Bush suggests considering national sales tax to replace income tax
Aug 13, 2004 (The Boston Globe - Knight Ridder/Tribune Business News via
COMTEX) -- President Bush this week suggested that the United States consider a
national sales tax to replace the income tax, reigniting a debate over whether
it's better or more fair to tax spending rather than earnings.
In an exchange with a supporter at a campaign event in Florida Tuesday, Bush
called a national sales tax "an interesting idea that we ought to explore
seriously." With Democratic presidential nominee John F. Kerry criticizing Bush
for favoring a new tax on middle class and poor families, the White House
yesterday said the president had no plan under consideration.
"The president has always believed in lower taxes and simpler, fairer tax code,
and so, generally speaking, he is open to ideas that move us in the direction of
a simpler and fairer tax code," White House spokesman Scott McClellan said in a
press briefing aboard Air Force One. "But there's nothing more to announce at
this time."
The idea of adopting a national sales tax, or other methods to tax consumption,
has been kicked around in Washington for the better part of a decade. Congress
has studied a variety of ways to simplify the tax code, but radical changes such
as national sales tax or flat income tax have not advanced much beyond the idea
stage.
And the debate is still going on. House Ways and Means chairman Representative
Bill Thomas, a California Republican, said this week the tax writing panel would
likely look at a national sales tax as part of a broader examination of
alternatives to the current system.
Theoretically, economists say, taxing consumption could mean stronger economic
growth and higher standards of living over the long term. Such a system would
encourage people to save, which in turn creates more capital to invest in new
businesses, products and technology. For example, if consumers have to pay tax
on big screen televisions, but none on mutual fund earnings, they're more likely
to buy mutual funds.
On the other hand, sales taxes fall most heavily on lower income families, who
spend higher proportions of their income than the wealthy and, hence, pay a
higher proportion of their income on sales tax. In addition, the sales tax rate
needed to generate equivalent revenues of the income tax could be onerous, about
26 percent, according to an analysis by the Brookings Institution, a Washington
think tank.
This contrasts with the current progressive income tax which, by assessing
higher rates as incomes rise, aims to have the wealthy pay a bigger share.
"You're really talking about different things," said John Silvia, chief
economist at Wachovia Corp. in Charlotte, N.C. "A tax system to provide economic
growth versus a tax system to encourage more income equality."
By Robert Gavin
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