In regards the Kotlikoff testimony above:
"Eliminating complexity and distortions would be cause enough for reforming the federal income tax, but there is a much more pressing reason: notwithstanding recent wishful projections about future government surpluses, our fiscal house is not in order. Indeed, getting it in order would require not cutting federal income taxes, as some in this chamber advocate, but immediately and permanently raising them by over 25 percent."
Kotlikoff, among other things, is pushing for his personal idea of a tax increase to over 30% of gross income (30% = 1.25* 24% current total federal tax rate on income).
HR2525 explicitly specifies a 23% tax inclusive rate on retail sales of new goods and services only(i.e. consumption expenditure). Nothing anywhere near the 30%(tax inclusive) of income that Kotlikoff is pushing in his presentation.
Secondly, Kotlikoff discusses Fair Tax as examples of the main proposals before the the committee. He is more notably aligned with the Flat Tax where his past studies and main sympathies have been for many years.
When he speaks of "consumption taxes", he is including the Flat Tax and its Vat components as well. His overall presentation is to compare consumption taxes in his economist's sense of such (Gross Income less returns from savings & investment) = Consumption. Most of his commentary when speaking of "consumption taxes" is related to his studies of the Flat Tax variety of tax systems.
"The retail sales tax clearly taxes consumption. But so does the Flat Tax. Just ask Robert Hall, one of the originators of the proposal, who describes his Flat Tax as, effectively, a Value Added Tax."
In short Kotlikoff is presenting his own views of the consumption taxes as class which includes his expertise with the Flat Tax/VAT systems and specific examples relating to the Fair Tax HR2525 which at no time does he mention the HR2525 tax rate.
The tax rates Kotlikoff cites in his testimony have nothing to do with HR2525 at all.
A half truth.
And as we both know "the old-age, survivors and disability insurance rate" and "the hospital insurance rate" is that sales tax rate that "shall be determined by the Social Security Administration. "
`(1) FOR 2003- In the calendar year 2003, the rate of tax is 23 percent of the gross payments for the taxable property or service.
`(2) FOR YEARS AFTER 2003- For years after the calendar year 2003, the rate of tax is the combined Federal tax rate percentage (as defined in paragraph (3) of the gross payments for the taxable property or service.
`(3) COMBINED FEDERAL TAX RATE PERCENTAGE- The combined Federal tax rate percentage is the sum of--
`(A) the general revenue rate (as defined in paragraph (4), and
`(B) the old-age, survivors and disability insurance rate, and
`(C) the hospital insurance rate.
`(4) GENERAL REVENUE RATE- The general revenue rate shall be 14.91 percent.