Bush suggests national sales tax

President Bush this week suggested that the United States consider a national sales tax to replace the income tax, reigniting a debate over whether it's better or more fair to tax spending rather than earnings.

In an exchange with a supporter at a campaign event in Florida Tuesday, Bush called a national sales tax "an interesting idea that we ought to explore seriously." With Democratic presidential nominee John F. Kerry criticizing Bush for favoring a new tax on middle class and poor families, the White House yesterday said the president had no plan under consideration.

"The president has always believed in lower taxes and simpler, fairer tax code, and so, generally speaking, he is open to ideas that move us in the direction of a simpler and fairer tax code," White House spokesman Scott McClellan said in a press briefing aboard Air Force One. "But there's nothing more to announce at this time."

The idea of adopting a national sales tax, or other methods to tax consumption, has been kicked around in Washington for the better part of a decade. Congress has studied a variety of ways to simplify the tax code, but radical changes such as national sales tax or flat income tax have not advanced much beyond the idea stage.

And the debate is still going on. House Ways and Means chairman Representative Bill Thomas, a California Republican, said this week the tax writing panel would likely look at a national sales tax as part of a broader examination of alternatives to the current system.

Theoretically, economists say, taxing consumption could mean stronger economic growth and higher standards of living over the long term. Such a system would encourage people to save, which in turn creates more capital to invest in new businesses, products and technology. For example, if consumers have to pay tax on big screen televisions, but none on mutual fund earnings, they're more likely to buy mutual funds.

On the other hand, sales taxes fall most heavily on lower income families, who spend higher proportions of their income than the wealthy and, hence, pay a higher proportion of their income on sales tax. In addition, the sales tax rate needed to generate equivalent revenues of the income tax could be onerous, about 26 percent, according to an analysis by the Brookings Institution, a Washington think tank.

This contrasts with the current progressive income tax which, by assessing higher rates as incomes rise, aims to have the wealthy pay a bigger share.

"You're really talking about different things," said John Silvia, chief economist at Wachovia Corp. in Charlotte, N.C. "A tax system to provide economic growth versus a tax system to encourage more income equality."

Robert Gavin can be reached at rgavin@globe.com. Material from Globe wire services was used in this report.