Progressive Proposal Offers One Take on Tax Reform

“Rather than taxing income, the Progressive Consumption Tax would generate reasonable revenue by taxing the purchase of goods and services,” suggests Senator Ben Cardin. 

U.S. Senator Ben Cardin (D-Maryland), a member of the Senate Finance Committee, has reintroduced legislation that would eliminate income tax liability for most Americans and reduce corporate income tax rate to one of the lowest among industrialized nations.

While Cardin’s party remains in the minority in Congress, the senator says his proposal is structured in a way that can agree with both Democrats and Republicans. And it better be, because Cardin’s bill, known as “SB 3529” or the “Progressive Consumption Tax Act (PCTA),” is quite ambitious. It would fundamentally change the way the federal government raises revenue.

“Rather than taxing income, the Progressive Consumption Tax (PCT) generates reasonable revenue by taxing the purchase of goods and services,” he explains. “Designed to be at least as progressive as today’s tax system, low- and middle-income families would be protected from unfair consumption taxation through a rebate, and important benefits would be retained in a much simpler income tax code.”

Cardin adds that a “revenue circuit breaker,” tied to gross domestic product (GDP), is built into the proposed system to “set reasonable limits on the amount of income generated by the new progressive consumption tax.”

According to Cardin, since the original introduction of the Progressive Consumption Tax Act in 2014, many policymakers, including in Congress, have become increasingly interested in moving to a border-adjustable consumption tax base.

“Our tax code should be fair for families and employers. It should help make American-based businesses more competitive and our nation’s economy stronger. And it should provide a way to responsibly and reliably collect reasonable revenues. Our current, 1980s-style tax code simply cannot accomplish these goals,” he argues.

According to Cardin, the PCT is “not simply an add-on tax.” The revenues generated by the new system would be used to eliminate an income tax liability for most American households.  The proposal’s income tax exemptions, called “family allowances,” are set at $100,000 for joint filers, $50,000 for single filers, and $75,000 for head of household filers.  The family allowances are indexed for inflation.

“Those who do still have an income tax liability would see a much simplified income tax with their marginal rates reduced—the top marginal individual income tax rate, applying to taxable income over $500,000 for joint filers, would be 28% versus the current top marginal rate (applying to taxable income over approximately $450,000 for joint filers) of 39.6%,” Cardin suggests. “Four important tax benefits remain: (1) the charitable contribution deduction; (2) the state and local tax deduction; (3) health and retirement benefits; (4) the mortgage interest deduction.”

In any case, the progress tax proposal comes at a time of deep uncertainty when it comes to the short-term prospects for tax reform. While Republicans technically control both the White House and Congress, it remains to be seen how the unconventional political style of President-Elect Donald Trump will impact the actual processes of governing according to a traditional Republican agenda. 

The text of SB 3529 can be found here.