By Bernie Becker - 07/27/11 12:40 AM EDT
House Democrats didn’t mince words Tuesday in bashing the Fair Tax, a proposal popular in some conservative circles that would scrap federal income and payroll taxes for a national sales tax.
Proponents of the Fair Tax say it would increase transparency and better encourage saving among American workers. But Democrats on the House Ways and Means Committee, which held a hearing on consumption taxes Tuesday, offered a slew of criticisms of the plan, offering concerns about its effect on lower- and middle-class workers.
Democrats also worried about the effect of eliminating such provisions as the Earned Income Tax Credit, which aim to help those in lower tax brackets, and declared that the Fair Tax would be difficult to manage.
The Fair Tax’s backers call it a 23 percent national retail sales tax that would be administered by state and local governments, and believe it could allow the U.S. to get rid of the IRS.
Under the plan, not only would personal and corporate income and capital gains taxes be scrapped, but so would taxes currently funding Social Security and Medicare.
The proposal has gained support among congressional Republicans, with roughly a quarter of the House GOP Conference sponsoring Fair Tax legislation. Herman Cain, currently a Republican candidate for president, and Sen. Richard Lugar (R-Ind.) are among the Fair Tax’s other backers.
But, with a few exceptions, Ways and Means Republicans did not rush to embrace the idea at Tuesday’s hearing. So far, Reps. Tom Price (Ga.) and Lynn Jenkins (Kan.) are the only GOP members on Ways and Means that have signed on to the House’s Fair Tax measure.
Former Arkansas Gov. Mike Huckabee (R) did tout the Fair Tax at the hearing, asserting that it would reverse inequities in the current system.
“The Fair Tax doesn’t punish people for their productivity, and it does not reward them for their irresponsibility,” Huckabee said. “And that’s the essence of it.”
And Laurence Kotlikoff, a Boston University professor and another proponent of the idea, tried to dismiss the argument that the Fair Tax would be difficult to administer, saying it would drastically reduce the number of tax returns the U.S. would have to process — from some 120 million to roughly 700,000.
Still, critics also have questioned the cited 23 percent Fair Tax figure, noting that number would be 30 percent under the method state and local government use to calculate sales tax.
At the hearing, Bruce Bartlett, who worked for former Presidents Reagan and George H.W. Bush, cast the Fair Tax as “ridiculously pie in the sky,” saying policymakers should look to the Value Added Tax if they really want a consumption tax. He also said the Fair Tax could be susceptible to fraud, as the plan would reimburse those living below the federal poverty line.
For their part, while they were not shy in criticizing the Fair Tax, Democrats at the hearing also wondered whether the committee’s time should instead be used to discuss the need for revenues in a deficit-reduction deal and the $14.3 trillion debt ceiling that the Treasury Department says needs to be raised by Aug. 2.
“As interesting a conversation as this is, it’s still academic,” said Rep. Xavier Becerra (D-Calif.). “And we’re a week away from something that’s not academic.”