As the presidential campaigns rev up, taxes are emerging as the defining issue of the election. Unfortunately, a lot of misinformation and myths about taxes are spreading as candidates and commentators look to push their different economic agendas.

To start the election season off, here is a breakdown of the five biggest tax whoppers being told by the candidates and commentators alike.

1) Myth: 47 Percent of Americans Do Not Pay Taxes

Fact: All Americans Pay Taxes

Pundits and politicians will continue to rile up audiences this election season by claiming that half of Americans in the U.S. do not pay any taxes. This talking point is used to deflect questions about why the rich should pay their fair share.

The basis of this claim is data showing that 47 percent of Americans did not owe federal income taxes in 2009, which the recession was at it's peak. The claim ignores the much more regressive federal payroll taxes or state and local sales, income, and property taxes that all Americans pay. The reality is that three-quarters of American households actually pay more in payroll taxes than federal income taxes.

Adding to this, the very reason many low income Americans do not pay federal income taxes is because they benefit from highly effective tax credits like the earned income tax credit (EITC), which incentivize work while providing much needed support to working low and middle class family budgets.

2) Myth: The American People and Corporations Pay High Taxes

Fact: The US Has the Third Lowest Taxes of Any Developed Country in the World

Total US taxes are actually at the lowest level they’ve been since 1958. The US has the third lowest level of total taxes of the Organisation for Economic Co-operation and Development (OECD) countries, with the exception of only Chile and Mexico. President Obama, who is often falsely accused of raising taxes, actually cut taxes for 98 percent of the country on top of temporarily extending the entirety of the Bush tax cuts.

A related claim is that the US has the second highest corporate tax rate in the world. This is misleading because it’s based on the on-paper (statutory) corporate rate rather than the actual (effective) rate that corporations pay. Because of the plethora of corporate tax breaks and loopholes, the US actually has the second lowest coporate taxes as a share of GDP in the OECD. In fact, 30 major corporations, including Verizon, Boeing and General Electric, paid nothing in corporate taxes over the last 3 years.  Rather than cutting corporate taxes, the sensible solution is to pass revenue-positive corporate tax reform.

3) Myth: Cutting Taxes Creates Jobs and Raises Revenue

Fact: Tax Cuts Reduce Revenue And Are Not Associated with Economic Growth

Since the rise of supply-side economics, tax cuts for the rich have been regarded as a magic elixir that could unleash economic growth, while simultaneously increasing government revenue.

The reality is that the tax cuts that have been tried for over 30 years have proven to be a stunning failure in all regards. In fact, history has shown that the tax rate on the wealthy simply has nothing to do with economic growth. Just consider the strong growth that occurred after President Clinton increased taxes versus the dismal growth following the Bush tax cuts.

Not surprisingly, tax cuts have been definitely proven to reduce revenue. Even President Bush's own Treasury Department concluded that tax cuts do not create enough economic growth to to come close to offsetting their costs or raising revenue. The Bush tax cuts cost $2.5 trillion in their first decade and the Reagan tax cuts cost $582 billion.

4) Myth: The US tax system is very progressive because wealthy individuals already pay a disproportionate amount of taxes.

Fact: At a Time of Growing Income Inequality, the US Tax System is Basically Flat.

Conservative commentators and politicians claim that it would be unfair to raise taxes on wealthy individuals because they already pay a disproportionate amount of taxes, usually citing the fact that the top one percent of income earners pay 38 percent of federal income taxes. Once again, such claims ignore the fact that the federal income tax is just one of many taxes that individuals pay.

When you take into account all of the taxes that individuals pay, the truth is that our tax system is relatively flat. The top one percent of income earners receives 20.3 percent of total income while paying 21.5 percent of total taxes and the lowest 20 percent of income earners receive 3.5 percent of total income while still paying out two percent of total taxes.

In other words, wealthy individuals pay a high percentage of taxes because they earn a highly disproportionate amount of income. This is, of course, a consequence of growing income inequality in the United States, which is at a level not seen since before the Great Depression. 

