WASHINGTON -- After years of advocating for an overhaul of the nation's tax code, Sen. Ben Cardin took a tentative first step toward that goal on Thursday by introducing legislation to replace much of the current income tax with what he calls a "progressive consumption tax."
The Maryland Democrat, a member of the Senate Finance Committee, is floating the tax bill as lawmakers consider a re-write of U.S. tax laws in the next Congress -- an idea that both President Barack Obama and House Speaker John Boehner have called a priority.
Cardin's proposal is broadly similar to the value-added tax paid in many other countries -- a tax on the increased value of a product at each stage of its production. The bill sets a rate of taxation at 10 percent, though Cardin acknowledges that figure could change.
"America is at a competitive disadvantage," Cardin said in an interview, adding that about 150 other countries use a similar tax. "The appetitive for tax reform is pretty strong. My proposal will, I think, help that debate."
With days left in the current congressional calendar, Cardin's bill will go nowhere this year. That's not the point. The measure is intended to be a discussion draft, to open a dialogue about the merits of the idea and to begin to flush out how much revenue various rates would raise.
Cardin will re-introduce the measure next year.
Under Cardin's plan, the new tax would lead to the elimination of income tax on the first $100,000 in income for joint filers, or $50,000 for individual filers. After that, the measure sets three marginal brackets at 15 percent, 25 percent and 28 percent. As introduced, the bill would set the corporate tax rate at 17 percent -- roughly half the current rate.
Cardin said his goal is to at least maintain the current progressivity in the tax code. In addition to the income tax exemption, the plan would offer rebates to low income families.
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But the proposal is such a significant change that it's likely to make lawmakers on both sides of the aisle nervous. It also has real opposition from groups that are prone to describing it as a "European-style" value-added tax.
"The VAT proposal, which would add an additional 10 percent tax on all goods and services, would adversely impact the nation's retailers, Maryland's Main Street merchants and American consumers at a time when the economy is finally shifting into higher gear," said Stephen E. Schatz, Sr., a spokesman for the National Retail Federation.
"This is a non-starter," he said.
Cardin has acknowledged such a significant change for individuals and corporations remains a long shot, even with the bipartisan momentum over the past several years to reform a tax code that members of both parties say is flawed. Four years ago, the Senate voted 85-13 against a non-binding resolution intended to gauge support for a VAT.
Conservatives have long argued the tax is little more than a way of squeezing more money into federal coffers. When he last discussed the idea last year, Cardin acknowledged the idea is intended to raise revenue "over and above what we have today."
But, as answer to that, Cardin's proposal includes a "circuit breaker" provision that would rebate excess revenue to taxpayers if the amount of taxes collected grows too quickly in a given year.
"This now gives us a vehicle to get scored and a vehicle for people to make specific comments about," Cardin said of the idea. "It's our hope that people will take advantage of it."