Study the Fair Tax, Mr. Romney, as there will be a test on Tuesday

The Washington Examiner

At each stump along his campaign trail, former Massachusetts Gov. Mitt Romney, like so many other presidential aspirants, finds himself hounded by Fair Tax supporters. What they seek is a president who supports nothing less than the replacement of the current income tax system with a simple, transparent retail sales tax.

The Fair Tax movement presents such presidential candidates with a choice they would prefer never to make: Pander to the corporate lobbyists on which their campaign contributions depend, or assume the political risk of a new idea that the special interests oppose.

They can either support the best tax system lobbyists can buy, or the best system economists can craft. Being a good politician, Romney has found a way to choose both.

While professing to "like the idea of a consumption tax" that doesn't provide a "windfall" "for the very, very wealthy," Romney lectures the crowds that "studies show [the Fair Tax] tends to lower taxes a lot on high income people, and then raises taxes on middle-income people."

Romney's reading list should include the study by renowned public finance expert Lawrence Kotlikoff of Boston University, entitled, "Comparing Average and Marginal Tax Rates under the Fair Tax and the Current System."

The Kotlikoff study examined 42 hypothetical families, including a middle-aged couple with two children earning $20,000, $70,000 and $500,000 per year. The low-, middle- and high-income couples' Fair Tax rates were determined to be 1.5, 11.6 and 20.5 percent respectively, versus 11.0, 21.3 and 35.6 percent today.

The low-income family received an 86 percent cut in its average remaining lifetime tax rate; the middle-income family a 46 percent cut, and the high-income family a 42 percent cut.

The Fair Tax's progressivity is attributable partly to repeal of payroll taxes middle-income wage earners bear, and to the novel concept that government should not tax us before we have met our own sustenance. The Fair Tax totally exempts from taxation expenditures below the poverty threshold for all households.

But fairness is defined in many ways. Whether taxpayers have more money in their pockets after enactment is one common-sense definition. Another Kotlikoff study shows that low-, middle- and high-income households respectively experience a 26.7, 10.9 and 4.7 percent welfare gain.

Because the Fair Tax untaxes work, savings and investment, but taxes spending, it promotes economic growth, raises marginal labor productivity and real wages, creates jobs and encourages upward mobility. Neither study incorporated the more than $380 billion in compliance-cost savings from the Fair Tax.

Romney has his own tax plan, of sorts, but no one hears mention of studies supporting that plan. That plan consists of maintaining marginal rates at current levels, transitioning to a "territorial" tax system (so manufacturers can outsource and sell their goods back to U.S. consumers with value-added tax rebates), and a pretzeling in of a capital gains tax cut for the middle class (who earn about $400 in capital gains per year).

If such studies existed, they would surely show the Romney plan as regressive, as stifling growth and as adding to complexity.

Fair Tax supporters who hound you, Mr. Romney, do not line the streets of the same Potemkin villages on which past tax reform movements were built. They are not easily shooed away.

Instead, their numbers and energies seem constantly recharged by their unrequited disdain for our broken tax system your plan would only perpetuate. They ask of you one thing. Please read the studies on the Fair Tax before lecturing them on its merits. They have done their homework.

Dan Mastromarco founded the Argus Group, a public policy, law and economic consulting firm, and is a co-developer of the Fair Tax plan.

The full story can be found here.

 

All active news articles