5) Myth : The “Fair Tax” or a flat tax would be more “fair”

Fact: The “Fair Tax” or a Flat Tax Would Make Our Tax System Even More Regressive

Whether it’s Steve Forbes promoting his flat tax proposal in 1996 and 2000 or Rick Perry and Newt Gingrich in the 2012 presidential race today, the idea to sweep away our current tax system and replace it with a single rate, flat income or national sales tax (called the “Fair Tax”) has become a perennial campaign issue for Republican presidential candidates.

The simplicity of these proposals has much appeal for many Americans, who believe they would make filing taxes less complex and, at the same time, stop wealthy individuals from being able to game the tax system.

A deeper look, however, reveals that both the “fair” and flat tax are very regressive compared to our current system. One recent analysis of a typical flat tax proposal from last year shows that it would result in an average tax increase of $2,887 for the bottom 95 percent of Americans, while those in the top one percent would receive an average tax cut of over $209,562. Furthermore, the Institute on Taxation and Economic Policy’s analysis of the Fair Tax points out the under this system, the sales tax rate would have to be set at a politically and administratively unfeasible rate of at least 45 percent, and, the result would be the bottom 80 percent of American’s paying an average of 51 percent more in taxes compared to our current system.

It’s also important to note that “complexity in the tax code,” which a flat tax system purports to fix, is not caused by our progressive rate structure; rather, it’s the multitude of loopholes and tax breaks, all of which could easily be eliminated while keeping a progressive tax rate structure in place. 

With his recent dramatic rise to second place in the polls, Former CEO of Godfather’s Pizza Herman Cain and his infamous 9-9-9 plan were the belles of the ball at the last two Republican debates.

According to a full analysis by Citizens for Tax Justice, if Cain’s 9-9-9 plan was in effect in 2011 the poorest 60 percent of taxpayers would pay an average of $2,000 more in taxes, while the richest 1 percent of taxpayers would each pay an average of $210,000 less in annual taxes. Making matters worse, the plan would have actually raised $340 billion less in revenue in 2011, meaning that it would make our deficit much worse rather than better.

Since the CTJ analysis was released, the Cain campaign has been dribbling out additional details that change the plan in an ad-hoc fashion as he struggles to defend his tax proposals.

The Washington Post and Bloomberg economic debate on October 11 broke the record for most colorful tax policy jabs, as Former Utah Governor Jon Huntsman said he confused the 9-9-9 plan with “the price of a pizza”, while Minnesota Representative Michele Bachmann observed that “when you take the 999 plan and you turn it upside down, I think the devil is in the details.”

During the CNN Western debate on October 18, the candidates piled on the 9-9-9 plan, arguing that the imposition of a 9 percent new sales tax would ultimately lead to higher taxes because it would give the federal government another revenue stream and could be raised in the future. Interestingly, this particular charge is not borne out by the evidence from a plethora of countries that have imposed consumption taxes, including in Canada where total revenue collected actually went down after the imposition of its value-added tax.

As we have noted a few times, however, the regressiveness of the 9-9-9 plan is no joke. The plan would replace the entire federal tax code with a nine percent national sales tax, nine percent flat income tax, and a nine percent business flat tax. It’s important to note that although the last component is called a ‘business flat tax’, it’s essentially a payroll tax rather than a flat corporate income tax as the name would imply.

For his part, Cain defended the plan saying that reading his campaign’s full analysis of the 9-9-9 plan (which was only made available publically halfway through the CNN debate) would address the “knee-jerk” reactions to his plan.

His team’s own analysis directly contradicted Cain’s point during the debate that his plan does not contain a “value-added tax.” In reality, the report refers to the business flat tax as a “subtraction method value-added tax.”

Another problem for Cain is that his campaign’s own analysis provides no evidence that the 9-9-9 plan would not be extremely regressive, though it does include a previously unmentioned “poverty grant.”

Apparently, Cain himself knows that this “poverty grant” does not allay the concerns about the plan’s regressive impact, because Cain said the next day that he’s “not going to throw the people at the poverty level under the bus” and that he has “already made provisions for that,” but hasn’t “told the public and my opponents” about what those provisions are yet.

