Economists Back 'Fair Tax' Proposal

Economists Back 'Fair Tax' Proposal
June 1, 2005

Scores of economists across the country have come out in support of the “Fair Tax” concept, giving a boost to supporters who are working to have at least 100 Congressmen and Senators signed on as sponsors of Fair Tax bills during the current 109th Congress.

“Our tax code is a mess for a reason. Special interests pay for special favors,” said Fair Tax supporter Laurence Kotlikoff, economics department chairman at Boston University and coauthor of The Coming Generational Storm. “And with thousands of pages and counting, there are plenty of places for our politicians to hide the kickbacks.”

On April 12 Kotlikoff joined more than 75 economists nationwide who endorsed the Fair Tax in a letter delivered to the U.S. House, Senate, Treasury, president’s tax reform panel, and President George W. Bush.

The Fair Tax would replace federal personal, gift, estate, capital gains, alternative minimum, earned income, Social Security/Medicare, self-employment, and corporate taxes with a national sales tax. It would include a rebate system to make the Fair Tax a progressive tax system, where the net effective rate for low- and middle-income persons is less than the effective tax rate for the wealthy.



Georgia Lawmakers Take Lead

The Fair Tax bills currently under consideration in Congress--House Bill 25 and Senate Bill 25--are sponsored by Rep. John Linder (R-GA) and Senator Saxby Chambliss (R-GA).

HR 25 was originally introduced in the 106th Congress by Linder and Rep. Collin Peterson (D-MN). In the 108th Congress, there were 56 cosponsors in the House and Senate.

In an indication of leadership support for the Fair Tax, Linder recently moved from the Rules Committee to the powerful, tax-writing Ways and Means Committee. House Speaker Dennis Hastert (R-IL) expressed support for a national sales tax in his recent book, Speaker: Lessons from Forty Years in Coaching and Politics. House Majority Leader Tom DeLay (R-TX) is a cosponsor of HR 25.

On March 3, Federal Reserve Chairman Alan Greenspan told a presidential tax reform panel that a consumption tax “could certainly meet the fundamental criteria of being simple, fair, and pro-growth.”



Grassroots Support Rises

The legislation is based on work done by Americans for Fair Taxation (http://www.fairtax.org), a grassroots organization that has spent more than $22 million on marketing and academic research and in the past five years has grown to more than 560,000 supporters. The organization has 280 congressional district directors across the country trying to organize local support for the legislation.

“Just like taking down the Berlin Wall, we will end the worst, most invasive tax ever devised and replace it with a simple, transparent, progressive, national retail sales tax,” said Tom Wright, executive director of Americans for Fair Taxation.



Hidden Tax Costs Eliminated

Calculations conducted by several nationally known economists conclude the Fair Tax package would eliminate tax costs currently hidden in retail prices, taxes that represent 22 to 25 percent of the cost of retail goods.

Adding in the Fair Tax progressive retail sales tax of 30 percent, according to Wright, consumers would pay a little more than they pay now for products and services but would take home paychecks free from federal income and payroll tax deductions.

Wright said this is a key fact often missed by many people, who make the mistake of thinking the tax would be solely an add-on to current prices.

A key component of the Fair Tax package is a rebate to all resident Americans with a legal Social Security number. Purchases up to a certain amount would effectively be tax-free, because taxpayers would receive monthly rebate checks, the amount of which would be determined by a formula tied to the federal poverty level.



Other Groups Lend Support

Additional support for the Fair Tax proposal has come from the 350,000-member National Taxpayers Union (NTU). Other organizations have announced their support and are helping promote the Fair Tax proposal, including 60 Plus, the National Small Business Association, and Associated General Contractors.

In letters to Linder and Chambliss, NTU endorsed the current bill, urging all members of Congress to join as cosponsors, noting, “the bill will be heavily weighted in our annual rating of Congress.”

In an interview for the December 2004 issue of Budget & Tax News, Grover Norquist, president of Americans for Tax Reform, said he doubts the nation could move to a national sales tax until Social Security is turned into a forced savings program. If a sales tax had to pay for Social Security, the tax rate would be so high that people “would work as hard to avoid the sales tax as they do the income tax,” Norquist said.

However, the president’s panel on tax reform has said it is open to ideas to thoroughly restructure the federal tax system, including the possibility of a national sales tax.

“Our federal income tax system is inefficient, far too costly, and simply not the best way to pay for government,” said David Kendall, professor of economics and finance at the University of Virginia’s College at Wise. “I think all Americans are dismayed, outraged, and disgusted that our federal tax code contains millions of eye-glazing words spread across more than 60,000 pages. We all know it’s a disgrace, and we all know it must be changed.”


Merrill Bender (merrillb@localnet.com) is a volunteer district director for Americans for Fair Taxation in Barker, New York.