Never mind the dramatics over raising the debt ceiling. One group is keeping its
eye on what it regards as a bigger prize: getting rid of the IRS.
Supporters of the so-called Fair Tax - a national retail sales tax that, in theory, could replace
the income tax - are gearing up for a major push on Capitol Hill next week, including intensive lobbying. The highlight of
the week will be a Ways and Means Committee hearing on the Fair Tax, as well as other consumption-tax variations, such as
the European-style value-added tax.
The hearing is part of a series on tax reform that the tax-writing
committee is holding.
Former Arkansas Gov. Mike Huckabee - who's expecting to be one of the witnesses
at Tuesday's hearing - so far claims more than 25,000 signatures on a petition he hopes to deliver to lawmakers. "Help us reach 100,000 signatures by July 25th at midnight, he says
on his website. "Why? So I can say when I testify about the FairTax before Congress, that over 100,000 Americans are
standing with me today."
He adds: "Folks, it is time we put the IRS out of business."
The Ways and Means Committee late Thursday afternoon released its witness list for the Tuesday hearing. It includes
former Gov. Huckabee as well as Laurence Kotlikoff of Boston University and fiscal policy expert Bruce Bartlett, all testifying
on the Fair Tax; as well as Michael Graetz of Columbia University, Rosanne Altshuler of Rutgers University, Robert Carroll
of Ernst & Young LLP, Jim White of the Government Accountability Office, Dan Mitchell of the Cato Institute and Simon
Johnson of MIT, all testifying on value-added taxes.
In announcing the hearing, Ways and Means
Chairman Dave Camp (R., Mich.) said, "While the Committee thus far has focused on reforming the income tax, tax proposals
that would move us away from an income base and instead adopt consumption as the tax base have continued to generate interest
as well. Supporters of such approaches believe that taxing consumption rather than income could have important economic benefits,
and so as part of our efforts to reform the tax code, the Committee needs to examine those proposals. This hearing will allow
the Committee to learn more about two of the most-discussed consumption tax proposals, the FairTax and the VAT."
A fair solution to the budget crisis
July 19, 2011|By
David G. Tuerck (Wall Street Journal)
NEGOTIATIONS OVER the federal debt limit are stalled over
whether to provide for spending cuts alone or to combine spending cuts with revenue increases. Just as Democrats think that
fairness requires revenue increases, Republicans think they must stand fast against such increases in order to protect the
economy from further decline. But there is a way to cut spending and increase revenues while stimulating the economy - by
junking the entire federal tax code and putting a consumption tax in its place.
There are few
principles on which economists agree, but one is that taxes on income discriminate against saving, whereas taxes on consumption
do not. Because saving is necessary to fuel investment and, with it, economic growth and job creation, the replacement of
existing income and payroll taxes with a consumption tax would provide the economic stimulus that everyone wants. And because
consumption is less volatile than income over the course of the economic cycle, a consumption tax would reduce the vulnerability
of the federal budget to deficits of the kind that we have suffered over the last three years.
Consider
the proposed FairTax. It would replace all federal income and payroll taxes with a single tax on consumption. The tax would be
set at 23 percent of the "tax-inclusive'' price of every consumer good.
In order to make
the tax truly "fair,'' the law would provide every household with a monthly check equal to the tax it would pay if its
income were at the poverty level. This "prebate'' feature helps to make sure that the tax burden would be lowest on households
that spend the least and highest on households that spend the most.
In 2010, the revenues from
taxes that the FairTax would replace came to $1.975 trillion. But suppose that Congress had replaced those taxes with the FairTax.
The government would have collected $2.188 trillion in FairTax revenue, $213 billion more than it actually collected from
existing sources.
How would this miracle have been possible? Because consumption taxes typically
yield more revenue than other taxes during downturns, the FairTax would have automatically cushioned the deficit against the
downturn still under way last year. And that's not all. Because the FairTax would bring about a rise in production and job
creation by stimulating investment, it would it yield even more impressive revenue enhancements in the future. And this, in
turn, would yield further reductions in the deficit and make it easier to avoid further cuts in spending.
By agreeing to adopt the FairTax now, the president and congressional Democrats could say that they considered spending
cuts only after finding a way to increase revenues. And congressional Republicans could say that they got spending cuts only
by accepting a revenue increase that benefited the economy. Progressives and Tea Partiers alike would be accommodated, the
crisis over the debt ceiling would pass, and the economy would grow.
Fundamental tax reform seems
to be temporarily off the table because of the debt ceiling crisis. But, in fact, one form of fundamental tax reform presents
itself as the solution to that crisis. The FairTax commands broad grassroots support and offers the political cover that the
president and Congress need in order to come to agreement. The idea is sitting there, just waiting for someone to see the
obvious and take credit for it.
David G. Tuerck is executive director of the Beacon Hill Institute
and chairman and professor of economics at Suffolk University.