And just today Cain announced even more significant changes to his plan. His tax plan has always included “empowerment zones” that were not defined. The Cain campaign now calls these “opportunity zones” because the word “empowerment” sounded too liberal. It’s still unclear how living in or working in an “opportunity zone” would change one’s tax bill under Cain’s plan, but he announced today that these designated areas could be free of building codes and minimum wage laws.

The Washington Post reports that he will also change his individual tax from a single-rate tax to one with several brackets. If true, this means that Cain’s plan no longer consists of three flat 9 percent taxes… which means he has given up the “9-9-9” plan.

Texas Governor and presidential candidate Rick Perry has endorsed both the concept of a flat income tax and the so-called “Fair Tax,” which is a national sales tax. A three-page report from CTJ explains that both of these proposals would result in substantial tax increases for the poor and middle-class and significant tax cuts for the rich.

Read the report.

Photos via Gage Skidmore Creative Commons Attribution License 2.0

On Tuesday, the House Ways and Means Committee held a hearing to consider a national sales tax (often misleadingly called a “Fair Tax” by its proponents) and a value-added tax (VAT).

A national sales tax and a VAT are both consumption taxes and therefore both have the same regressive effect. Poor families have little choice but to spend all of their income on consumption while rich families tend to save most of their income. So a tax on consumption will naturally take a much larger share of income from poor and middle-income families than from rich families.

Proposals to implement a VAT take many forms and are usually discussed as a supplement to existing revenue sources. Proponents of a national sales tax, however, are usually describing a very specific proposal (and a specific bill that is reintroduced each year) misleadingly called a “Fair Tax.”

The so-called “Fair Tax” would replace the federal personal income tax, corporate income tax and estate and gift taxes with a 30 percent sales tax. (Proponents use a convoluted calculation to claim that it’s actually a 23 percent rate.) The tax would apply to all types of consumption, including those that would be difficult or impossible to tax in the real world (like rent, health care services, and, oddly, government spending.)

The proposal includes a rebate to all families that proponents claim mitigates the gross unfairness of the sales tax. The rebate would basically be a cash grant that would vary only by family size.

But as Citizens for Tax Justice and its research wing, the Institute on Taxation and Economic Policy (ITEP), have long explained, the national sales tax would be extremely regressive. ITEP’s classic report from 2004 illustrates that the poor and middle class would pay much more under a national sales tax (the so-called “Fair Tax”) in every state. (State-by-state figures are included in the report.)

Unfairness is not the only problem. Proponents of a national sales tax vastly understate what the sales tax rate would have to be in order to replace the revenue collected under the current federal tax system. As the ITEP report explains, sales-tax proponents’ convoluted claim that the national sales tax rate would be 23 percent instead of 30 percent is only the beginning of the distortions. To truly raise as much revenue as the current federal tax system, the theoretical rate would have to be between 45 and 53 percent. And because such a high rate would encourage cheating, the real rate would have to be higher still.

Sales-tax advocates sometimes try to make their plan look less regressive by focusing on the taxes people pay over their entire lifetimes. Professor Laurence Kotlikoff of Boston University used this technique during his testimony before the Ways and Means Committee to argue that the “Fair Tax” can be progressive! The non-partisan Congressional Research Service notes however that the use these sorts of “highly stylized life cycle models” is actually rather controversial.

Kotlikoff seems to be arguing that because everyone is going to use their income for consumption sooner or later, then a tax on consumption is not inherently any more regressive than a tax on income. A flat 30 percent tax applied to spending, he asserts, would have the same effect as a flat 23 percent tax applied to income over the course of someone’s life. Adding the rebate included in the Fair Tax proposal, Kotlikoff and other proponents claim, makes it progressive.

Here’s why this argument is all wrong. First, rich people don’t eventually use all of their income for consumption but leave a great deal of it to others after they die.

