Ways and Means Chairman Bill Archer (R-Texas) has indicated general support for a sales tax but to date has officially kept his options open. These plans would tax almost all private consumption and all government expenditures. A group called Americans for Fair Taxation has launched a multimillion dollar campaign to replace income, estate, and payroll taxes with what they claim would be a 23 percent sales tax. Representatives Dan Schaefer (R-Colo.) and Billy Tauzin (R-La.) have proposed a 15 percent sales tax which they claim will replace the personal and corporate income taxes and the estate tax. Although the flat tax has certainly not disappeared, the newest plan to attract significant attention is a national retail sales tax. Now, as 1998 begins, there are once again renewed calls to tear out the income tax and start over. The Taxpayer Relief Act of 1997 showered new deductions and credits on various groups of taxpayers, made taxes more complicated, and raised effective marginal tax rates for many people. In 1997, however, Congress and the President moved in essentially the opposite direction. These proposals aimed to replace the income tax, drastically simplify taxes, and spur economic growth by flattening tax rates, eliminating tax preferences, and taxing consumption rather than income. The flat tax and the idea of fundamental tax reform dominated policy discussions in 1995 and the early part of 1996.
The politics of tax reform are cyclical, and once again, we’re hearing the call for sweeping change. Nonetheless, more plausible consumption and income tax reform plans should not be ignored. But when examined closely, the simplicity breaks down, payments would be close to impossible to collect, and the tax’s fairness would be, at best, questionable. Advocates praise the simplicity, the potential for economic growth, the enforceability, and the fairness of a tax system based on consumption. This go around, it’s the retail sales tax. The tax reform panacea in vogue several years ago was the flat tax.
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