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Analysis: GOP push for consumption tax
UPI ^ | August 2, 2004 | Christian Bourge

Posted on 08/02/2004 6:39:26 PM PDT by RWR8189

WASHINGTON, Aug. 2 (UPI) -- A report Monday that in his upcoming book House Speaker Dennis Hastert, R-Ill., endorses the elimination of the Internal Revenue Service and replacement of the current tax code with a national consumption tax or flat tax as a top GOP priority in a second Bush administration should come as no surprise, considering that conservative Republicans have been pushing such ideas for years.

The Drudge Report's brief on Republican plans for eliminating the federal revenue-collection agency and the laws it enforces in favor of a national sale tax, value-added tax or even a flat tax rate on income quotes Hastert in his new tome being released Wednesday -- "Speaker: Lessons from Forty Years in Coaching and Politics" -- as praising such schemes not only as a means to increase domestic productivity and grow the U.S. economy, but also as a way to make the IRS an irrelevant part of the federal government.

Although Hastert's office did not return calls for comment on the report, House Majority Leader Tom DeLay, R-Texas, offered a preview of the House GOP leadership's post-election tax agenda in a March speech in which he said the Republicans are determined to repeal the federal income tax.

Long an advocate of a national sales tax, a confident DeLay told a conference of tax lobbyists that House Republicans will have hearings and push the issue in 2005 and 2006.

He said that replacing the income tax, payroll and other related federal taxes would provide more money for people to use, and he endorsed a proposal from Rep. John Linder, R-Ga., for a national sale tax.

However, he added that even a flat tax would be better than the current federal tax model.

Whether or not eliminating the IRS and replacing it with some form of easier-to-collect consumption tax or a uniform tax rate will be "a domestic centerpiece" of the second Bush term remains to be seen, but such alternative tax schemes are nothing new and have long been a controversial wish of numerous prominent, conservative Republicans.

In 1996 Republican presidential candidate Steve Forbes championed a 17-percent flat-tax scheme, garnering a great deal of attention and arguably making it the most prominent of the various alternative tax-system ideas floated by conservative Republicans over the last several decades.

Under Forbes' plan, taxes on interest from investment income such as dividends and capital gains, along with other forms of unearned income such as inheritances, would be eliminated, something that would certainly benefit wealthy individuals like the former candidate, who inherited his wealth.

Not that the idea is only favored by conservatives; nor was Forbes the first politician to back the idea.

Former California Gov. Jerry Brown, a liberal Democrat, was a proponent of the flat tax during his failed 1992 bid for the Democratic presidential nomination.

Conservative economists such as Arthur Laffer have also pushed the idea for decades.

More recently, U.S. Sen. Arlen Specter, R-Pa., has backed a uniform 20-percent tax on earned income, with similar exemptions on unearned income.

Former House Majority Leader Dick Armey, R-Texas, continues to promote such ideas as a conservative activist since leaving the lower House of Congress.

The idea of a national sales tax or value-added tax has gained greater favor with some conservatives in recent years, but those ideas, along with other tax-simplification schemes like the flat tax, have remained mostly wishful thinking on the part of conservatives.

Even as Republican leaders in the GOP-led House, Senate and Bush White House have praised the concept of tax simplification over the last 3 1/2 years, the U.S tax code has been expanded by over 10,000 pages as the Bush tax cuts and other changes -- part of a total of 227 changes to the code -- were implemented.

In addition, the House and Senate Republican leadership have been strong backers of the corporate-tax overhaul bill currently pending in Congress.

The measure, which started out as a simple bill to repeal a tax break for exporting companies deemed illegal by the World Trade Organization, has turned into a special-interest tax bonanza in order to make the bill acceptable to more members.

The conventional wisdom on Capitol Hill is that any corporate lobbyist worth his salt got his client a break in the bill.

"These guys have added 10,000 pages to the tax code over the last three years," said one Democratic Leadership aide. "Do you really think they can get it together and repeal the whole code?"

