Bush Eyes a Consumption Tax

The notion of replacing the current code with a national sales tax is worth a hard look, the President says

By Lee Walczak and Richard S. Dunham

Normally, "Ask President Bush" campaign events are rather sedate affairs, thanks to the White House advance staff's skill at packing the hall with GOP partisans who coo and boo on command. But a spark of the unexpected rippled across the room on Aug. 10, when the President journeyed to Niceville, Fla., for some nice give-and-take with a nice crowd of nice Republican-type people.

Asked about his receptiveness to replacing the current IRS code with a consumption tax -- a subject of much discussion among Bush's agenda-starved economic advisers these days -- the President replied that he's giving the idea a hard look. "It's an interesting idea," he said. "You know, I'm not exactly sure how big the national sales tax is going to have to be [to raise enough revenue], but it's the kind of interesting idea that we ought to explore seriously."


  Holy IRS Code, Batman! The President might be making big waves here.

For years, GOP tax mavens, ranging from New Mexico Senator Pete Domenici to former House Ways & Means Chairman Bill Archer of Texas, have urged adoption of a national tax on consumption. Although there are many variations on the theme, such a levy is appealing to some conservatives for several reasons.

For starters, a consumption tax would simplify the tax code and give the multitiered rate structure a flatter profile. What's more, by penalizing short-term consumption, it would encourage savings and long-term investment.


  One such proposal, H.R. 25, has been introduced by Representative John Linder (R-Ga.). One of the co-sponsors, Florida Republican Jeff Miller, was at the President's side in Niceville, and received the ultimate chummy sobriquet from Bush when he was introduced to the crowd as "Old Miller" (he's 45).

Yet it's worth exploring whether Bush might really be putting the sales tax on the table. One theory is that it will remain an "interesting" option forever, because the new sales-tax rate might have to be prohibitively high to substitute for the current system.

Still, just by considering the idea for inclusion in his proposed second-term agenda, the President likely is currying favor with conservatives -- some of whom lean toward a consumption tax, others prefer a Steve Forbes-type flat tax, but all of whom want Bush to be bold when he addresses the GOP Convention in New York City on Sept. 2.


  Conservatives are worried that rather than pushing forward on the tax front, Bush might be content to play defense in a second term, fighting to keep his already enacted reductions from expiring or being rolled back. As for the President, conventional wisdom has it that with a $435 billion deficit staring him in the face, defense is about the best he'll be able to muster.

That view overlooks Bush's history. Time and again, when given a choice between the safe course and being bold, Bush has gone for the long bomb. Could it happen again in 2004?

Walczak is Washington bureau chief and Dunham is Washington Outlook editor for BusinessWeek

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