Congressman Chaka Fattah, D-Pa., a senior member of the House Appropriations Committee, has introduced legislation that would direct the Treasury Department to issue a legislative proposal to Congress concerning the viability of replacing the current income tax with a consumption tax.
Under H.R. 2393, the American Growth & Tax Reform Act of 2013, the Treasury Secretary would clarify how the consumption tax could be used to identify and collect “ambiguous revenue” to help reduce the deficit. The bill also asks the Treasury Department to determine if the consumption tax should be applied in phases, such as implementing it in conjunction with the current income tax to reduce the deficit and later eliminating all income and business taxes.
In comparison to the income tax, a consumption tax would place a levy on money spent on goods and services. Fattah’s office noted that it would expand the tax base by capturing money spent by all segments of society, including individuals, corporations, the rich and the poor. A consumption tax might also reduce the number of tax evaders by placing a tax on transactions as opposed to income, according to Fattah. It could also simplify the current cumbersome system, eliminate the use of tax shelters and curb tax evasion, he argued.
“A consumption tax will accomplish meaningful tax reform while simultaneously stimulating economic growth,” Fattah said in a statement. “This will be done by broadening the tax base and allowing for an increase in personal savings.”
Under the consumption tax he is proposing, personal savings would be excluded from the taxable base and the savings would encourage economic growth and help stabilize the economy.
This is not Fattah's first proposal to overhaul the tax code. In the summer 2010 edition of the Harvard Law Review, he wrote an essay on the feasibility of implementing a 1 percent fee on all financial transactions.