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OTHER VOICES

Fair Tax Act Would Help Conn.

By Matthew M. Daly

Special To The Hartford Business Journal

11/26/07

One phrase that comes up repeatedly in the televised Republican candidate debates is the “Fair Tax Act.” While for many in the audiences, it probably sounds like some obscure legislative reference, it’s an idea with the potential to do some real good for our state.

Originally proposed in 1999 by Georgia Congressman John Linder, the bill proposes dissolving the IRS and with it all the income taxes, including the Alternative Minimum Tax, payroll taxes, corporate taxes, gift taxes and estate taxes. The lost revenue would be replaced by a consumption tax — sometimes called a national sales tax — on all new goods and services sold. The rate would be 23 percent, or 23 cents, for every dollar consumed.

Economic experts agree on the benefits of such a policy to the country as a whole. Nobel Laureate Vernon Smith has argued that the bill’s incentives to increase savings and investment would spur domestic growth and attract foreign businesses to locate in America, while simultaneously increasing our competitiveness. The Beacon Hill Institute in Massachusetts puts the resulting increase in domestic investment at 86 percent.

Both Boston University and Rice Universities have concluded that, under the Fair Tax Act, long-term interest rates would drop by nearly a third. And the respected former chairman of the Federal Reserve, Alan Greenspan, has even suggested that the $11 trillion held offshore for tax reasons would find its way back to U.S. banks, if the Fair Tax Act were enacted into law.

We Gain

But while the fair tax promises to help our nation as a whole, it is the prospective benefits for Connecticut that should most command our attention.

Our state ranks number one per capita in the amount of taxes paid. We have had near-zero job growth in the fifteen years since our own state income tax was implemented. And for all our supposed wealth, median family income is actually declining.

The Fair Tax Act, if implemented, would obviously ameliorate our tax problem, but job losses would also be reversed. The fair tax would give our legislators and the governor an improved chance at attracting international businesses to a state that is notorious for being “business unfriendly.”

Bill Archer, a former U.S. Representative from California and chairman of the powerful House Ways and Means committee, once asked Princeton Econometrics to survey five hundred European and Asian companies to see how the fair tax would change their thinking on where to invest in new manufacturing facilities. Eighty percent said they would build their next plant in the United States.

With low taxes and more jobs, median income would naturally rise. Hence, one single piece of legislation promises to solve all three of our region’s most pressing economic problems.

As Beacon Hill Institute economist Alfonso Sanchez-Penalver recently stated, “The Fair Tax Act presents a taxation system that is progressive, more explicit and cheaper to comply with. It reduces production costs in real terms thus increasing (competitiveness). The economic benefits of the Fair Tax Act for the nation are obvious and I cannot see how anyone would oppose it.”

Matthew M. Daly is a policy scholar at the Yankee Institute for Public Policy, a Hartford based free-market think tank.