By Cameron Spencer
Senate Majority Leader Mitch McConnell, R-Ky., says it’s going to take a bit of time for tax reform to happen.
Even under President Trump.
After all, he’s got the Supreme Court nomination, immigration, Obamacare, and other issues to address too. And then there are those recalcitrant Democrats who appear not to agree with anything.
Treasury Secretary Steven Mnuchin has said the administration would like the reform done before an August break, but McConnell says it’s going to take longer.
But what could the changes be like – eventually?
The one plan that already has been proposed, and is being supported by dozens of members of Congress, would be a radical move.
For one thing, and it’s good news for most Americans, the IRS would vanish.
As would payroll withholdings.
But the revenue would be replaced by a use tax – a national sales tax that would have every person in the U.S. pay a sales tax on purchases of new goods and services.
Necessities would be exempted through a “prebate” payment to families at the beginning of the month.
While there’s not enough support in Congress yet for it to be adopted, with a commander-in-chief like Trump, there are few who would say such things are impossible.
The plan calls for a 23 percent sales tax, but it would replace what even for lower income earners is a 15 percent income tax, plus the 7.65 percent payroll taxes that are collected currently.
Consumers would keep their paychecks, and pay only when they buy.
One of the more attractive features, the FairTax supporters suggest, is the sudden and complete disappearance of the IRS.
Martin Wattenbarger, a spokesman for Rep. William Woodall, R-Ga., said the Fair Tax Act is in the pipeline.
“We would love to see it implemented in full, but it’s not quite there. In the meantime there are things we can do. Moving the needle in the right direction. There are not a whole lot of fundamental tax reform bills out there. While the economic consensus is that if you want to grow the economy the consumption tax is largely the way to go. Generally speaking when you tax things you get less of them, and we currently tax productivity with the income tax. This creates a disincentive for Americans to keep ramping up their productivity, investment, or just working harder.”
David Pasch is the communications director for Rep. Peter Roskam, R-Ill., the House Ways & Means Tax Policy chairman for the 115th Congress. Before this Congress, Roskam led the fight against IRS abuse and overreach as chairman of the oversight committee.
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“He is playing a key role in writing the House GOP tax plan that will completely overhaul the tax code for individuals businesses, eliminate the IRS, and end the death tax, etc. There is a lot to be excited about. The key principles of the FairTax (including border adjustability) finally have a shot at becoming law,” Pasch explained.
Rep. Rob Bishop, R-Utah, is a cosponsor of the Fair Tax.
“Taxation like the death tax needs to go,” Bishop said “It is immoral and I have voted many times to kill the death tax. … I hope now the climate is right to end it.”
The issue soon will be in the news, as the deadline for tax returns this year is approaching. Normally April 15, it’s April 17 this year because of the weekend.
A Gallup poll in 2016 showed that the majority of Americans, 57 percent, believe taxes are “too high.” A whopping three percent think they are “too low.”
According to the Bureau of Labor and Statistics, a record number of more than 95 million Americans are “not in the labor force” while Bloomberg reports one in seven Americans is on food stamps.
The total amount of government revenue accrued for FY2017 through federal, state and local taxes exceeded $7 trillion. FY 2018 is expected to approach $8 trillion.
But there are problems: Gallup polls from April 2007 to April 2016 show Americans in all income categories choosing to invest their hard-earned money less and less. Most dramatically, individuals earning $30,000 to $74,999 a year went from 72 percent likely to invest in 2007 to 50 percent in 2016, a drop of 22 percent.
Reports also show median household incomes dropped from $57,724 in 2000 to $53,657 in 2014, the last full year for which data is available.
Like immigration and Obamacare, tax reform was an issue of the 2016 presidential campaign.
President Trump eclipsed 16 GOP rivals during the primary by promising to make better deals for Americans, and then dealt Hillary Clinton her second presidential race failure by campaigning on the same issues.
In 2016, the Republicans in the House Ways & Means Committee revealed a blueprint titled “A Better Way for Tax Reform.”
“Our tax code is a mess, and that’s putting it lightly,” it says while highlighting the tremendous challenges the current code is for jobs and growth.
The committee’s vision:
“We need a new tax code. It needs to be fair and simple for everyone. It should be so simple that most Americans can do their taxes on a form as simple as a postcard. Our tax code should be built for growth. It should help make the United States the best place in the world to hire and invest. And if we’re going to have a better tax code, we need a better IRS, one that puts the taxpayers first.”