Second, a flat 23 percent tax on income would, of course, be more regressive than our current system, which taxes poor and middle-income people at rates below that and rich people at rates above that.

Third, the rebates included in the Fair Tax would not be enough to offset this regressive impact since the current income tax provides negative taxes for many low-income families.

Other advocates of a national sales tax have made even wilder arguments, like the claim that retail prices will somehow not rise even when the new national sales tax is included in the price, or the claim that the IRS would become unnecessary because states would voluntary collect the tax and remit it to the federal government. (This sounds a lot like the failed Articles of Confederacy, which were replaced by the U.S. Constitution in order to give the federal government the power to raise revenues on its own, rather than relying on voluntary contributions by the states.)

Many of the pro-sales-tax arguments were cogently refuted in testimony given by Bruce Bartlett, a former Reagan administration official. Bartlett has written a great deal about the Fair Tax and its history, starting with the original sales-tax proposal by the Church of Scientology.

Photo via John Beagle & Chasing Fun Creative Commons Attribution License 2.0

On Tuesday night, the House of Representatives passed the Cut, Cap, and Balance Act (CCBA), which would cap spending at levels set forth in the Ryan budget and allow an increase in the debt ceiling only after the adoption of a constitutional amendment severely restricting future budget and tax measures.

The balanced budget amendment required as a precondition to the debt ceiling increase would be even more extreme than previous incarnations. It would limit spending to about 16.7 percent of gross domestic product and require a two-thirds majority for any increase in revenue, in addition of course to requiring that government spending equal government revenue.

Although the CCBA passed with 234 votes, the tally signaled that the ultimate adoption of a balanced budget amendment in the House is unlikely. A constitutional amendment would require a two-thirds vote to be adopted, and that’s 56 more votes than CCBA received.

A less extreme amendment received 300 votes in 1995.

Fortunately, the CCBA faces “ stiff opposition” in the Senate, where it is unlikely to pass at all. (Update: The CCBA was defeated in the Senate a 51-46 vote.)

President Obama has threatened to veto the CCBA if it passes the Senate and labeled the measure an attempt to “ duck, dodge, and dismantle.” Nine of the Republican presidential candidates, including current frontrunner Mitt Romney, support the CCBA.

The Center on Budget and Policy Priorities has blasted the balanced budget amendment called for by the CCBA, noting how it would tie the hands of lawmakers to react to changing economic conditions. Five Nobel Laureate economists voiced their opposition to the amendment in a letter to the President and Congress.

The radical spending cap provision would force draconian cuts to essential government programs like Medicare and Social Security, which main stream economists believe would reduce consumer demand and make it far more difficult to create jobs. The amendment would require nearly $9 trillion in cuts over 10 years, which goes well beyond the extreme measures of the infamous Ryan budget.

The proposed amendment would be so damaging that over 240 national organizations have come together to oppose it.

Even the Wall Street Journal editorial page, well known for its extremism and willingness to disregard the facts to support spending and tax cuts, opposes the BBA. The paper notes that not even Ronald Reagan’s policies would have passed muster under the radically stringent amendment.

Former Republican Senator Judd Gregg summed up the debate over the CCBA perfectly, writing, “Lord save us from the well intentioned and those who are trying to score political points or raise money” by pursing this form of “conservative misdirection.”

Photo via Speaker Boehner Creative Commons Attribution License 2.0

Last Wednesday, the House Judiciary Committee approved H.J.Res 1, the newest incarnation of the potentially disastrous balanced-budget amendment. As passed out of committee, the balanced-budget amendment is more extreme than versions proposed in the past, as it would not only require that government outlays equal receipts, but would also limit spending to about 16.7 percent of gross domestic product and require a 2/3’s majority for any increase in revenue.

In its comprehensive rebuke of the balanced-budget amendment, the Center on Budget and Priorities (CBPP) explains that the amendment has potential for “serious economic harm,” as it would force cuts in automatic stabilizers like unemployment insurance during recessions when they are needed most. It’s precisely for this reason that more than 1,000 economists, including 11 Nobel laureates, signed a statement in 1997 opposing the balanced-budget amendment that Congress nearly approved that year.

