WASHINGTON – A once-quiet campaign by several top Republicans to abolish the IRS and replace the federal income tax with a European-style national sales tax has burst into the open, leading President Bush to withhold his blessing of the controversial proposal.

Yet the plan has strong backing within the GOP hierarchy, including House Speaker Dennis Hastert of Illinois, who has become its most visible advocate and said he has plans to push the idea strongly in the next Congress.

The speaker said in an interview that if Bush is re-elected and the GOP keeps control of the House and Senate, there is a “potential” Congress could adopt the plan during the next four years. “I think we ought to have a national debate on this,” Hastert said.

“We have the opportunity if Bush wins and we hold the House of Representatives to really make a change to do this,” he said. “I think we may have one chance in a generation.”

The speaker said he had talked to Bush about his proposal some time ago, “but I don’t think he wanted to get this tied into the campaign.”

Indeed, a plan to abolish the IRS in favor of a national sales tax would have to overcome enormous opposition to become law, and most analysts believe it is unlikely at the moment.

Yet with congressional forces leading the charge, a strange debate has emerged about an idea that had, until earlier this week, lurked in Republican shadows for months.

Hastert and House Majority Leader Tom DeLay, R-Texas, had both spoken in favor of the proposal, while the White House kept its counsel.

Others in the GOP on Capitol Hill favor a so-called flat tax, or a single rate for all taxpayers.

When asked about the national sales tax on the campaign trail, the president last week said the idea is worth exploring, although he stopped short of supporting it.

Not long after, the Democratic presidential nominee, Sen. John Kerry, attacked Bush for a tax proposal he said would raise taxes on middle-income Americans.

“I call it one of the largest tax increases on the middle class in American history,” Kerry said in a speech in Carson, Calif., on Thursday after Bush had expressed interest in the idea.

The White House then backed away, and Bush said on CNN’s “Larry King Live” that he is interested chiefly in tax simplification.

Still, the proposal is widely admired within GOP ranks. Several conservative supporters of tax reform said a national sales tax, or a valued-added tax, as it is formally known, would be the ultimate goal of overhauling the tax system so it taxes consumption of goods and services more than savings.

The flat tax, replacing the progressive system that assesses higher tax rates on those with higher incomes, is also under quiet GOP discussion. Sen. Sam Brownback, R-Kan., said Americans will hear Bush “talk about a flat tax, really getting the tax code out of so much impact over people’s lives.”

So far, Bush has not talked publicly about the flat tax, either, but the Republican National Convention in New York will give him an opportunity to lay out a second-term agenda. A Treasury Department official said that the agency has no studies under way on replacing the income tax system with a national sales tax or a flat tax.

Grover Norquist, president of the Americans for Tax Reform and a key link between conservatives and the White House, said that the sales tax and flat tax proposals are consistent with a number of Bush tax proposals that have moved toward a more consumption-based system. It may take a decade before such any such far-reaching proposal is adopted, he said.

As for the campaign talk about these ideas, Norquist said, “Some days you talk about the here-and-now and some days you talk about the vision.” And it is the “vision” of GOP leaders that is attracting attention, he said, adding that neither a sales tax nor a flat tax could get though the Senate.

One possible reason for Bush’s reluctance to support a sales tax or a flat tax is that he is finding himself vulnerable to campaign charges that his tax cuts rewarded higher-income Americans more than they did the middle class.

Democrats gleefully cited a Congressional Budget Office study on Friday that showed that the share of taxes that wealthy taxpayers paid dropped from 64.4 percent to 63.5 percent since 2001. Middle-class taxpayers saw their share of all taxes jump from 18.7 percent to 19.5 percent.

GOP lawmakers countered that most of the shift reported by the CBO could be explained by the way a provision for small businesses was applied.

Hastert ridiculed Kerry’s remarks about the valued-added tax, or VAT, and said the plan would actually benefit the middle class. Now, he said, middle-income people pay an “imputed” tax on every product they buy because corporate income taxes have been simply passed through to them.

The speaker said that a value-added tax, under which a levy is imposed on a product or service at each stage of production, could be written in such a way that low-income people don’t have to pay any more than they pay now. And, he said, the burdensome income tax system would be abolished.

A VAT has the reputation of being a potent money-raiser, and arguably more efficient than the income tax in collecting money. But many critics said it could lead to inflationary add-ons to the price of goods.

Hastert said American companies are at a tax disadvantage compared with European firms in particular. The prices of U.S. exports contain all the American taxes that have been imposed, he said, while Europeans excuse the VAT on their exports to the United States and other countries.

The speaker added that the tax would help end outsourcing of jobs and give U.S. exports a greater edge overseas.

But critics see it differently. Leonard Burman, an Urban Institute analyst and former tax official in the Clinton administration’s Treasury Department, said both a sales tax and a flat tax would shift much of the tax burden to middle-income and low-income Americans. He said neither idea has much chance of winning the support of the American people or passing Congress.

Bruce Bartlett, a conservative economist who served in the Reagan and first Bush administrations, said that the huge federal deficit would frustrate any GOP efforts to change the tax system. He said he would be “flabbergasted” if the president supported any major change in the tax system.



Only subscribers are eligible to post comments. Please subscribe or to participate in the conversation. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.