Skip to content

Tax Reform Panel Rejects ‘Fair Tax’

1 min readBy: Andrew Chamberlain

The idea of a national retail sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. —favored by promoters of the “Fair Tax“—was officially spiked by the President’s TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Reform Panel at today’s meeting in Washington. MarketWatch reports on the Panel’s discussion:

The nine-member committee, which must deliver a detailed set of proposals to Treasury Secretary John Snow by Nov. 1, also agreed to reject proposals to replace the existing income-based tax code with a national retail sales tax.

Using Treasury Department data, panel member Ed Lazear, a Stanford University professor and a senior fellow at the Hoover Institute, estimated that a national sales-tax rate would need to range between 64% and 87% in order to replace revenues from the corporate and personal income tax while preserving exemptions on drugs, food, clothing and other goods and services typically excluded from state sales taxes.

“I get the sense – I’ve picked this up since the first meetings we’ve had – that this is an area the panel does not want to pursue,” said Mack, a Florida Republican. (Full story)

The Panel also came out in favor of reducing the deductibility of home mortgage interest and employer-provided benefits—reforms that promise a firestorm of political opposition from realtors and insurers.

As we’ve written before, adding these sources of income back into the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. could allow dramatic across-the-board reductions in rates—leaving more economic pie for everyone, regardless of how it’s sliced.