The spending cap would require catastrophic cuts to government services even when the country is economically prosperous. The amendment would cut spending to 18 percent of the previous year’s GDP, which is typically about 16.7 percent of the current year’s GDP.

As CBPP explains, the required cuts would go well beyond those in Rep. Paul Ryan’s plan and be more on the scale of the much more extreme Republican Study Committee’s plan, which includes cutting in half the Medicaid, Supplemental Nutrition Assistance Program (SNAP, formerly food stamps), and Supplemental Security Income programs, just to name a few, on top of dramatic cuts to Medicare and Social Security.

Fortunately, passage of the amendment is no easy task. It requires a 2/3’s majority of both chambers of Congress and ratification by 3/4’s of the states. A test vote in the Senate on a resolution expressing support of a balanced-budget amendment in March garnered only 58 of the 67 votes required, showing that proponents of the amendment may have an uphill fight. On the other hand, the 1997 amendment came within one vote of approval in the Senate.

Radical anti-tax and Tea Party groups believe they can change this equation by pushing the amendment as part of their new “Cut, Cap, Balance” plan, which calls on lawmakers to require the passage of the amendment as a condition for increasing the debt ceiling. In fact, conservative groups are pushing Congressional Republican’s to hold off having a vote on the amendment, knowing that the threat of the debt ceiling vote is their best opportunity to pass it.

Lawmakers need to stand up to these groups who are attempting to hold our economy hostage (by not raising the debt ceiling) in order to pass a radical budget amendment as a Trojan Horse for draconian service cuts.

Former Republican Senator Judd Gregg recently commented, “Lord save us from the well intentioned and those who are trying to score political points or raise money” by pursing this form of “conservative misdirection.”

On Wednesday, May 25, Senator Kent Conrad, chairman of the Senate Budget Committee, delivered comments on the Senate floor about the budget, the deficit and why he rejects the House budget plan from Rep. Paul Ryan.

Senator Conrad cited new figures from Citizens for Tax Justice showing that taxpayers with income exceeding a million dollars would enjoy an average tax cut of at least $192,500 in 2013 if Congressman Paul Ryan's budget plan was enacted. Taxpayers with income exceeding $10 million in 2013 would get an average tax cut of at least $1,450,650 under the Ryan plan.

Conrad explains the obvious math that a deficit problem isn't solved by reducing revenues, and that it especially makes no sense to reduce revenues by cutting taxes for the super rich. His graphic illustrates the analysis CTJ provided. The Senate ulitmately voted against the House plan 57-40.

Watch Senator Conrad's remarks below:

Any rational proposal to balance the federal budget would rely on a mix of spending reductions and revenue increases. But, as explained in a new CTJ report, the House Republican budget plan relies on draconian spending cuts and actually reduces revenue.

The plan is motivated not by a desire to balance the budget but rather by the ideological goal of reducing the size of government to something that would be unrecognizable to Americans today.

The plan’s author, House Budget Committee Chairman Paul Ryan, is intentionally vague about his plans to overhaul the tax system. That may be because his previous attempt to explain how he would reduce the top income tax rate to 25 percent made it clear that the result would be a big tax increase for all income groups except the richest ten percent.

Read the report.

While attending the second annual 9/12 Tea Party rally in Washington, one could not escape the focus by speakers and participants on tax policy. If there was one overarching theme of the rally, it was that the Obama Administration has sought to dramatically increase the size of the federal government by proposing and enacting dramatic increases in taxes and government spending. (For a reality check, remember that President Obama cut taxes for 98 percent of working Americans last year, proposes to leave the Bush tax cuts in place for 98 percent of taxpayers this year, and enacted a health care reform that reduces the deficit.)

What Tea Party rally attendees support is awfully murky, but what they oppose is clearer. They are against the healthcare reform, the bailouts, the recovery act that created so many jobs, cap and trade, and allowing any of the Bush tax cuts to expire. This opposition was taken to an extreme by some of the individual Tea Party attendees whose signs argued that allowing the tax cuts to expire is equivalent to sexually abusing children or that Obama’s expansion of government made him comparable to Hitler, the Soviet Union, or just a plain old socialist.

