Senator Mack suggests that any form of National Consumption Tax was ruled out before the “study” began. This calls into question the creditability and objectivity of the entire Panel’s deliberations...

 

October 14, 2005

Honorable John Breaux
Honorable Connie Mack

Dear Senators Breaux and Mack:

As Chairman and CEO of Americans for Fair Taxation, I write on behalf of its 600 thousand plus members regarding your comments at the Panel’s October 11, 2005 Hearing. The Members of FairTax and I cannot adequately articulate our disappointment regarding the Panel’s dismissal of a National Retail Sales Tax from consideration as it concludes deliberations on the Panel’s Report.

The Panel’s outright rejection of a consumption tax as a possible alternative to the current system is distressing for several reasons. First, I am troubled by Senator Mark’s remarks suggesting that your conclusion was reached before the “study” began. His observation that a consumption tax was never viewed as a viable option at the outset of the Panel’s deliberations calls into question the creditability and objectivity of the entire Panel’s deliberations. Moreover, it mocks the efforts of those who the Panel as honest deliberators.

Second, not only did you admit to prejudging such a consumption tax, but the purported analysis conducted by the Panel was wrought with error. To begin with, consider the rate. AFFT has conducted more empirical research on the Fair Tax than proponents of any other tax reform proposal. These studies addressed concerns about rate and the impact on the poor. The data provided to the Panel by AFFT demonstrate that given its broad and base, the FairTax Plan has a rate of 23% and through its prebate, is the only plan to untax the poor. Your own staff found the rate to be 25 percent with a 15 percent noncompliance rate.

Critics of the FairTax, when confronted with the empirical evidence of the FairTax must resort to the disingenuous scare tactic of shrinking the base to drive up the rate. The most practiced and artful proponent of this deceitful practice is the Brookings Institution While the Panel could fall prey to such a tactic might have been expected, the decision to adopt it as it own is difficult to comprehend in light of the analysis provided by the Panel’s own staff. Put more plainly, the plan as discussed and rejected was not even the Fair Tax – it was a different plan altogether, and a plan formed by the faulty assumption that the Congress would never resist the temptation to narrow the base. In fact, a single, visible rate and a system where everyone is a taxpayer is the best assurance against narrowing a base. True tax reform can only be accomplished through a system that is fair and transparent: tax reform proposals that “hide” taxes and the true cost of government and which are prone to manipulation through legislative loopholes that pick economic winners and losers will not last.

Third, the Panel’s own members seem to be in conflict about the operation of the FairTax. Senator Breaux stated his concerns about the impact of consumption taxes upon the poor. By contrast, Dr. Lazear observed that the plan is too generous to the poor. We hope that Senator Breaux understands that, unlike Dr. Lazear, we do not feel that is too beneficial to the poor to allow them to meet their own sustenance in life before the government becomes their partner. The Panel staff’s own measurement of distribution showed the plan nearly approximating the distribution of current law. The Fair Tax was specifically designed to benefit poor and lower income Americans. These two groups benefit the most under the Fair Tax’s objective of rewarding work and encouraging saving and investments.

Since the rate of 23% is an essential element of the FairTax, and given your concerns about rate, I request a meeting with you and the Panel’s economists to discuss the rate and the methodologies undertaken to determine a rate. It is a plan that is far less complex and materially fairer than the current system. Dr. Lazear’s less than rigorous analysis of the rates needed for a revenue neutral consumption tax and the intellectual dishonesty of the approach taken, as explained by Dr. Lazear himself, brings the integrity of the process and the Panel’s work product into question.

Why would the Panel have dismissed analyzing revenue neutral rates on the basis of dynamic scoring, when that is the only true way in which the benefits of positive reform can be measured and built into the political process? I have attached a letter to President Bush on this subject signed by groups supporting tax reform.

The American people deserve a system devoid of loopholes that only benefit special interests and their lobbyists. I saw Senator Breaux’ presentation Monday on Health Care Reform at the Annual Conference of the American Pediatrics Association. I would hope that you place the interests of the American people foremost and that you have as open a mind on reformation of the Tax Code as you urged the parties involved in healthcare reform to maintain.

Given the importance of the issues and the misinformation disseminated at the Panel’s meeting, I look forward to meeting with you and the appropriate representatives of the Panel at your earliest convenience. We are fast reaching a crisis situation that calls for bold and not incremental reform, and that crisis is not simply the Alternative Minimum Tax or the enlarging tax gap. It is a crisis borne by reliance on a tax regime that is outmoded, outdated and wrongheaded. The FairTax offers such a plan that is fairer and simpler to all the American people. The popular acceptance of this idea as demonstrated by the best seller status of THE FAIRTAX BOOK has swelled our grassroots base demonstrates the willingness of the American public to reform the federal tax system.

Very truly yours,

Leo E. Linbeck, Jr.