If, for example, a 3% sales tax on all goods and services would yield enough revenue to cover the cost of 10% cut in all personal income tax rates, halving the corporate tax, and ending the death tax for good, would you applaud or boo? What if a 5% federal sales tax allowed all of that and for the retirement of the debt over a reasonable period of years?
Because incentives impact behaviors, the move from a tax on income to one on consumption would of course increase the former and decrease the latter. Opponents of a federal sales tax fear that Democrats would simply impose a sales tax in addition to high marginal rates on income, but that is a political fear not an economic argument. The key question for the committee is what is the best approach right now, not the best approach considering the political debates of the next generation.
While going about their big think on the economy, the Super Committee would also be well advised to look at the retirement savings system and the wisdom of keeping the seven trillion in assets tucked away, arbitrarily restricted in their uses. Americans can use their retirement accounts to buy stocks and bonds, but not houses and only rarely businesses. Allowing penalty- and tax-free use of these assets to pay off mortgage debt would assist in ending the foreclosure bulge by allowing the deployment of personal savings to protect most Americans' biggest assets.
Other areas of potentially breakthrough innovation are open to the Super Committee but time is short. There really is a chance to fix Social Security, Medicare and Medicaid, protect the national security and unleash American productivity and innovation, but all the usual suspects will be urging higher tax rates as the only solution.
Pray that the Super Committee doesn't blow it's unique opportunity to make a new start, one that encourages growth for every American rather than pitting rich against poor.
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