Deftly mirroring the anger of the crowd, Rep. Mike Pence (R - IN) elicited enormous cheers saying that “No American should face a tax increase in January, not one. We will not compromise our economy to accommodate the class warfare rhetoric of the American left or of this Administration.” In reality, it's the possibility of a Republican filibuster of President Obama's tax plan that might lead to all Americans having more income taxes withheld from their paychecks starting in January.

The disconnect from reality doesn't end there. The anti-tax rhetoric was not followed by substantive and fundamental calls for equally large decreases in government spending. There were no signs or speakers calling for the enormous cuts to Medicare, Social Security, or Medicaid that would be required to make lower taxes possible. There was certainly no articulation of what cuts would be needed to make up for the $700 billion in lost revenue if the Bush tax cuts for the wealthiest Americans were extended.

The sponsors and speakers of the rally also promoted extremely regressive and radical changes to the tax system. Freedom Works, the chief sponsor of the event, advocates replacing the current system with a single flat rate income tax, which was promoted by its representatives who spoke at the rally. In addition, several speakers also alluded to the need for a single national sales tax, which is also known as the "Fair Tax," to "fix" our tax system. Echoing both sentiments without specifying one over the other, the Tea Party-backed “Contract From America” states that the current tax system should be replaced with a single rate tax set forth in a law that is not longer than the Constitution.

As Citizens for Tax Justice demonstrated over and over and over again in the 1990’s, the single rate flat income tax proposed by Dick Armey (the leader of Freedom Works) would dramatically raise taxes on all but the richest Americans while also massively increasing deficits unless the single rate was much higher than proposed.

Similarly, the Institute on Taxation and Economic Policy showed in its 2004 analysis of the "Fair Tax" that it would actually increase taxes by an average of $3,200, or roughly 50%, for the average individual in the bottom 80% of income earners. In addition, in order to raise the amount of revenue currently being spent, the rate would have to be between 45% and 53%, rather than the 23% that flat tax supporters advocate.

While calls for the flat or "fair" tax incited some excitement, the crowd seemed more enthusiastic about basic calls for lower taxes or a simpler tax system rather than the radical tax changes advocated by the rally’s sponsors.

In both opposing President Obama’s policies and advocating for a regressive tax overhaul, the Tea Party leaders are attempting to get away with promising lower taxes and better government without facing the real consequences of specific policies.

On Tuesday, CTJ participated in a press conference with reporters, along with House Majority Leader Steny Hoyer and the Center for American Progress, to discuss the House Republican Study Committee's so-called "Economic Freedom Act," H.R. 5029. Afterwards, CTJ was  misquoted as saying Congress would be "spinning its wheels" if it enacted this bill. What CTJ actually said, and what its new report on H.R. 5029 concludes, is much harsher than that.

The report finds that the plan would cost $7 trillion over a decade. If one adds the cost of extending the Bush tax cuts (which the sponsors of this plan clearly support) the cost would come to around $10 trillion over a decade. By the second year it's in effect, about 62 percent of the benefits would go to the richest 1 percent of taxpayers, and about three fourths would go to the richest 5 percent.

Read the report.

Arlen Specter, a long-time U.S. Senator for Pennsylvania who recently switched from the Republican party to the Democratic party, lost his primary battle on Tuesday against Representative Joe Sestak.

Since 1995, Senator Specter introduced legislation to create a federal “flat tax” in every session of Congress, including this session.  This single-rate tax would replace the existing progressive personal income tax, as well as the corporate income tax and estate tax.

A recent report from Citizens for Tax Justice found that Specter's proposal would cut taxes for the richest five percent of taxpayers and raise taxes for everyone else.

