The National Retail Federation welcomed the decision by the Presidents Advisory Panel on Federal Tax Reform to reject proposals to replace the federal income tax system with a controversial National Retail Sales Tax.
“This is a major victory for the American consumers and workers who would have suffered under a national sales tax,” NRF vice president and tax counsel Rachelle Bernstein said. “Consumer spending has been the backbone of the U.S. economy in recent years, and the huge new tax that was proposed would have sent a message to consumers to stop spending. The implications of that would have had devastating results for every job behind every product on the shelf. Our nations tax system needs work, but a national sales tax isnt the answer and were glad the Advisory Panel has agreed.”
“The Advisory Panel reached some of the same conclusions that we came to a long time ago,” Bernstein said. “A National Retail Sales Tax would be extremely regressive, it would require astronomically high tax rates and there would be tax evasion like weve never seen before. Some people call it the Fair Tax but we call it the Unfair Tax.”
“Now that a National Retail Sales Tax has been rejected, its important that the Advisory Panel realize that other consumption taxes are just as bad,” Bernstein said.
The Advisory Panel, established by President Bush in January, heard from a number of economists and tax experts during a series of hearings this spring. The panel is scheduled to submit its recommendations to Treasury Secretary John Snow by November 1, and met today to discuss what options to include in that report.
Chairman Connie Mack said at this mornings meeting that panel members had come to a consensus that an NRST would not be recommended in the report. Mack said panel members were concerned that the sales tax rate it would take to replace current income tax revenue estimated by the Treasury Department at 22-27 percent was too high and would also encourage high levels of tax evasion.
Mack said the panel was also concerned that the NRST would be highly regressive. Even at the 22-27 percent rate, it would triple taxes for the lowest 20 percent of wage earners. High income taxpayers, meanwhile, would pay less because invested and unspent income would escape taxation. Under a “prebate” program intended to ease the impact on low-income families and thereby address the problem of regressivity, a 34-49 percent national sales tax rate would be required, according to the Treasury Department.
Rather than continuing to require income tax returns to determine who is low income, the prebate program would send checks to all taxpayers. That would amount to a $600 billion a year government transfer an amount larger than the current Social Security program that would require commensurate administrative costs. While the wealthy would see less of their income taxed and low-income families would have their added tax offset by the prebates, middle-income families would have a tax increase.
