Does Tax Reform Mean More Taxes?

While most Americans think they pay a fair amount in taxes (according to the latest CBS News/New York Times Poll), many would agree the tax code still needs serious revision. For some of the activists protesting "Tax Day" today, that would ideally mean replacing the federal income tax with a "fair tax" -- which would replace all federal income and payroll based taxes with a national retail sales tax.

Yet recent comments from a White House adviser have people worried the Obama administration may only burden them with more taxes, a protest organizer said today on "Washington Unplugged."

While Tea Partiers and others collected on the National Mall today to protest Tax Day, Ken Hoagland has been leading an Online Tax Revolt. Americans interested in protesting but unable to travel to Washington have created avatars for the virtual march. High profile Republicans like former Arkansas Gov. Mike Huckabee and Republican National Committee Chair Michael Steele have created their own avatars.

Hoagland told Unplugged moderator John Dickerson that he believes the income tax should be eliminated.

"Something has gone terribly wrong with our government, and the income tax system is what fuels it," he said.

The Online Tax Revolt welcomes every idea for tax reform, but Hoagland said he specifically would like to see a "fair tax" instituted. It was advocated by Huckabee during his 2008 presidential bid.

The fair tax "allows every American to take home 100 percent of their paycheck without withholding or payroll taxes first deducted," Hoagland said. "If everyone takes home everything that they're earning, we permanently stimulate the economy. We lift taxation off of labor, savings and investment -- those are the things that make the economy grow."

By contrast, Hoagland said he adamantly opposes a value added tax (VAT), which would impose a national sales tax on most items, on top of the taxes that already exist.

White House adviser Paul Volcker recently said adopting a VAT to help bring the deficit down is no longer a "toxic idea," stirring speculation over whether the president would endorse such a tax.

Some liberals are skeptical of the VAT because it is regressive, though its supporters contend that could be remedied. Additionally, a VAT could be less effective if Washington exempts too many items that are subject to political favor, Gerald Prante, a senior economist for the non-profit, non-partisan Tax Foundation, told Hotsheet. Furthermore, Prante said, it's questionable whether Congress would use the tax to pay down the deficit as intended or pay for more spending.

As Volcker said, however, some economists are open to the idea because the deficit and debt need to be paid down somehow.

It's time to have a more "serious discussion" about raising taxes, William Gale, co-director of the Tax Policy Center and director of the Retirement Security Project at the Brookings Institution, told Hotsheet.

"The Republicans' view is no new taxes, and the Democrats' view is no new taxes for 95 percent of the population," he said. "It's like they're trying to play a football game and both teams are lining up on the same end zone."

It could be worth starting discussions about a VAT now and possibly gradually implementing it once the economy is improved, Gale said.

"That encourages people to spend now when we need them to spend," he said. "When the economy is recovered it encourages them to save more."

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Stephanie Condon

Stephanie Condon is a political reporter for CBSNews.com.

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