The Specter plan was based on the “Flat Tax,” first proposed in a 1983 book by Robert Hall and Alvin Rabushka. The Flat-Tax authors wrote that it “will be a tremendous boon to the economic elite” and also admitted that “it is an obvious mathematical law that lower taxes on the successful will have to be made up by higher taxes on average people.”

Sestak will go on to face Republican Pat Toomey, a former Representative and a former president of the right-wing Club for Growth.

Former President Bill Clinton Endorses Regressive US National Sales Tax at Billionaire’s Conference, Recites Bogus Claim about Sales Tax Helping US Trade

Former President Bill Clinton recently endorsed enactment of a regressive U.S. national sales tax — a.k.a. a value-added tax or VAT. In doing so, he parroted a long-discredited argument that a sales tax would curb imports into the United State and encourage exports.

Clinton made his remarks in an interview at an April 28, 2010 conference sponsored by the Peterson Institute for International Economics, one of many organizations founded by Peter G. Peterson, a billionaire investment banker who has long advocated big cuts in Social Security and lower taxes on capital gains (i.e., on himself).

According to Clinton, “the one thing that blue collar America should like about [a sales tax] is it’s good for exports and it in effect, it doesn’t allow quite so much subsidy of imports — when other countries subsidize their production for export at least they get slapped with a value-added tax when it comes in here.”

Clinton seems to have failed to notice a critical flaw in his argument.

It’s true, as Clinton says, that American consumers would pay a U.S. national sales tax when they buy imported products. But that’s no help to U.S. manufacturers. After all, Americans would have to pay the same sales tax when they buy products made in the USA. How does that give an advantage to U.S.-made goods?

As for exports from the U.S., well, obviously Americans wouldn’t pay a U.S. sales tax on products sold abroad (i.e., Americans won’t be taxed on products they don’t buy). But that doesn’t help U.S. exports. How could it? (Meanwhile, foreign customers pay whatever sales taxes their own governments impose, whether the products are American-made, made in their own countries, or elsewhere.)

The bottom line is that a national sales tax would have no effect, positive or negative, on U.S. exports or imports.

As the congressional Joint Committee on Taxation put it in a report back in 1991, “even though imports are subject to tax, U.S. buyers’ choice between imported and domestically produced [goods] is not altered. Similarly, foreign consumers’ choice between goods produced in the U.S. and goods produced in their own country is not altered even though U.S.-produced goods [aren’t subject to U.S. sales tax] when exported.”

Think of it this way: Chinese companies export hundreds of billions of dollars a year in products to the United States. If the products are sold in California, customers will pay a sales tax of as much as 10 percent. Of course, they’ll pay the same sales tax if they buy products made in the United States. Conversely, Delaware has no sales tax, so Delaware customers pay no sales tax on either Chinese or American products. Is California at a competitive advantage versus Delaware because it has a steep sales tax? Of course not.

Everyone agrees that a national sales tax, like state and local sales taxes, would be hugely regressive, hitting the poor and the middle class hard, and the rich very lightly. Clinton knows this, and he does vaguely suggest implausible “adjustments in the other tax bills to make it — to keep the progressivity of our tax system.” But ultimately, his message to middle- and low-income Americans is simple and harsh: suck it up. “It’s a big leap,” Clinton said. “But if you look at it, people in Europe — just like any other sales tax — they just get used to payin’ it.”

By the way, in the same report cited above, the Joint Committee on Taxation noted that “providing a realistic number of employees to administer a U.S. VAT could mean a near-doubling of the size of the IRS.” That’s an extraordinary amount of added paperwork, complexity and bureaucracy. For what? A more regressive tax system?

We don’t need and shouldn’t tolerate a new and grossly unfair sales tax, whose alleged benefits to U.S. trade are nonexistent. Instead, we should attack the budget deficit by making our tax system fairer, in particular by closing unwarranted and hugely costly income tax loopholes that unjustly favor big corporations and the wealthy. Bill Clinton ought to know better.

It's difficult to design a tax plan that will lose $2 trillion over a decade even while requiring 90 percent of taxpayers to pay more. But Congressman Paul Ryan has met that daunting challenge. A new CTJ report shows that Congressman Ryan's budget plan has nothing to do with balancing the budget, but has everything to do with creating a tax system that takes more from the poor and less from the rich.

