The Spectacle Blog

Ryan Has No Plans to Drop Consumption Tax Element of “Roadmap,” Spox Says

By on 12.9.10 | 9:14PM

Ryan Ellis, head of tax policy at Americans for Tax Reform, caused a stir earlier this week when he tweeted, "just finished a meeting with (P)aul (R)yan. he authorized me to say that his vat-like biz tax is being phased out of the (R)oadmap."

For those who aren't familiar with the details of Rep. Ryan's "Roadmap for America's Future," one if its elements would be to get rid of the current corporate tax and replace it with an 8.5 percent "business consumption tax" that would be adjusted at the border so it affects imports but not exports. Free market critics of the proposal have argued that it would effectively be a "value added tax," which would be hidden to the average American and a money machine for lawmakers who could simply raise it little by little to finance new government spending.

Ellis had later elaborated on Twitter that Ryan was going to update the "Roadmap" and replace this with a "bold corporate income tax reform" in the new version.

But Conor Sweeney, Ryan's spokesman, described those tweets as an "honest misunderstanding," saying that the incoming chairman of the Budget Committee still stands by the "business consumption tax," but only as part of a broader reform that includes spending cuts and an overhaul of the tax code.

Sweeney explained:

As spending is taxing (and borrowing is taxing our children), Congressman Paul Ryan believes firmly in the need to get a grip on government spending first.  If advanced in isolation, Congressman Ryan has cautioned repeatedly that a new consumption-based tax replacement system could have the adverse effect of giving President Obama and the Democrats a new revenue machine that could be used to grow government.  Pro-growth tax reforms must be preceeded by or accompanied with fundamental entitlement reform to assure Washington does not seek to chase ever-higher government spending with ever-higher taxes.

As part of his reform plan "A Roadmap for America's Future," Congressman Ryan supports a full replacement of the job-killing corporate tax (the second highest in the industrialized world) with a low, competitive, efficient business consumption tax.  Congressman Ryan continues to advocate for pro-growth reforms, working to build consensus on solutions that restart private sector growth and job creation, and restrain the explosive growth of government. 

He also pointed me toward this Fortune interview, in which Paul Ryan said: "I like consumption-based reform as replacement to the current tax system. But I will not support any consumption tax without reforming entitlements.  Otherwise the consumption tax will simply be a new revenue machine to make the revenue line chase the spending line. The key is to get the spending line down, then think about tax reform after spending is under control. The goal should not be to invent a new revenue machine."

The "Roadmap" is likely to be back in the news on Friday, because Sarah Palin has an op-ed in the Wall Street Journal endorsing it, and specifically touting the consumption tax element.

UPDATE: I spoke with Ellis, and he's standing by his story, saying that there was no misunderstanding -- that if anything happened, Paul Ryan didn't adequately communicate his views during the meeting. His account was backed up by Dan Mitchell of Cato, who organized the meeting. Mitchell said that there were a dozen people there from about 10 free market groups, and that everybody came away with the same impression as Ellis. "We all thought that the VAT was dead," he said.

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