Supporters of comprehensive tax reform in the United States should expect a fresh start in the next Congress given the slim prospects of anything major happening before the end of the current legislative year in December, a key U.S. senator said.
The lack of consensus on tax reform issues and relatively little time to prepare any legislation – with no long-term possibility of becoming an amendment to a sweeping budget bill – leave little hope for making any progress in the tiny term, the senator said. Benjamin Cardin, Maryland). Whether you agree with Senator Cardin’s policies or not, he is one of the lawmakers in Congress who has taken a keen interest in tax issues throughout his political career and has the ear of the chairman of the Senate Finance Committee, Senator Ron Wyden, D-Ore.
Any effort to reform the current U.S. tax code is a near-“impossible task,” Senator Cardin said.
I once interviewed a then-Rep. Cardin joined several other journalists on a Sunday morning newscast on WJZ-TV 13 in Baltimore when I was the business editor of the daily newspaper there and asked him about alternatives to the current unpopular tax system. I learned that his staff was researching the value-added tax that was common in Europe at the time as a possible substitute for the U.S. income tax.
He has since sought and won election to the U.S. Senate and has developed his plan as a “progressive consumption tax” that would eliminate income taxes for 90 percent of American taxpayers. Many conservative readers will flinch at the word “progressive” in connection with any tax reform proposal, just as liberal readers would balk at any change to the tax system that they believe means leaving the so-called “rich” – however defined – not paying enough.
The good news for both sides is that our political system does not allow legislation to be passed unless a majority of members of Congress agree to it. Sometimes an impasse on a particular issue serves a purpose – for example, to focus lawmakers on essential issues that need to be addressed, such as budget issues, and to postpone proposals that have no chance of passing this Congress to consider another time.
Fortunately, hearings, surveys, and staff research provide opportunities to investigate issues before any legislation is adopted. The nonpartisan Congressional Budget Office (CBO) can also issue opinions on what potential changes in revenue collection activities could mean for the budget and the annual federal deficit.
Lawmakers who want to reach out to all sides of the political world to get input and ideas from members of the other political party are often those who have served in state legislatures. Senator Cardin is one such lawmaker, so he can tell when tax proposals have little chance of success because he discusses their views with both Democrats and Republicans. As a person with his own ideas about what needs to be done, he has a vested interest in determining how best to devote his time and the time of his employees.
Senator Cardin recalls a time 15 years ago when he accepted an offer from then-House colleague and now Senator Rob Portman of Ohio to join forces in a bipartisan effort to modernize the Internal Revenue Service (IRS), make the agency more consumer-friendly and provide it with additional resources. Traditionally, the Ways and Means Committee and the Finance Committee support the IRS, while appropriations owners never make it a priority, he added. Some progress was made, but it only lasted about two years, Senator Cardin told conference participants Atlantic Last Tuesday’s Tax Summit in Washington, DC sponsored by H&R Block.
“In my opinion, it is difficult to get Congress to focus over the long term on supporting a U.S. government agency that collects taxes,” said Senator Cardin.
The last simplification of the tax code was in 1986. Since then, there have been tens of thousands of changes to the tax code, Senator Cardin said.
Senator Cardin advocates for the regulation of tax preparers in the United States as well as for increased tax revenues. Increased regulation and plans to raise tax revenues are generally met with immediate opposition from conservatives, but Sen. Cardin said he hopes to gain broader support for his proposal by eliminating the income tax for the enormous majority of Americans.
When lawmakers passed a tax law change with winners and losers, Sen. Cardin said he learned as a state legislator in Maryland that winners will send you thank you notes and soon forget your name, while losers will never forget you. For this reason, the policy of attempting any tax reform is “very difficult,” he admitted.
“I really believe we need a fundamental change to our tax code,” said Senator Cardin.
The United States is the only country that relies on income tax revenue rather than consumption tax revenue, he said. However, Senator Cardin also said that the United States is losing jobs and becoming less competitive due to high marginal rates.
“With a progressive consumption tax, we can have the lowest marginal rates in the industrialized world,” said Senator Cardin. He added that a U.S. consumption tax floor of 10% and a corporate tax rate of 15% would be the lowest in the industrialized world.
Senator Cardin said his tax plan would exempt people earning between $25,000 and $50,000 from paying consumption taxes. He added that the highest consumption tax rate would be 25 percent. Those who earn less than $100,000 would pay no income tax – leaving just 10 percent of Americans paying income tax if a consumption tax is adopted.
The only four deductions that can be deducted from your income tax would be for charitable contributions, mortgage interest, employer-paid health and retirement benefits, and state and local taxes.
As consumption taxes are adjusted across borders, U.S. companies competing internationally will benefit, he said. He added that foreign companies currently pay border-adjusted consumption taxes, which puts U.S. companies at a disadvantage.
A cap could also be set to limit the potential revenue that could be generated from a consumption tax, Senator Cardin said.
Senator Cardin’s consumption tax would raise revenues by taxing goods and services on a broad basis that would tax as many products as practical. His consumption tax also:
-Use a credit invoice system that allows the consumer to pay sales tax but get credit for consumption tax previously paid on purchases from other companies;
-includes import; AND
– be destination-based so that any goods exported are tax-free and exporters receive a credit for taxes previously paid on their products.
The additional revenue to be generated from the progressive consumption tax will be used to offset the reduction in the corporate tax rate.
To stay true to his progressive ideals, Senator Cardin proposes to counter the regressive distributional effects of a consumption-based tax by giving low- and moderate-income families (which have not yet been specifically defined) relief in the form of payroll tax credits and other transfer payments from the federal government. It scaled these breaks based on family size and phased them out for high-income households.
Whether you agree with Senator Cardin’s views or not, he is a key figure on tax issues for the political party that currently holds the majority in the U.S. Senate. He also spent 20 years developing his tax plan and recently shared his ideas with Finance Committee Chairman Wyden. Of course, the criticism that Rep. David Camp, D-Mich., received for his latest tax proposal shows that the challenge is gaining support for change, Sen. Cardin said.
While you wait for your tax refund, try to finalize your tax return before the April 15 deadline or possibly be livid about how much of your hard-earned income goes to the government for programs you may not like. You can count your blessings that you are not a legislator trying to simplify and reform the tax code. The odds of conquest are long, and the consequences hit those who try, like Rep. Camp.
