There is quite a bit of talk, shutdown debacles and credit downgrades surrounding the issue of national debt – even at the expense of any meaningful discourse on what to do about the unemployment rate. Given that climate, most would then assume that cats in Congress would be banging on Rep. Chaka Fattah’s (D-PA) Rayburn House Office Building door. Debt appears to consume every conversation in Washington these days, with politicians on both sides of the aisle refusing to budge on any major piece of policy unless a debt or deficit reduction package is attached to it.
One would think Fattah’s Debt Free America Act legislation would be the key.
Yet, with Congress’ new Debt Super Committee locked in mysterious huddle over how to manage it, few ideas are finding any traction as both debt and deficit balloon. Still, the Republican majority in Congress – dominated by conservatives who cringe at anything with a tax on it like kryptonite – is laser-focused on debt reduction as the rationale behind every program cut.
Enter Fattah’s concept still fighting off the dust of inconsideration since 2004.
Eliminate the federal income tax and replace it with a seemingly modest 1 percent tax on every financial transaction. Fattah describes it as a “user fee” for utilizing the economy. His contention is that the national economy shifts $900 trillion annually (yes – two zeroes), much of that wrapped up in financial transfers and sales. Every time there is a major transaction, one large company purchasing another one (such as, for example, Texas Instruments recent $6.5 billion transaction of National Semiconductor), money cats will have to pony up to the federal government in the form of a 1 percent tax.
“Right now, the federal government gets zero on that transaction,” claims Fattah “Even though it’s a substantial transaction requiring the use of government services. It’s only fair that we apply a user’s fee to it. We have a user fee for most everything else.”
Ultimately, after charging a 1 percent transaction tax on so many accumulated transactions, Fattah argues that you can easily pay down the $14 trillion national debt in about a decade.
Seems simple and forward-thinking, right?
Perhaps the problem for many is that it’s too good to be true. Fattah’s proposal gets the gas face from many conservative or center-right experts who don’t see any merit to it – despite his offer to do away with the federal income tax and the fairly modest nature of 1 percent (with Fattah even willing to put a half-percent tax on the table and taking it as low as 0.5 percent just so he can cut a deal with fiscal skeptics).
“I’m not aware of any serious proposal to study it,” blinked the Cato Institute’s budget expert Tad DeHaven on first glance. “It strikes me a kind of odd.”
“I suspect you’d see fewer “transactions” and thus it wouldn’t procure as much revenue as proponents believe,” offers DeHaven in a surprisingly short rebuke. “Not to mention that it would disrupt and distort financial markets. The fact that he can’t find a cosponsor probably speaks for itself.”
But, without any serious study of the proposal – despite an attempt by Fattah in 2010 to mandate one – how would Congress know that it doesn’t work? Observers say it might be worth a shot considering the lack of any other serious proposals on the table. Economists and tax experts alike have argued, in sync with the lone Congressman from Philly, that the current revenue system is outdated, an antique from a period when the country was transitioning from an agricultural-based economy to big industry. In the digital age of heavily linked globalized economies, many argue it’s time for a do-over.
Even the G-20 economic powerhouses are proposing the transaction tax, with France eyeing it hungrily and hoping for some movement on the concept when the G-20 meets in Cannes this November. In a surprise move that appeared to vindicate Fattah from afar, European Commission President Jose Manuel Barroso was striking a confident tone in a proposal that would apply a 0.1 percent financial transaction tax.
“It’s a question of fairness. It is time for the financial sector to make a contribution back to society,” was Barroso in a televised “State of the European Union” address as Europe was scrambling for a way out of its debt-driven meltdown.
It’s a position the ever effusive West Philadelphia pol and ranking member Fattah finds himself in when pushing long shot legislation through the House: the challenge of a long game. Drawn out and ugly it is these days as he struggles to find votes to push his debt-busting idea.
But, Fattah has a knack for somehow mustering a smiley face spin on a desperate situation. As the connection of his cell phone crumbles in and out along a highway drive to Hershey for a long awaited pitch on his idea to wipe out national debt, the Congressman is restless and gabby. “I introduced Emergency Mortgage Relief legislation way back in, what, 2002, right?” poses Fattah, setting it up like pugnacious rapper eager to take out competition during a freestyle rhyme session. “It passed in 2010.”
“The question of future world leadership is at stake,” says Fattah, who worries that the Super Committee is too focused on the $2 trillion deficit rather than the larger near $15 trillion national debt – much of it borrowed from China. “Here we have a treaty with Taiwan which stipulates that we will defend them if China invades them. But, we’re going to have to borrow money from China to do just that.”
“There’s only one proposal before the Congress that is seriously addressing the debt,” says the Congressman, closing the pitch. “We’re in a whole different ballgame now where we have a lot of global competition. You can’t be the world’s most powerful country, yet be its biggest pan handler at the same time.”