For their part, some Democrats are not taking the pending Republican tax push lying down.

House Minority Whip Steny Hoyer, D-Md., gave a speech last month pressing the case for simplification of the tax code and promising to make the issue a Democratic caucus priority, offering a plan that differed little from the most recent simplification plans from the GOP not involving wholesale repeal of the tax code.

It is important to note that House Democratic Congressional Conference Chairman Robert Matsui of California and others, including Republican members, acknowledge that changing the code is an extremely difficult challenge.

The last major set of wholesale changes made to U.S. tax law intended to simplify the code was enacted in 1986.

Although Monday's report on Hastert's book was met with little attention on Capitol Hill, the Democratic National Committee released a statement deriding the flat tax as an attempt to shift the federal tax burden to the middle class.

They argue that lowering taxes on the wealthy citizens who pay higher rates under the current progressive tax systems means many poorer citizens will pay higher portions of their income to the federal government.

In addition, they decried the losses of tax breaks for home mortgages and healthcare expenses provided under current law -- losses that have led some conservatives to label the home-mortgage deduction the "third rail" of tax reform.

Some conservatives were emboldened by news last fall that former Iraqi Provisional Authority administrator Paul Bremer was expanding neoconservative nation-building doctrine to include conservative tax orthodoxy by establishing a 15-percent flat-rate tax in Iraq.

However, Bremer's tax efforts did not actually preclude progressive rates but only capped them at 15 percent and surely are open to interpretation by Iraq's burgeoning self-government apparatus.

Several former Soviet-bloc nations, long a favorite of conservative anti-communist crusaders within the GOP, have become a haven of sorts for the flat tax.

Ukraine, Latvia, Estonia, and Slovakia, along with Russia itself, have all embraced flat-tax plans as their means to collect taxes from personal earnings.

The Russians, for one, have reported increases in revenue intake vs. their old, complex, higher-rate system.

While the idea of a flat tax or consumption-based tax system still seems like a pie-in-the-sky dream on the domestic front, some economists say we may be closer than it seems at first glance.

Many liberal-minded economists argue that the Bush tax cuts and other GOP efforts to lower taxes on capital gains and investment income have resulted in a tax system that is more regressive than has traditionally been the case.

Since the ultra-rich have higher levels of investment income than those with lower incomes, they end up paying a lower share of taxes, percentage-wise.

But many conservatives dispute the validity of such arguments, and even if it is the case, this by no means is the sort of lower-tax haven that they wish for.

It also remains to be seen if Republicans will be in the position to give it to them anytime in the near future.


TOPICS: Business/Economy; Front Page News; Government; News/Current Events; Politics/Elections
KEYWORDS: consumptiontax; delay; dennishastert; fairtax; flattax; forbes; hastert; speaker; speakerofhouse; steveforbes; taxcode; taxes; taxpolicy; taxreform; tomdelay; vat
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To: ancient_geezer

Ah, there you are! As soon as I saw all that red font, I knew it was you.

Been busy the last couple of days, I take it?


21 posted on 08/02/2004 7:48:14 PM PDT by ovrtaxt (The Fleet Center? Isn't Fleet an enema company?)
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Comment #22 Removed by Moderator

To: fat city

"I've always favored (if thats the right word) a flat tax over a consumption tax since the latter seems to "punish" and discourage the very root of capitalism- consumption. A flat tax also takes away the Dems big modus operandi, wealth redistribution. But I'm open to ideas by someone who knows something about the subject."

The reality is that a flat tax won't stay flat for long. What we have today is a flat tax 90 years removed from inception. As recently as 1986, we had an "almost-flat" tax and the system today is far worse than that one before the well intentioned, but temporary, simplification.

The fact of the matter is that, if the past 90 year experience has taught us anything, it is that any system that is based on the elusive concept of "taxable income" is destined to be caught up in a spiral of ever increasing complexity and compliance costs.

