The Flat Tax versus the Consumption Tax

Republican ElephantTalk show host and conservative pundit Sean Hanniity and Republican presidential hopeful Mike Huckabee both stand for the Repeal-16 movement.  The Sixteenth Amendment to the Constitution is the amendment that gives the Federal Government the authority to tax income.  Hannity and Huckabee would like to see it repealed and replaced with a consumption tax, i.e., an national sales tax.  Currently, I stand for the flat rate income tax and close the loopholes, but like they say, Rome was not built in a day.  Any reform package that meets approval of Republican conservatives has to be a journey, not a destination where the basic principles an inner-workings remain unchanged for the ages, but adaptable to the ingredients that fuel it to meet the changing political and world-economic and sociological environment.

I had remembered as a kid a TV commercial for Sunsweet Pitted Prunes in 1967 when the pitted prune was first introduced.  The man enjoyed the flavor and liked not having prune pits in his mouth.  But said they were still very wrinkly.  The ad ended with a deep voice that could be coming from above saying, Today the pits, tomorrow the wrinkles.  A good way to look at America’s economic future with a simpler, kinder, gentler tax code is to assert Today the flat tax, tomorrow the consumption tax. 

The flat tax will provide instant relief for both businessmen to enable job creation and for working class taxpayers.  While Governor Rick Perry (R-Texas) suggests a 1040 Postcard, I would take it one step further.  If, for example, a 9% flat rate income tax were agreed upon by Congress and signed into law by the President, 9% gross earnings would be deducted from every paycheck in America and electronically [wire] transferred to the United States Treasury eliminating the need for a third-party intermediary such as the revered IRS.  This allows (or at least provides an option) for the Federal Government to close the IRS and that will saves millions (if not billions) to apply to the deficit, and no American, Republican, Democrat, or Independent, liberal, conservative, or moderate, will protest this mother of all spending cuts.

While Hannity, Huckabee, and those involved with Repeal-16 have a genuine good intention, replacing the federal income tax with a consumption tax will not provide adequate revenue and make for better lives in America until and unless you bring back manufacturing to American soil.  If we had a consumption tax today, 85% of the goods the tax would be applied to would be imports.  If the percentage rate is too high, Americans will be deterred from making big-ticket purchases to stimulate the economy.  If the percentage rate is too low, it will not offset tariffs and the result is the same result as a retailer selling goods below cost—you grow [the] deficit, not reduce it.

So the best approach is the quasi Sunsweet Prunes approach.  Today the PITS; flatten the income tax for immediate relief for taxpayers and to pave the way for job creation.  As part of a total reform package, come up with a comprehensive plan to bring manufacturing back to America, which would involve lower corporate taxes and a simplified federal tax code.  Tomorrow the WRINLES.  Once manufacturing returns, we can apply a consumption tax to domestically produced goods, a low reasonable percentage rate that stimulates the economy and more taxes are collected in volume with more taxpayers participating, and finally, end the income tax.



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