- The Washington Times - Monday, September 26, 2005

By Saxby Chambliss, John Linder, Steve King and Kevin Brady

As the President’s Advisory Panel on Federal Tax Reform prepares to send its recommendations to the Treasury secretary next month, we hope that it will propose to abolish our indecipherable and unwieldy income-tax code and replace it with a tax on personal consumption. Slowly but surely, large macroeconomic forces are pushing the federal government away from income-based taxation and toward consumption-based taxation.

As our tax code has grown more complicated in the last 15 years, compliance costs for both businesses and families have skyrocketed. According to IRS data for tax year 2003, 60 percent of people filing tax returns retained professional assistance to do so. Businesses, likewise, are incurring enormous tax-compliance costs themselves and passing these costs along to consumers in the form of higher and higher prices.

While current tax-compliance costs are estimated between $250 billion and $450 billion a year, these costs do not produce a new job, build a new plant or create a new invention. To the contrary, these costs are a dead weight on our economy, slowing it down and hindering its ability to expand. Adopting a tax on personal consumption will enable the elimination of these costs, effectively reducing the burden of America’s tax system by $2 trillion to $4 trillion over the next ten years. This kind of stimulus will help America retain its role as the locomotive of the world’s economy.

This year, there has been a growing debate about how best to ensure the long-term solvency of the Social Security program. The long-term financing problems facing Medicare are, in fact, far worse than those facing Social Security. Together, these valuable safety-net programs, financed by 158 million current workers, provide benefits to about 45 million retirees. Yet, when the baby boom generation retires, and the number of Social Security/Medicare beneficiaries doubles in only 35 years, the workforce will have grown by only 15 percent, to 180 million.

Moving from a payroll tax to a personal consumption tax provides both Social Security and Medicare with needed long-term financial solvency. Rather than try to maintain these programs on a fraction of the total U.S. population, a tax on personal consumption dramatically broadens our tax base to include all 295 million Americans and an estimated 30 million to 40 million foreign tourists and visitors. This more than doubles the federal government’s tax base. And, when the size of the economy doubles, as has been predicted, federal revenues will double, thereby ensuring that Social Security and Medicare will be there for all retirees.

Today, our income tax code taxes repatriated income, income earned abroad by U.S. companies, at 35 percent. This serves to keep the bulk of these monies outside the United States, because it’s cheaper for our companies to borrow money at 6 percent than to bring this money back into the U.S. at 35 percent.

Replacing business and labor taxes with a tax on personal consumption will serve to encourage our businesses to bring this expatriated income home. According to some estimates, there are upwards of $10 trillion in offshore financial accounts. Most of these funds would come flowing back into our economy to invest in new plants or new technology, by providing much needed liquidity. Individual and institutional investors would also watch as their stocks and bonds benefit from this influx of capital. As some of our most famous public companies are struggling with major pension funding problems, bringing these funds back into the U.S. economy serves to help these Fortune 100 companies as well.

Our current income tax is a stifling impediment to growth, and these fundamental problems cannot be changed by simply “tweaking” the code yet again, as we have done year after year after year. It’s time for a bold change. It’s time for a new vision of federal tax collection policy. It’s time for a tax on personal consumption. We hope that the President’s Advisory Panel on Federal Tax Reform will seize this rare opportunity to help lead our country in a new and exciting direction.

Sen. Saxby Chambliss and Rep. John Linder are Republicans from Georgia. Rep. Steve King is a Republican from Iowa. Rep. Kevin Brady is a Republican from Texas.

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