This doesn't even touch on one of the biggest problems with such a system in the 21st century, which is that tax costs "cascade" within the production chain, making our products uncompetitive on the world market. This is a huge factor in our ballooning trade deficit. In an increasingly global economy, we simply cannot afford to stick with such an antiquated and outdated system.


23 posted on 08/02/2004 7:49:31 PM PDT by phil_will1
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To: ovrtaxt

Been busy the last couple of days, I take it?

Even I am allowed out of the house once in awhile.

Though they do require a one week's notice to all surrounding towns in order to prepare for my arrival ;O)

24 posted on 08/02/2004 7:53:25 PM PDT by ancient_geezer (Equality, the French disease: Everyone is equal beneath the guillotine.)
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To: meenie

"There is the possibility that the deficits are so huge that income taxes fail to get us out of the hole. A consumption tax could ultimately raise more money than the IC because any figure under 100% could be levied. I pays to be skeptical when new taxes are proposed."

It is likely that converting to a consumption tax would make a substantial dent in the deficit, but not for the reason that you advance. In fact, consumption taxes tend to be self limiting, as explained by one of the founding fathers:

"It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty, that, 'in political arithmetic, two and two do not always make four.' If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them."
Alexander Hamilton in Federalist #21

The reason that the FairTax would have a positive effect on the budget deficit is that it would provide enormous economic stimulus. For example, a study by Dr. Dale Jorgenson of Harvard University forecasts GDP growth of 10.5% in the first year after enactment. That is smoking. The rate of growth would gradually decline in subsequent years, but still would level off at a rate above where it would be under the current system.

That type of economic growth would have a huge impact on the (budget) deficit. I have already discussed the trade deficit.


25 posted on 08/02/2004 8:01:00 PM PDT by phil_will1
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To: phil_will1

I get it- but isn't a consumption tax going to give the gvmnt leverage as far as tax rate reductions for compliance with "cafe" and other environmental standards, minority production, etc? It just seems that a consumption tax also "cascades" from production to market. Help me out here.


26 posted on 08/02/2004 8:02:32 PM PDT by fat city (Julius Rosenberg's soviet code name was "Liberal")
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To: ConservativeDude
all of your income becomes the same as a 401k....no income tax.

That's only true going forward - money contributed before the income tax is eliminated would have been contributed income tax free. That is it would have been subsidized by others who did not contribute for whatever reason.

I would gladly trade that minor inequity (and others more grevious like the home mortgage interest deduction) for an end to the income tax.

27 posted on 08/02/2004 8:02:38 PM PDT by edsheppa
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To: edsheppa

In Japan we are so lucky ! We have income tax AND income tax ! Hehehe...


28 posted on 08/02/2004 8:09:43 PM PDT by sushiman
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To: fat city

"It just seems that a consumption tax also "cascades" from production to market."

The idea is a single stage, flat rate, no exception, no loophole system. There is a rebate to keep it from being regressive. This mechanism is much simpler and much less prone to political manipulation than the more traditional one of exempting specific consumption classes.

This bill, when passed, will do 2 things
(1) Put a LOT of lobbyists out of business, and
(2) would constitute the largest transfer of power out of Washington back to the people in the 200+ year history of the country.

To learn more, go to
www.fairtax.org


29 posted on 08/02/2004 8:11:40 PM PDT by phil_will1
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To: fat city

It just seems that a consumption tax also "cascades" from production to market. Help me out here.

If the tax is a retail sale tax there is nothing to cascade. The tax is collected from the consumer by the retail business then remitted to government.

Business purchases for business use are not taxed in a retail sales tax situation therefore do not cascade from production to market.

30 posted on 08/02/2004 8:13:49 PM PDT by ancient_geezer (Equality, the French disease: Everyone is equal beneath the guillotine.)
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To: RWR8189
Well, it took UPI nine lines to call it a break for the rich. I figured they'd say that in line three.