If the extensive tax proposals in his plan were fully in effect in 2011:

• The federal government would collect $183 billion less in 2011 and more than $2 trillion less over a decade than it would if Congress adopted President Obama's tax proposals.
  
  
• Federal taxes would be lower for the richest ten percent, and higher for all other income groups, than they would be if President Obama's proposals were enacted.
  
  
• The bottom 80 percent of taxpayers would pay about $1,700 more, on average, than they would if President Obama's proposals were enacted.
  
  
• The richest one percent would pay about $211,300 less on average than they would if President Obama's proposals were enacted.
  
  
• The poorest 20 percent would pay 12.3 percent of their income more than what they would pay under the President's proposal, while the richest one percent would pay 15 percent of their income less than they would pay under the President's proposal.

Read the report.

Citizens for Tax Justice has a new report on the "flat tax" proposal introduced in each session of Congress since 1995 by Senator Arlen Specter of Pennsylvania. This single-rate tax would replace the existing progressive personal income tax, as well as the corporate income tax and estate tax.

The Specter plan is based on the “Flat Tax” first proposed in a 1983 book by Robert Hall and Alvin Rabushka. The Flat-Tax authors wrote that it “will be a tremendous boon to the economic elite” and also admitted that “it is an obvious mathematical law that lower taxes on the successful will have to be made up by higher taxes on average people.”

Our analysis of the Specter plan confirms this is true. We find that Senator Specter’s flat tax will result in:

- Enormous tax cuts for the richest five percent of taxpayers, including an average tax cut of $209,562 for the richest one percent in 2010.

- Tax hikes for all other income groups. The bottom 95 percent of taxpayers would pay an average of $2,887 more in federal taxes in 2010.

- Low-income Americans would lose the refundable credits that they receive under the current income tax.

- The form of income that mostly flows to the wealthy — investment income — would be exempt from the personal income component of the flat tax, while all compensation for work, including wages and even employer-provided health care benefits, would be taxed.

- There would be little simplification in taxes for the majority of Americans.

Read the report.

When anti-tax activists and lawmakers complain that Congress and the President are pursuing policies that will cause taxes to be too high, the first question anyone should ask is: Compared to what? What exactly is the alternative to allowing the Bush tax cuts to end (at least for the rich) and finding new ways to raise revenue?

This week the House GOP showed us what the alternative is and it's frightening. On Wednesday, the ranking Republican on the U.S. House of Representatives' Budget Committee, Congressman Paul Ryan (R-Wisc.), released a budget plan which he argues is a more fiscally responsible alternative to the budget outline proposed by President Obama and the similar budget resolutions approved by both chambers last night. His proposal is apparently an update of the plan that House GOP leaders introduced last week and is different in some key respects.

The revised House GOP budget plan would move towards cutting and privatizing Medicare, convert Medicaid into limited block grants to states, and even cut Social Security benefits for some retirees. The plan would deeply cut the relatively small amount of government spending devoted to non-military, non-mandatory programs by refusing to adjust the budgets of these programs for inflation and population growth for five years. The House GOP plan would repeal the recently enacted economic stimulus law (the American Recovery and Reinvestment Act of 2009, or ARRA) a year before its expiration at the end of 2010.

A report from Citizens for Tax Justice compares the income tax proposals in the House GOP plan to the income tax proposals in the House Democratic plan in 2010, and finds that:

• Over a third of taxpayers, mostly low- and middle-income families, would pay more in taxes under the House GOP plan than they would under the House Democratic plan in 2010.
• The richest one percent of taxpayers would pay $75,000 less, on average, in income taxes under the House GOP plan than they would under the Democratic plan in 2010.
• The income tax proposals in the House GOP plan, which is presented as a fiscally responsible alternative to the Democratic plan, would cost over $225 billion more than the Democratic plan's income tax policies in 2010 alone.

Read the report.