Democrat offers income-tax alternative

Rep. Chaka Fattah, one of the most liberal Democratic members of Congress, has created a framework for a consumption tax rivaling any Republican proposal.

The Pennsylvania lawmaker presented a draft of his “Transform America Transaction Fee” legislation at the Congressional Black Caucus Legislative Conference on Friday, saying it is past time for the government to do away with the complex income-tax structure.

“My bill eliminates personal and corporate income taxes in favor of a set fee on all transactions,” Mr. Fattah said

He said the current system fosters a $200 billion noncompliance rate and one in which the “top 27,000 earners of $500,000 or more pay little or no taxes legally.” He said that nearly 60 percent of businesses in the country have paid no taxes over the last five years.

Mr. Fattah criticized Republicans in Congress for breaking decades of promises to simplify the tax code, and then “adding another 1,500 pages,” to cover President Bush’s tax cuts.

“The flat tax, national sales tax and the value added tax have been discussed for decades. Speaker [J. Dennis] Hastert in December called for tax reform and [House Majority Leader] Tom DeLay said vote for us, give us another year … why should we believe them?” he said. “I’ve authored a superior idea to the status quo and the majority party’s reforms.”

Mr. Fattah sent the proposal to think tanks and federal research boards for vetting. The fee, he said, would amount to the government taking pennies on the dollar on all purchases of goods and services made in the United States, including cars, clothes, property, stocks, bonds and purchases of American goods by foreign businesses.

He said his proposal would set fiscal markers for increases in the fee. For instance, transactions of $500 or less may be exempt, which he said would protect the poor from being overburdened by the new system. And certain necessities such as food may get exemptions as the plan is hammered out.

The Congressional Research Service estimates more than $53 trillion changes hands through transactions or purchases annually, more than 20 times the 2004 budget.

Economists closely scrutinized the proposal at a forum Friday, but could not discount some positive aspects of what a transaction fee could bring to the nation.

“The Treasury Department must look at this transaction fee as a viable solution, but several questions must be answered,” said Bernard Anderson, professor of economics at the Wharton School of the University of Pennsylvania.

Chief among Mr. Anderson’s concerns was the likelihood of investors doing less business in the stock market if they are charged a fee for transactions.

Mr. Fattah said cash transactions would be exempt, but only cash. The trading of bonds and stocks would be charged the fee, but likely less than what many stockbrokers already charge to make such deals.

Either way, Mr. Anderson said the positive aspect of the transaction fee is its ability to be “job-market inelastic.”

The current income-tax system is predicated on a person paying taxes from the income earned from his or her job, but the unemployed can’t contribute.

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