Greenspan Supports National Consumption Tax

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Federal Reserve chairman Alan Greenspan expressed support for simplifying the federal tax system by replacing it with a national consumption tax in comments he made yesterday before the President's Advisory Panel on Federal Tax Reform.


President Bush has made an overhaul of the federal tax system one of his top second-term goals. He appointed the advisory panel in January to explore various tax reform options including a national retail sales tax and a value-added tax.


A proposal before Congress -- H.R. 25, the Fair Tax Act -- calls for a national retail sales tax that would add 30 percent or more to the cost of retail merchandise as well as a wide range of goods and services currently not subject to sales tax, such as new home sales, healthcare and prescription drugs. Rep. John Linder, R-GA, sponsored the proposal.


In addition to simplifying the system, Greenspan said, a consumption tax might encourage people to save. However, Democrats have expressed concern that a consumption tax would hurt low-income Americans.


The Direct Marketing Association is "monitoring the situation," according to DMA spokesman Louis Mastria.


"We'll be looking at what potential unintended consequences might come out of a system change like this," said Mastria.


In a prepared statement, the National Retail Federation expressed its concern over how a national sales tax might affect the economy.


"Under the proposed national sales tax rate of 30 percent at the cash register, consumers would simply stop spending on anything but the barest necessities for a prolonged period of time," said Steve Pfister, NRF senior vice president for government relations.


Chantal Todé covers catalog and retail news and BTB marketing for DM News and DM News.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters


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