirement or saved for any other purpose would be treated the same as a Roth savings account, with no further taxes being extracted. Exempting capital income from taxation makes economic sense because each dollar extracted from taxing capital income deters saving, investment, and economic growth more than does a dollar collected from labor income. Nobel economics laureate Robert Lucas called ending capital taxation “the closest thing to a free lunch that exists in the economy.”

Recent history has demonstrated that sustained economic growth can do wonders to a country’s revenue. For instance, when the economy grew at roughly 3 percent per annum between 2004 and 2007, tax revenue grew nearly 40 percent. Between 1995 and 2000, when economic growth averaged 4 percent per annum, revenue went up by fully 50 percent.

Since upper income households receive most of the non-labor income, exempting it from taxation means that progressivity—as well as the foregone revenue—has to come from somewhere else. The authors re-introduce progressivity in part by discarding most deductions currently in the code—such as the mortgage interest deduction—that go predominantly to upper-income households. Their version of the X‑tax also has graduated tax rates on wages, which could be tweaked to achieve the level of progressivity desired by any Congress.

On the business side, the X‑tax basically ditches the current corporate income tax structure and instead imposes a business cash flow tax. The difference is that instead of a corporation coming up with a measure of net income, this tax simply looks at the difference between spending and revenue. Carroll and Viard would extend this to all businesses, not just C corporations, which no doubt gives S corporations and partnerships some heartburn. Consistent with their desire to move to a full consumption tax, they would allow companies to immediately and fully expense all capital investment. A much broader base also means that much lower tax rates are possible.

Political calculus | Is America—or Congress—ready for a reform of the tax code that makes the 1986 tax reform seem like small potatoes? America is, I would argue; people don’t much like paying taxes, but what really angers them is when they think others (especially the wealthy) aren’t paying their fair share. The X‑tax would greatly reduce the ability of individuals and corporations to creatively use various deductions and credits to hammer down their tax bill.

What will be difficult is for each side to acknowledge that the X‑tax really does give them what they want. It is easy to see Democrats railing about the unfairness of not taxing dividends and capital gains even if the new code results in higher progressivity, or certain Republicans being angry about valuable deductions being removed even if tax rates on the personal and corporate sides are brought down. And members of the tax-writing committees on both sides of the aisle might be hesitant to vote for something that takes away their ability to do favors for their friends, although the cynic might note that clearing the deck opens the door down the road for a whole new round of tax preferences and influence-seeking.

But splitting a shrinking pie makes for painful politics, and a step toward higher long-run economic growth would make the politician’s lot much easier. The baby boom generation is careening toward retirement without any assurance at all that our country can afford to make good on what they’ve been promised in retirement. Congress will soon have to choose whether to shortchange the boomers on what they’ve been promised, or offend some entrenched interests and embrace a tax reform that has the potential for goosing economic growth.