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President Bush wants to engage in "fundamental tax reform." Although he has not specifically defined what he means by the statement, Republicans view the President's position as one calling for a tax system that would replace the current income tax with some kind of tax on personal consumption.
The possibilities for a new system range from a flat tax on wages, to some sort of national sales tax, to a new income tax system that excludes almost all earnings from investment and business profits. Many economists prefer a pure consumption tax, where people pay taxes only on the amount of money they spend each year, on the grounds that such a tax would be the most efficient type to administer. According to Republican Wisconsin Representative Paul Ryan, "most of the tax reform ideas revolve around the idea of taxing consumption. It can be a flat tax or a sales tax or anything in between, but all of those are consumption taxes."
Representing the Democratic view, Senator John Kerry opposes all proposals aimed at replacing the income tax with a flat tax, a national sales tax, or a consumption tax that would allow people to shelter virtually all investment income. "John Kerry's view is that all the proposals in this area are regressive and would not advance any of the important goals of creating a tax that is simpler, fairer and pro-growth," said Jason Furman, an economic policy adviser to the Kerry campaign.
Leonard E. Burman, a senior analyst at the Urban Institute claims, "It's almost impossible to design a consumption tax that doesn't shift some of the tax burden (away) from high-income tax payers."
The one thing that Democrats and Republicans do agree on is that proposals for making the tax code simpler is likely to set off a fierce political battle over the issue of fairness, because most of the options being discussed tend to shift the tax burden form high-income earners to middle-income tax families.
(Updated December, 2004)