Washington ? Federal Reserve Chairman Alan Greenspan said Thursday that a new consumption tax — such as a national sales tax — could spark the economy as a partial replacement for income taxes.

Greenspan cautioned there would be both political and administrative difficulties in moving toward a new national tax system. Simplification is needed, perhaps a hybrid between consumption taxes and income taxes, he told the President’s Advisory Panel on Federal Tax Reform.

“In other words, don’t try for purity,” Greenspan said in response to a question from a panelist.

Pitching toward a pure consumption tax would arouse such opposition as to make the idea “infeasible,” he said.

Democrats raised alarm about potentially crippling taxes on food and medicine when the possibility of a national sales tax came up last fall during the presidential election.

The panel’s vice chairman, former Sen. John Breaux, D-La., said it was important the Fed chief asserted income and consumption taxes could work together.

“He said you could do both,” Breaux said. “I don’t think he endorsed it, but his saying that it can work, like many other countries have done, I think was a very significant statement.”

President Bush’s advisers have spoken favorably of the economic benefits that could be achieved by moving from a system that taxes income to one that taxes consumption.

Addressing concerns about increased taxes on necessities like food, Greenspan said policy-makers could design a consumption tax that would exclude products mostly consumed by the poor.

A consumption tax could take several forms, such a national sales tax or a value-added tax, used by some European countries. Value-added taxes are imposed on the increased value of a good or service at each stage of manufacture and distribution and ultimately passed on to the consumer.

Consumption taxes also got a nod of approval from former Treasury Secretary James Baker III, who labored over the last major tax reform in the 1980s.

“While I am no expert on the subject, I believe that consumption-based taxation has much to commend it,” he said.