This is a great idea and has the potential to save Pres. Bush and the Republican party. They've got to be bold about it explaining it, though. We will hear "Bush's wealthy friends" and "the fortunate few" in nearly every news report. The only hope is to be like the Gipper and go over the head of the liberals, making the case directly and unflinchingly to the people.

31 posted on 08/02/2004 8:16:56 PM PDT by SupplySider
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To: CIACrack
Tax reform must be followed up by spending cuts.

Agreed. I think a big red "Federal Tax 22%" at the bottom of every receipt, though, will ignite a new breadth of interest in spending cuts to accomodate a lower rate.

32 posted on 08/02/2004 8:20:29 PM PDT by SupplySider
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To: edsheppa

"I would gladly trade that minor inequity (and others more grevious like the home mortgage interest deduction) for an end to the income tax."

The elimination of the home mortgage deduction isn't really a "grievous" inequity. It does not make sense to retain a deduction against a tax that no longer exists. The purpose of the home mortgage deduction is so that you can pay your mortgage interest out of pre-tax money. With the FairTax, you pay for everything with pre-tax money.

Furthermore, interest rates should fall to approximate the tax free rates. That works out to be a 25 - 30% decline. That more than makes up for any tax savings attributable to the home mortgage deduction under the current system.


33 posted on 08/02/2004 8:22:42 PM PDT by phil_will1
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To: fat city; ovrtaxt
I've always favored (if thats the right word) a flat tax over a consumption tax since the latter seems to "punish" and discourage the very root of capitalism- consumption.

Actually, the root of capitalism isn't spending money, it's making money.

Some people have been brainwashed by the commies, including the President, so you're in good company. The actual heart of capitalism is private ownership and investment. (But sure, you've got to make money for it to be successful. My reference to the President is that he pushes consumption in his economic speeches, not investment.)

34 posted on 08/02/2004 8:29:00 PM PDT by Moonman62
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To: Moonman62

Thanks, everyone. I've let my hatred for the IRS cloud my objectivity and reasoning. We can still bring down this dinosaur, right?


35 posted on 08/02/2004 8:38:03 PM PDT by fat city (Julius Rosenberg's soviet code name was "Liberal")
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To: All
My 2 cents. Although I would prefer a consumption tax, I don't think you'll ever get rid of an income tax. I can only remember once where a tax was eliminated. many have been targeted but very few actually get taken off the books.

My fear is that a consumption tax would be enacted and the income tax not removed, then we would be stuck with both.
36 posted on 08/02/2004 8:49:03 PM PDT by Bane
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To: RWR8189

there is a sea of difference between a flat tax and a national sales tax. I'm keeping my fingers crossed that the Republicans embrace the latter. IMHO a flat tax will be too easy to screw with over time. Our current income structure tax was a flat tax once.


37 posted on 08/02/2004 9:59:03 PM PDT by mastequilla
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To: phil_will1
Yes, you're right. My point about the home mortgage interest deduction didn't make any sense. I probably was trying to say that the deduction itself is a grievous inequity, making the poorer subsidize the richer. Eliminating it would be a good thing.

Sick today - must have messed up my thinking. Feeling better now.

38 posted on 08/02/2004 10:22:39 PM PDT by edsheppa
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To: mastequilla
No it wasn't.We've ALWAYS had a progressive income tax.

And a VAT would be a lousy tradeoff.

39 posted on 08/02/2004 10:24:50 PM PDT by nopardons
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To: RWR8189

Why not simply go with the flat tax at 10% of the taxpayer's annual income? Consumption taxes are, by their very nature, regressive tax models that the sheeple will only tolerate for so long (once they realize that they're paying out over 50% of their annual wages in taxes while the wealthy are paying less than one-tenth of 1%).


40 posted on 08/02/2004 10:38:24 PM PDT by Prime Choice (When Clinton lies, he insults our integrity. When Kerry lies, he insults our intelligence.)
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