MARTIN CRUTSINGER
Associated Press
Posted on 12/02/2004 6:19:08 PM PST by ancient_geezer
MARTIN CRUTSINGER
Associated Press
WASHINGTON - Basing the government's tax system on consumption rather than income is not as radical a change as it seems, President Bush's chief economic adviser said Thursday.
Bush's goals are tax laws that are simple, fair, promote growth and create jobs, said N. Gregory Mankiw, chairman of the president's Council of Economic Advisers.
Bush has said that he will make overhauling those laws a priority in his second term and will appoint a commission to make recommendations.
Mankiw, reviewing some of the options Bush will consider, said many economists believe that tax laws discourage saving and investment and that changing that could free up money for business investment.
Under a consumption tax, Mankiw said, "The result would be greater saving, increased capital accumulation and higher growth in productivity and wages."
Mankiw did not mention what type of consumption tax might be considered. Some Republicans in Congress have advanced ideas such as a national sales tax or a value added tax, prevalent in Europe. That is, in effect, a sales tax imposed at each level of production of goods and services.
Mankiw said it was wrong to believe that a switch to a system that taxes what Americans spend rather than what they earn would amount to a radical change.
"The current tax code, while nominally an income tax, is actually a hybrid of an income tax and a consumption tax," Mankiw said at a tax conference sponsored by the American Enterprise Institute, a Washington think tank.
He said efforts by Congress to promote savings by allowing for the creation of Individual Retirement Accounts and 401k plans have the effect of exempting savings from taxation and thus moving the tax base away from income toward consumption.
He said the 2003 legislation that lowered taxes on corporate dividends and capital gains had the same impact.
In the effort to make tax laws simpler, Mankiw mentioned the need to amend the Alternative Minimum Tax. This tax was intended to ensure that the wealthy paid their fair share of taxes, but it is beginning to ensnare middle-income taxpayers.
"It is only a matter of time before the AMT hits many tens of millions of taxpayers, far more than it was ever intended to affect," Mankiw said. "In light of the looming AMT problem, tax reform is more than a desirable goal. It is almost a necessity."
Speaking to reporters later, Mankiw stressed that his remarks were not intended to prejudge what a tax advisory panel will recommend to the president or what type of proposals Bush ultimately will send to Congress.
"The president hasn't made any decisions about which way tax reform is going to go," Mankiw said. "The president is going to listen to lots of different ideas before he makes his call."
Mankiw in his speech said he expected Bush soon would name members of the tax advisory panel. It will work with the Treasury Department to develop a program that could be submitted to Congress.
The administration hopes lawmakers will first address Social Security next year and then turn to the tax overhaul.
Mankiw said the "greatest fiscal challenge facing the nation" was the pending retirement of the baby boom generation and the demands that will place on Social Security and Medicare.
Mankiw said that the "current system is not sustainable" and "without reform, the nation will face little choice but vastly higher taxes and the resulting drag on economic growth."
And I wager you had an oppertunity to vote on that in the polls many times in the interum.
I want to know which Republican is talking about a VAT?
Bruce Bartlett of NCPA amhas been pushing it hard.
Don't forget the tar & feathers, and rail first.
Then: "Time for a re-education seminar out behind the woodshed!"
That's why you find so many hit pieces by Bartlett against the NRST.
VAT is a lousy way to have to do business, worse for the citizen, but great for government; but it is a requirement for EU membership, for those interested in joining them.
I'll pay it. Although I aint nuts over including the social security defferments in it. Id sooner see a strait 10%...AND I WILL PAY IT AND BE HAPPY.
Prices will drop first off. So the same case of beer will cost less WITH the 23% added on.
OMG. How many have you had? Tonight I mean.
Does anyone have the figures on how much it takes to RUN the IRS? That savings alone should make up for the sales tax exemption to low income.
IIRC their last budget figures came in over $9 billion.
You are no where near cynical enough.
It's a lot easier for the millionaire to not spend all his money than for a regular guy, which is a simple and effective way to dodge the tax. Or, just move all your spending to Costa Rica. Or hide your personal expenses as corporation benefits and perc's.
I think you forgot how many millionaires are in the Senate and you have to get a bunch of those millionaires to vote for this. There will be loopholes & dodges.
Quote: Prices will drop first off. So the same case of beer will cost less WITH the 23% added on.
No, income will go up first. No more tax deductions.
Prices would stay the same for a short while, and there would be predictable screams about gouging. But after a while, when you remove all the tax from the production chain, the base price will come down, and the tax will add it back in. Its argued that there would be no net difference in prices+tax with a couple years. Remains to be seen.
