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Ben Cardin (D – Maryland), a member of the Senate Finance Committee, has released an updated version of his Progressive Consumption Tax Act (PCTA), which would introduce a 10 percent value-added tax (VAT) in the United States while also cutting both individual and corporate income taxation.
Cardin first released the PCTA in 2014, and its re-release coincides with the increased talk of policies for US tax reform next year. He has noted how "many policymakers, including in Congress, have become increasingly interested in moving to a border-adjustable consumption tax base." After further comments from stakeholders and a revenue analysis from the Joint Committee on Taxation, he envisages reintroducing the PCTA in the next, 115th Congress.
"Credible tax reform is critical to America's economic competitiveness. Every other developed country in the world, including all other Organisation for Economic Cooperation and Development countries, has a consumption tax," Cardin said, "The PCTA puts this country on a competitive playing field with other nations by providing for a broad-based progressive consumption tax (PCT), at a rate of 10 percent."
The PCT would require businesses to collect consumption tax imposed on the goods and services they sell or distribute, and claim a credit for the consumption tax they previously paid on inputs.
Possible complaints that such a system is regressive would be dealt with through a PCT rebate, and important benefits would be retained in a much simpler income tax code. The PCTA's income tax exemptions would be set at USD100,000 for joint filers, USD50,000 for single filers, and USD75,000 for head of household filers, and indexed for inflation.
The top marginal individual income tax rate, applying to taxable income over USD500,000 for joint filers, would be 28 percent versus the current top marginal rate (applying to taxable income over approximately USD450,000 for joint filers) of 39.6 percent.
Four significant tax benefits would remain: the charitable contribution deduction, the state and local tax deduction, health and retirement benefits, and the mortgage interest deduction. Individuals and families who do not have an income tax liability would still be able to receive tax rebates, as with the present earned income tax credit and child tax credit.
In addition, it was suggested that it would be possible to reduce the headline US corporate rate by more than half, from 35 percent to 17 percent.
Finally, to counter claims that a PCT would allow future US Governments to raise taxes too easily and without adequate transparency, the PCTA contains a revenue circuit breaker tied to US gross domestic product to set reasonable limits on the amount of income generated by the new tax. It would return any surplus from the PCT to taxpayers when revenues exceed the predetermined levels.
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