United States Senator Ben Cardin believes he has found a way to make America’s tax code more competitive, predictable and fair.
Cardin shared the details of the Progressive Consumption Tax Act, a bill he filed in December to generate revenue by taxing the purchase of goods and services, rather than income, with more than two dozen GBC member executives March 27 at the Greater Baltimore Committee.
“Fairness to me is based upon your ability to pay,” Cardin said. “Those who can afford to pay more should pay more. Middle-income families today are being stressed. We do not want to increase tax burdens on middle-income families.
“We want our tax code to encourage savings,” he said. “We certainly want it to be pro-growth so we can create more jobs and keep more jobs here in America.”
The progressive consumption tax would change how the federal government raises revenue. As a result, most households would be exempt from federal individual income tax liability and the corporate income tax rate would be reduced.
As introduced, Cardin’s bill would set the progressive consumption tax at a rate of 10 percent for all goods and services.
“There are no exceptions,” said Cardin, who noted exceptions only for government, but not for nonprofits.
“Low-income families get a rebate,” Cardin said. “It’s contemporaneous with their purchase. It depends on family size, it depends on income, but it’s basically $25,000 of free consumption for low-income families a year.
“Middle-income families will pay no more,” he said, “and in most cases will pay a little less, than they’re currently paying. We do that through the use of credits and through a different type of an income tax.”
Currently, the United States ranks near the bottom of industrial nations in the percentage of its economy that is provided by government, Cardin said.
“We should have the lowest marginal tax rates,” he said. “We should have a competitive advantage and we don’t. Our tax code is badly broken. The last time we reformed our tax code was 1986. ‘Spread the burden but reduce the rate’ – that was the rhetoric in 1986 and it was successful. The United States today has a tax code that’s not competitive.”
There are 160 countries with national consumption taxes, said Cardin, who noted the systems of some countries were considered when drafting the legislation.
The federal income tax for corporations would be reduced to 17 percent, which is less than one-half of the current corporate tax rate, Cardin said.
Families with taxable incomes of less than $100,000 would not be subject to income taxes. Tax rates for incomes higher than that would start at 15 percent and graduate up to 28 percent for an income of more than $500,000, he said.
“Ninety percent of Americans would not pay income taxes,” Cardin said. “America would have the lowest marginal tax rates in the industrial world.
“We would average about five percentage points below in each of the categories – consumption and income – of the industrial nations in the world,” he said, “giving us a competitive advantage rather than a competitive disadvantage.”
The plan also features an “automatic circuit breaker,” Cardin said.
If revenues exceed 10 percent of the economy in consumption taxes, there would be an automatic refund to taxpayers through rebates, he said.
However, Cardin doesn’t expect any major tax reform to pass in the current Congress.
“I think there will be a national debate in this (2016) presidential election year that will lead towards tax reform, I hope, in the next Congress,” he said. “I think this is a very viable option.”