Whoa!
(thanks, crz) that's a lot of shekels...any estimates on how much to 'reimburse" low income folk on the consumer tax method?
(I've been following this idea for years = it's been rumbling around the halls of DC for years and from figures I saw some time ago, the consumer tax would actually bring more $ into Washington, while still being a fairer tax. With the consumer tax, the multimillionaires would really, finally, be paying a fair share - no loopholes, no dodges
" It seems that taxes can be hidden among various levels of production which the consumer will end up paying anyway"
The consumer is the only one who pays taxes now. The income earners and consumers pay ALL taxes. Producers are tax collectors under the current system
AH Another CPA! Never fails when this get talked about they come out of the woodwork!
VATs are evil. That's a road I hope we never go down.
A straight up sales tax sounds like the way to go, if implimented correctly.
Is Bartlett a Republican or a RINO? Don't forget, Democrats will lie to you; some of them will even lie and tell you they are Republicans.
What do the fair taxers say about the black market, which I presume will skirt around sales taxes?
Any sales tax or VAT simply will allow us to be killed in the "death by 1000 cuts".
Make everything income tax based (States may not agree on an individual basis however) and end payroll deductions. That would kill it quick.
Was on Fox News last night...of course then there were those who said that was all garbage..but it was a republican congessman who stated it.
When you want to exempt low income people from paying taxes on certain items, you must have a way to identify said people.
No you don't, provide a means to treat everyone the same, simply grant a bracket exclusion of tax for povertylevel expenditure for everyone. Works like the personal exemption on an income tax.
HR25, does it with a monthly grant to each household based only on number in the household:
It simple, straight forward, everyone is treated the same both when the buy, and on exemption.
Under HR25, All legal residents will receive a monthly demogrant called the Family Consumption Allowence(FCA) equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures. The FCA is paid in advance, in equal installments each month. The size of the monthly FCA will be determined by the government's Poverty Level for a particular family size, multiplied by the tax rate, and paid to all households regardless of income or actual expenditure. The HHS poverty llevel is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc. See chart in Figure 1 below.
| Figure 1: 2004 FCA calculation | |||||||
| Family size |
HHS annual poverty level |
FairTax annual consumption allowance (single person) |
Annual rebate (single person) |
Monthly rebate (single person) |
FairTax annual consumption allowance |
Annual rebate (married couple) |
Monthly rebate (married couple) |
|
1 2 3 4 5 6 7 8 |
$9,310 $12,490 $15,670 $18,850 $22,030 $25,210 $28,390 $31,570 |
$9,310 $12,490 $15,670 $18,850 $22,030 $25,210 $28,390 $31,570 |
$2,141 $2,873 $3,604 $4,336 $5,067 $5,798 $6,530 $7,261 |
$178 $239 $300 $361 $422 $483 $544 $605 |
N/A $18,620 $21,800 $24,980 $28,160 $31,340 $34,520 $37,700 |
N/A $4,283 $5,014 $5,745 $6,477 $7,208 $7,940 $8,671 |
N/A $357 $418 $479 $540 $601 $662 $723 |
[ The monthly FCA for each adult is .23 * (HSS poverty level for a single person)/12 to assure no marriage penalty due to the manner in which the poverty level is dependant on family size. The monthly FCA for each child is .23 * (the incremental increase of HSS poverty level for a family with one child over no child) ] A. Geezer
A family of four, for example, could spend $24,980 per year free of tax because they will have received over the course of the year a demogrant totaling $5,745. $5,745 is the amount of sales tax paid on $24,980 in expenditures. That family spending double the "poverty level" or $49,960per year will effectively pay tax on only half of their spending and, therefore, have an effective tax rate of 11 ½ percent or half the FairTax rate.
The beauty of the FairTax is that you can control how much you pay in taxes. If you happen to save, invest or spend a portion on used [previously taxed] items, you can get your effective tax rate below 9%.
To illustrate examine the tax burden that a family of four will have at various annual expenditure levels as compared to that same family under the current tax law, (2004 income plus FICA/MC):
Not only does every family receive a FCA based on family size, not income, but they will also receive 100% of their paycheck.
That would be "no".
"Well, plus one good benefit of the sales tax is that it hits people who hide their income and cheat on their taxes"
Yep, it hits the drug dealers and the work for cash illeale aliens just like the rest of us
A partial answer to this problem is to exempt certain basic life requirements from the sales tax such as food or just certain basic food products. There could be other exempt catagories that would benefit the lower-income family or person, as well.
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