Are We About to Pay a 1% National Sales Tax?

I recently wrote a column about a rumored 3.8% tax on all home sales. At the end of that column, I asked readers to forward similar types of email-spread “news” about proposed pending government action.

Following is an email I just received from a reader. It involves a bill introduced this year in Congress. (Note: you don’t have to read the actual text of the bill that Kathy includes in her email unless you want to; I’ll explain it on the other side.) Here’s her entire email:

I have listed part of the HR BILL 4646 below. How is this going to affect everyone in the US?
Kathy

H.R.4646 Debt Free America
This is an excerpt from the text of the bill (status: Introduced in House). Jump to this paragraph in the full text:

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‘SEC. 4501. IMPOSITION OF TRANSACTION FEE.
‘(a) In General- There is hereby imposed on every specified transaction a fee in an amount equal to 1 percent of the amount of such transaction.
‘(b) Specified Transaction- For purposes of this chapter–
‘(1) IN GENERAL- The term ‘specified transaction’ means any transaction that uses a payment instrument, including any check, cash, credit card, transfer of stock, bonds, or other financial instrument.
‘(2) TRANSACTION- The term ‘transaction’ includes retail and wholesale sales, purchases of intermediate goods, and financial and intangible transactions.
‘(c) Liability for Fee- Persons become liable for the fee at the moment the person exercises control over a piece of property or service, regardless of the payment method.
‘(d) Collection- The fees will be collected by the seller or financial institution servicing the transaction and shall be paid over to the Secretary. In the case of a person who fails to collect and pay over the fee as required under this subsection, such person shall become liable for the fee not so collected and paid over.
‘(e) Potential Exclusions- Subsection (a) shall not apply to transactions involving stock (and any options or derivatives with respect to stock) until–
‘(1) such time as the United States enters into an international agreement that regulates domestic and international stock exchanges, or
‘(2) the Secretary issues recommendations regarding the application of the fee as it applies to stock.
‘(f) Regulations- The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance which require reporting of such information as the Secretary determines appropriate to prevent under reporting of the amounts on which a fee is imposed by this section.’.
(b) Clerical Amendment- The table of chapters for the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 36 the following new item:

Here’s your answer, Kathy: This bill, if passed, would have a huge effect on everybody in the United States – what it would do is replace our current federal income tax with what essentially amounts to a 1% national sales tax. And, unlike the 3.8% sales tax I debunked in the other column, this one isn’t innuendo or misstatement – HR 4646 is real.

That being said, HR 4646 will probably never become the law of the land. I found a great explanation of its history at factcheck.org. I’ll take the liberty of cutting and pasting a few paragraphs from their analysis below, but I’d encourage you to read their entire article here – it’s good and appears well-researched.

From factcheck.org:

This is an idea originally floated in 2004 by a single member of Congress, Democratic Rep. Chaka Fattah of Pennsylvania. So far it has attracted little support and gone nowhere. The White House has not endorsed it.

Fattah tried again in 2005, with H.R. 1601, and again in 2007 with H.R. 2130 (which had a single cosponsor, Democratic Rep. Brian Baird of Washington). But both bills died without any action being taken. Last year he introduced a fourth bill to require a study, H.R. 1703, which attracted no cosponsors. That bill is still languishing in committee.

Fattah this year introduced a bill that would establish the fee and repeal the federal income tax. The latest bill is H.R. 4646, introduced on Feb. 23, 2010.

As of Sept. 5, 2010, none of the committees had scheduled any action on it. We spoke to Rep. Fattah about it, and he said he’s hopeful the president’s National Commission on Fiscal Responsibility and Reform will see merit in his proposal. But so far, he said, “No one at the White House has ever commented on this in any fashion.”

While Kathy didn’t suggest this in her email, factcheck.org said that this bill is being circulated via email as proof of a 1% tax that will soon be unfairly burdening Americans – what it fails to mention is that this tax would replace the federal income tax, that those earning less than $250,000 would be exempt from paying it, and most important: it’s not likely to occur at all – introducing something in Congress isn’t the same thing as passing it.

By the way, I’ve done several news stories over the years about replacing income taxes with both sales taxes and flat taxes, proposed by both Democrats and Republicans. If memory serves, the first time was in 1998, then again just a few years ago. It’s an idea that circulates periodically – so far, however, it hasn’t come close to becoming a law.

One more scare-story debunked. Got any more? Send ’em along!

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