A member of the Congressional Black Caucus is advocating a tax plan that could make the Internal Revenue Service obsolete.
Congressman Chaka Fattah (D-PA) unveiled his bill on September 10, while attending the 34th Congressional Black Caucus Legislative Conference in Washington, DC.
“My bill eliminates personal and corporate income taxes in favor of a set fee on all transactions,” Fattah said when presenting his “Transform America Transaction Fee” legislation at the conference.
“Pennies on the Dollar” Fee
The fee, Fattah noted, would amount to the federal 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.”
Any transaction of $500 or more that moved through the federally regulated banking system would be subjected to a 1 percent fee under Fattah’s proposal. The fee on other taxable items is still being debated, with a probable exemption for food products.
“Rep. Chaka Fattah, one of the most liberal Democratic members of Congress, has created a framework for a consumption tax rivaling any Republican proposal,” wrote Washington Times reporter Brian Debose, who covered the conference.
Fattah’s bill would be a re-submission and extension of his Transform America Transaction Fee of 2004, HR 3759, which is pending in the House Ways & Means Committee and will expire when the current congressional session ends.
Would Replace Personal, Corporate Income Taxes
According to information on Fattah’s Web site, the key details of his plan are as follows:
- The transactions fee eliminates all federal income taxes on personal income and corporate profits. All citizens will receive 100 percent of earned wages and salaries, giving individuals total discretion on how and where to allocate monies.
- By eliminating all existing federal income taxes, the plan creates an opportunity to lower current tax burdens by reducing compliance, auditing, administrative, and other filing costs.
- A transactions fee could capture revenues from underground economic activity that currently evades taxation by going unreported and uncollected.
The IRS cost more than $10 billion to operate in 2002, according to the General Accounting Office. Based on figures from the President’s Office of Management and Budget, it currently costs taxpayers $200 billion a year to comply with federal tax laws. Tax reform that eliminates the IRS could save taxpayers hundreds of billions of dollars each year.
Fattah said his plan, including underground economy collections, could result in more government spending, or, as he put it, “added revenues to invest in needed programs that could stimulate urban development” and “spur macroeconomic growth by eliminating [the] national debt.”
“Crazy Enough to Work”
“The Treasury Department must look at this transaction fee as a viable solution, but several questions must be answered,” Bernard Anderson, professor of economics at the Wharton School of the University of Pennsylvania, told reporter Debose. “If you are unemployed, you still have to pay rent, buy groceries, buy gas, etcetera, so you still contribute under the transaction fee.”
Steve Volk of the Pennsylvania Weekly said the Fattah plan is “so crazy it just might work.” But Alvin Rabushka, godfather of the flat income tax proposal, calls Fattah’s idea “ridiculous,” “not worthy of study,” and a “killer” of small businesses.
Economic writer Andrew Cassel of the Philadelphia Inquirer disagreed, saying the Fattah plan is worthy of study. In an August 27 column, he wrote, “It’s a far-reaching, maybe even far-fetched, idea. Even a cursory analysis turns up a host of questions and potential problems, such as: Who would collect the tax? Would foreign transactions be covered? Would it apply equally to goods and services, luxuries and necessities, rich and poor? If so, is that fair?”
Nonetheless, Cassel considered the plan worth investigation. “But the fact that it raises serious questions doesn’t disqualify Fattah’s plan from serious consideration; just the opposite, in fact. Thinking about a radical change in the tax structure is an excellent way to understand what’s wrong–and right–with our current system.”
Cassel concluded, “Even if Fattah’s idea isn’t fully baked, it can help challenge some old ideas–including the notion that only Republicans find the current income-tax arrangement oppressive and cumbersome. For that alone, it can be a welcome part of the discussion. Now if we can only get the candidates to discuss it.”
John W. Skorburg ([email protected]) is associate editor of Budget and Tax News.
For more information …
The full text of Chaka Fattah’s HR 3759, The Transform America Transaction Fee of 2004, is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.heartland.org, click on the PolicyBot™ button, and search for document #15849.
“The Incredible Flat Tax,” an American Enterprise article by Robert E. Hall and Alvin Rabushka, is also available through PolicyBot™. Search for document #5251.