Woodall’s idea: “To promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service and enacting a national sales tax to be administered primarily by the states.”
Rep. Kevin Brady has been a vocal proponent of tax reform and before becoming chairman of the House Ways & Means committee, he co-sponsored the Fair Tax Act. While in Congress, now Vice President Mike Pence also supported the Fair Tax Act.
A report produced by the House Ways and Means Committee on “the Impact of the Fair Tax on the Economy” in 2012 displays “the Economic Effects of the Fair Tax: Results from the Beacon Hill Institute CGE Model.”
“The chart shows how much higher the growth in certain economic variables would be under the Fair Tax than if the federal income tax system were to remain in place, for Years 1, 5, and 10, after the implementation of the Fair Tax,” states the report.
According to the report:
Real GDP would be 8 percent higher in the first year than under the income tax system, 11 percent higher in Year 5 and 11 percent higher in Year 10.
Job growth would be 12 percent higher in Year 1, 10 percent higher in Year 5 and 8 percent higher in Year 10.
Apply these results to the current level of employment, 133 million, and it means in just one year, the FairTax would have created 13.3 million more jobs than if the current income tax system remained in place.
Investment would be 75 percent higher in Year 1, 86 percent higher in Year 5 and 76 percent higher in Year 10, reflecting the growth due to no taxes on savings and investment income. Wages would be 10 percent higher in Years 1, 5 and 10.
The original sponsor of the Fair Tax, Congressman John Lendor, R-Ga., often spoke about reforming the tax code saying “one shouldn’t have to provide the IRS with more information than you would give your children.”
Wattenbarger often heard these words and spoke to them regarding the provision in the Fair Tax which abolishes the IRS.
“The tax code can be used as a manipulation tool,” he said. “We want to eliminate that and have an effective as well as an efficient way to collect revenue and run the government, and do it without the element of intrusive behavior and potential manipulative capabilities.”
During the 2012 election, the IRS violated the law targeting hundreds of conservative organizations with the words “tea party” or “patriot” in their names, halting and seriously delaying their applications for tax-exempt status. Many of them were prevented from pursuing their work because of the interference of the IRS, which later admitted its failings.
“The Fair Tax doesn’t pick winners or losers,” Wattenbarger said, But, the prebate feature of the Fair Tax protects lower income families and individuals near the federal HHS poverty level from being hurt by the national sales tax.
A significant part of the bill is the prebate provision, and it protects those spending every dollar they earn on necessities by giving them a check back at the end of each month – essentially offsetting the sales tax.
Some government agency like the IRS will be needed to collect revenue and distribute the prebates. But the Fair Tax Act considerably consolidates the power of the IRS and significantly limits the role of government in taxation.
A Fox News interview showed Secretary of Treasury Steve Mnuchin recently discussing the House Republicans’ “border tax adjust plan” that places a 20 percent tax on exports and is estimated to bring in $1 trillion in revenue over the next 10 years, which is aimed at offsetting corporate tax rates.
House Speaker Paul Ryan has been a staunch advocate of this position, but according to reports, there may be opposition in the Senate.
“The border tax is indicative of the old way of thinking,” Wattenbarger said, ,”The Fair Tax Act eliminates the need for such tax which will only be placed on the consumer once factored in every businesses model.”
Sens. Perdue of Georgia and Moran of Kansas first introduced the Fair Tax to the Senate in January of 2015.
Like President Trump, Perdue was a businessman first and the only Fortune 500 CEO in Congress with over 40 years of business experience. “Instituting the Fair Tax will level the playing field and make America the best place in the world to do business,” he said “the Fair Tax is smart policy that will help protect hardworking Georgians and all American taxpayers.”
Americans For Fair Taxation is a nonpartisan 501 (c)(4) grassroots organization “solely dedicated to replacing the current income tax code with a national-level consumption tax” and advocate of the Fair Tax Act of 2017.
It says, regarding U.S. competitiveness in foreign trade, “the Fair Tax is automatically border adjustable, the 17 percent competitive advantage, on average, of foreign producers is eliminated, immediately boosting U.S. competitiveness overseas” and “American companies doing business internationally are able to sell their goods at lower prices but at similar margins, and this brings jobs to America.”
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