FOR IMMEDIATE RELEASE September 23, 2004

CONTACT: Brendan Daly/Jennifer Crider 202-226-7616

Pelosi: ‘National Sales Tax Would be Burden for Middle Class Americans, But Boon for the Wealthy’

Washington, D.C. -- House Democratic Leader Nancy Pelosi held a news conference in the Capitol this afternoon with Congressmen Charles Rangel of New York, and John Spratt and James Clyburn, both of South Carolina, to denounce a Republican plan for a national sales tax.   Below are Pelosi’s remarks and a fact sheet about the proposal:

“Today, we are here to highlight one of the many clear contrasts between Democrats and Republicans:  Republicans want to undermine our American values of prosperity and fairness with a new national sales tax of at least 30 percent and as high as 50 percent or more on all goods, including homes and cars.

“A national sales tax would be a burden for middle class Americans, but a boon for the wealthy.  Families with children would lose their current tax deductions, and seniors would essentially be taxed twice. 

“This proposal is ludicrous and should be dismissed outright. Yet Speaker Hastert wrote about the national sales tax and the flat tax in his new book, saying ‘both of these ideas are worthy of consideration.’  And Majority Leader Tom DeLay is co-sponsoring the bill, and has said: ‘It is high time the debate about the flat tax and a national consumption tax moved out of Washington think tanks and into American living rooms.  That's why I have signedon to Congressman John Linder's proposal to scrap the current tax code altogether and replace it with a national sales tax.’

“The Republican plan would make it harder for middleclass families to make ends meet.  A national sales tax would undermine the American value of prosperity.  For example, cars that cost $20,000 would cost an additional $6,000 under this proposal.  Just wait until the car dealers hear about this proposal. Prescription drugs that cost $100 would now cost $130.   New homes, insurance premiums, brokerage fees, and gasoline would all be heavily taxed to replace revenue brought in by the current tax system.

“It would wipe out our system of progressive taxation.  A national sales tax would undermine the American value of fairness.

“The American people should be aware that the Republicans’ primary tax agenda is a new national sales tax.”

The Republican Plan to Raise Taxes on the Middle Class

All over the country, middle class Americans are being squeezed byRepublican policies that have lost 1.7 million private sector jobs; allowed the price of health care, education, and gas to skyrocket; and created record deficits.  Now Republicans are proposing a new national sales tax that would increase taxes for the typical middle class by about 50 percent.  Democrats know that approach is wrong.  Instead of raising taxes on the middle class, Democrats have pledged to promote prosperity and fairness by enacting middle class tax relief, creating new jobs, and eliminating tax loopholes so all Americans pay their fair share. 

GOP SALES TAX HIKES A FAMILY’S TAX BURDEN BY 50 PERCENT

The new GOP national sales tax would replace all personal and corporate income taxes, Social Security, Medicare, and payroll taxes, and gift and estate taxes with a new national sales tax on goods like groceries, clothing, new home sales and apartment rents, and health care services.  This new GOP tax would be applied on top of existing state sales taxes.  This proposal would increase taxes by about $3,200 a year for 80 percent of taxpayers, and potentially more for some families.    

MIDDLE CLASS FAMILIES SQUEEZED AGAIN

Families with children.  Families with children are hit the hardest, as this proposal would eliminate all the current law tax benefits for these families, including the child tax credit.  A middle class family with four children with a combined income of $65,000 would face an increase of more than $5,000 in their tax liability. 

New homeowners.  The Republican tax hike proposal would eliminate the tax deduction that families get on their home mortgages and apply this new sales percent tax to the cost of a home.  If a family buys a new house listed for $150,000, the new tax brings the actual purchase price to $195,000. 

Jump in property taxes.  The Republican sales tax hike would require states to send an additional $300 billion to the federal government in sales taxes – a tax increase that states would immediately pass on to residents.  Arkansas, Delaware, Kentucky, Hawaii, and New Jersey could all see property tax increases higher than 400 percent.  The lowest state property tax hike possible – in New Hampshire – would still be more than 70 percent.

Gas and electricity.  The average family would pay an additional 60 cents a gallon for gasoline – a new tax that will hit families in rural areas particularly hard.  Families with large home heating or cooling bills also will be harmed.

SENIORS FACE NEW TAXES

Beneficiaries pay twice for Social Security and pension benefits. Most Social Security benefits and a portion of pension payments are exempt from income tax.  But this proposal requires seniors to pay the new sales tax – meaning that seniors are now being taxed twice for their Social Security, once when they pay the payroll taxes and again when they pay the sales taxes.

Threaten Solvency of the Medicare Trust Fund.  Medicare would be required to pay the new sales tax as well, forcing the program into insolvency in five years.  If this proposal were enacted, Medicare would run out of funds in 2009.

Undermines pension coverage.  The new GOP sales tax hike would reduce the incentives employers currently get for offering their employees a pension plan.  The American Academy of Actuaries has concluded that “pension plans would quickly diminish in number and size and gradually disappear” if a consumption tax, such as the national sales tax were enacted as a substitute to the current income tax. 

“ Democrats are united in presenting a New Direction for America, one that will make our nation as strong as its people, one that brings opportunity, security, and prosperity to all Americans. ”

Democratic Leader Nancy Pelosi