Americans for Fair Taxation Touts Legislation to Replace Income Tax with Consumption-Based Tax

Article excerpt

Once upon a time, Americans did not pay income tax. Legislation currently before the U.S. Congress would do away with the federal income tax once again, replacing it with a federal sales tax.

The group Americans for Fair Taxation, based in Houston, has proposed legislation that would eliminate personal capital gains taxes, payroll taxes, corporate income taxes, the self-employment tax and estate and gift taxes. The proposal is touted as revenue neutral, since the income tax would be replaced by a consumption- based tax, which is estimated to provide as just as much funding for the federal government.

The proposal has been introduced in both houses of Congress as the Fair Tax Act of 2003. House Resolution 25 was referred to the U.S. House Committee on Ways and Means in January of 2003. Senate Bill 1493 was read twice and referred to the Committee on Finance in July 2003.

Thomas A. Wright, executive director of Americans for Fair Taxation (AFFT), has been touring the country, speaking before various groups and drumming up support for the measures. This organization has been around for seven years, and I personally have been working on this project for 14 years, said Wright. A year ago, Stillwater businessman John Green began heading the effort in Oklahoma. AFFT membership nationwide totals about 480.

Pat Wolf, tax specialist for the American Farm Bureau, confirmed that the organization's board is considering the proposal, and has written a letter to the sponsor of the legislation in support of the Fair Tax Act. The FairTax proposal would address a number of Farm Bureau's tax reform initiatives, Wright noted.

Under the proposal, a 23 percent sales tax would be imposed on all goods and services. Each month, the government would provide a rebate to families for taxes paid on food, clothing and medical services up to a certain level. The family consumption allowance is based on the federal poverty level and the size of the family. The consumption allowance schedule is constructed in such a way that families with income at or below the poverty level would be tax- exempt.

Taxes on expenditures exceeding the designated family consumption allowance would not be rebated. The more you spend, the more taxes you pay, said Wright. Used items and business-to-business purchases would not be taxed.

A consumption tax would prove to be a more reliable funding source for the government than the income tax, said Wright. While income and employment levels fluctuate with the economy, spending levels are more stable and predictable, he noted. Therefore, the government would collect the same amount of money, and would be able to fund Social Security, Medicare and other programs just as they are funded today, said Wright.

Even drug dealers and black market traders, who currently pay no taxes on their income, would pay into the federal system if a consumption tax were imposed. States and retailers would be paid a fee for collecting the tax. The cost of implementing the system would be minimal since the infrastructure is already in place in the 45 states that charge a sales tax, he said.

Corporate taxes are a sham that is adversely affecting the U.S. economy, said Wright. The price of every good or service we buy today is inflated by the cost of income and payroll taxes paid by workers and businesses, he said. Harvard economist Dale Jorgensen has estimated that hidden tax-and-compliance premiums account for up to 30 percent of the price of every American product or service, he said. Think about that as we try to sell American-made goods overseas, said Wright. The consumption tax system would free up money businesses currently spend on taxes and compliance, allowing more dollars to be spent on wages and expansion efforts, said Wright.

Wright's argument in favor of the FairTax plan appeared as an editorial in The Illinois Leader on Jan. …