White House Floats Idea of Dropping Income Tax (altogether)

New York Times, Business and Financial Desk, Page 14, Column 5 ^ | 2/8/2003 | EDMUND L. ANDREWS

[Bigun]

White House Floats Idea of Dropping Income Tax Overhaul By EDMUND L. ANDREWS

WASHINGTON, Feb. 7 — President Bush, having already set off a firestorm over his proposals to cut taxes and revamp retirement accounts, suggested today that the time might be near to drop the income tax as a whole and replace it with some form of consumption tax...

[AntiGuv]

What would be the point of rescinding the vote from 18-21 year olds? BTW, even if you repeal the 26th Amendment, it would not prevent the states from setting 18 as the voting age - which most, if not all, would continue to do.

[Eva]

Too bad that Chief Negotiator isn't around to see this. The NSRT was his pet subject.

[Gunslingr3]

Just think of all the lobbyists who would be out of a job too!

I'm all for ending the income tax, but don't think the lobbying will go anywhere. It will just switch to which consumer goods are taxed...

[nocommies]

it would be monumental, and it would make gw bush automatically one of the greatest presidents weve ever had, in combination with the terrific ass whooping and liberation hes about to give to iraq.

[AntiGuv]

OH, wait a sec. I guess you meant the 16th Amendment, which permits the income tax...

[SMEDLEYBUTLER]

Headline is verbatim from the Slimes. Maybe the headline editor moonlights at H&R Block.

[Wolfstar]

Never mind your CPA, the entire collectivist, redistributionist heart of the Left will explode! They'll squeal and sizzle from Frisco to Boston — kind of like when Dracula gets caught in a patch of sunshine. Hehehehehe...

[plain talk]

Could you post the entire article so those of us without an account with the N Y Times can read it? Thanks.

[Woodstock]

That would be a fresh start to make our forefathers proud and an amazing thought!

[AntiGuv]

WASHINGTON, Feb. 7 — President Bush, having already set off a firestorm over his proposals to cut taxes and revamp retirement accounts, suggested today that the time might be near to drop the income tax as a whole and replace it with some form of consumption tax.

The idea was outlined in the White House's annual economic report to Congress. The report, prepared by the White House Council of Economic Advisers and signed by Mr. Bush, offers a scathing critique of the current system and an exuberant description of radical alternatives.

The report does not make formal recommendations, and White House officials emphasized that sweeping tax overhaul was not an immediate policy goal.

But many administration officials have made no secret of their fondness for fundamental tax overhaul, and the report today lays out a detailed rationale for a system that taxes spending rather than income.

By eliminating the complexity and the thousands of arcane preferences in today's tax code, the report says, a consumption tax would not only increase efficiency but promote investment and growth.

"Most estimates suggest that a shift to a consumption tax base would generally increase the size of the capital stock in the long run," the report said. Economic output could increase as much as 6 percent, it added.

Michael Graetz, a professor of tax policy at Yale Law School and a longtime advocate of a tax on consumption, said the report was a clear signal about the administration's long-term thinking.

"It's unusual for something like that to be in the economic report of the president," Mr. Graetz said. "I don't believe the president has made a decision about what he would like to do. On the other hand, this shows they are serious about fundamental tax reform."

The idea of overhauling the system is not new. Paul H. O'Neill, President Bush's first Treasury secretary, was a passionate believer in at least simplifying the current system.

Republican lawmakers have periodically campaigned for a consumption tax in recent years. R. Glenn Hubbard, chairman of the Council of Economic Advisers, wrote numerous papers while at Columbia University about the merits of a consumption tax.

At its simplest, a consumption tax would eliminate traditional income taxes for most if not all taxpayers and replace those taxes with some kind of tax on spending. Corporations might still pay taxes, but they would abandon most of the rules for depreciating investment in new equipment or buildings and simply write off those costs as expenses in the year they occur.

The allure of such systems is their simplicity. Fans of the consumption tax said it would save ordinary taxpayers billions of dollars, eliminate the wasteful gaming of current rules and ultimately be more fair.

Critics of such proposals contend that the political challenges are too daunting, because attacking countless special preferences means challenging innumerable powerful lobbying groups — from oil companies that want their tax credits for drilling to home builders wanting to save the tax deduction for mortgage interest.

Politically, the most damaging criticism is that a consumption tax could obliterate the idea of a progressive tax system and shift much of the tax burden from the rich to middle-income people and the poor.

A consumption tax would leave investment income tax-free; investment income flows most heavily to wealthy taxpayers. Beyond that, opponents argue, a consumption tax is "regressive" in that the same rates apply to rich and poor people alike.

The president's report tries to refute those arguments. In a lengthy section called "Distributional Consequences of Tax Reform," it contends that people move very fluidly between lower- and higher-income brackets through the normal course of their careers.

Using a "lifetime" approach to income distribution, an idea embraced by Mr. Hubbard at the Council of Economic Advisers, the report cites studies showing that more than half of people followed over 10 years had moved into a different income bracket at the end of a decade.

"Consumption taxes are generally less regressive when viewed from a lifetime perspective," the report declared. "A one-year snapshot of the distributional effects of many tax changes can be misleading."

Republican lawmakers and policy analysts generally doubt Mr. Bush will push for a radical tax overhaul anytime soon, given his already sprawling agenda of a likely war with Iraq and the huge tax bills he wants to push through this year.

But if Mr. Bush succeeds in pushing through his current agenda, and wins re-election in 2004, the report could turn out to be a blueprint for his goals in a second presidential term.

[FreedomCalls]

5% National sales tax bttt!

5% wouldn't do it. It would be more on the order of 17%.

[Balata]

Too bad that Chief Negotiator isn't around to see this. The NSRT was his pet subject

Bump that! Somehow I think he is looking down and smiling at this suggestion.

[Bigun]

I have been working on getting this done for some years now and, in the course of my activities, have met MANY CPA types EVERY ONE of whom has wholeheartedly fallen in love with the Fairtax idea once they fully understood it.

[NordP]

I like this idea a lot, too, but I was listening to Walter Williams when he filled in for Rush. This guy called in and said that he owns a business where his clients are big corporations, and they traditionally don't pay their bills until sometimes 60 or 90 days out, and the tax on what they buy would break this guy's account if he had to pay the tax before he got paid for the job.

I hadn't thought of that.

Also Walter Williams said that it wouldn't be 17%...it would be more accurate to guesstimate closer to 30% tax on all you bought.

Since the White House has people reading our Dose thread, I figured they might look at what people were saying on this thread, too. FReepers are very smart people, you know ;-)

I'm just so glad that this President actually WORKS while in the Oval Office, and actually CARES about the people of this great nation! Way to go W!!!!

What do you all think about those to issues?

[Rome2000]

Sounds like a good idea to me.

Lets put it to a vote!.

[NordP]

to = two

[CyberAnt]

OMG - he really said that ...??

The dems are going to fall over from cardiac arrest.

[T Ruth]

Abolishing the income tax would be a great idea.

Is this story published anywhere besides the NYT?

I wonder that the White House would float this story on a Saturday -- strange choice if they wanted to catch the news cycle.

[Woodstock]

I'll have to go back to work anyway.

Makes me think of the Bethlehem Steel announcement that they want to cut off all retirees. Did I understand that article correctly? Scary.

[FreedomCalls]

This is a really bad idea. Britain did the same thing. They eliminated their income tax and replaced it with a national Value Added Tax (VAT). A few years later when the tax-and-spend folks got back into office, they re-instated the income tax. Now they have BOTH!

There is also a huge underground evade-the-VATman movement of goods around that are untaxed. It won't eliminate the taxmen.