A National Sales Tax

Town Hall ^ | March 31, 2005 | George Will

[CSM]

WASHINGTON -- The power to tax involves, as Chief Justice John Marshall said, the power to destroy. So does the power of tax reform, which is one reason why Rep. John Linder, a Georgia Republican, has a 133-page bill to replace 55,000 pages of tax rules.

His bill would abolish the IRS and the many billions of tax forms it sends out and receives. He would erase the federal income tax system -- personal and corporate income taxes, the regressive payroll tax and self-employment tax, capital gains, gift and estate taxes, the alternative minimum tax and the earned income tax credit -- and replace all that with a 23 percent national sales tax on personal consumption. That would not only sensitize consumers to the cost of government with every purchase, it would destroy K Street.

``K Street'' is shorthand for Washington's lawyer-lobbyist complex. It exists to continually complicate and defend the tax code, which is a cornucopia from which the political class pours benefits on constituencies. By replacing the income tax -- Linder had better repeal the 16th Amendment, to make sure the income tax stays gone -- everyone and all businesses would pay their taxes through economic choices, and K Street's intellectual capital, which consists of knowing how to game the tax code, would be radically depreciated.

Under his bill, he says, all goods, imported and domestic, would be treated equally at the checkout counter, and all taxpayers -- including upward of 50 million foreign visitors annually -- would pay ``as much as they choose, when they choose, by how they choose to spend.'' And his bill untaxes the poor by including an advanced monthly rebate, for every household, equal to the sales tax on consumption of essential goods and services, as calculated by the government, up to the annually adjusted poverty level.

Today the percentage of taxpayers who rely on professional tax preparers is at an all-time high. The 67 percent of tax filers who do not itemize may think they avoid compliance costs, which include nagging uncertainty about whether one has properly complied with a tax code about the meaning of which experts differ. But everyone pays the cost of the tax system's vast drag on the economy.

Linder says Americans spend 7 billion hours a year filling out IRS forms and at least that much calculating the tax implications of business decisions. Economic growth suffers because corporate boards waste huge amounts of time on such calculations rather than making economically rational allocations of resources. Money saved on compliance costs would fund job creation.

Corporations do not pay payroll and income taxes and compliance costs, they collect them from consumers through prices. So the 23 percent consumption tax would allow taxpayers to stop paying the huge embedded cost of corporate taxation. Linder says the director of the Congressional Budget Office told him it costs individuals and businesses about $500 billion to remit $2 trillion to Washington. And studies show that it costs the average small business $724 to collect and remit $100.

In 1945, corporations paid more than one-third of the government's revenues. Now they pay only 11 percent because corporations, especially multinationals, are voluntary taxpayers. In a world increasingly without borders that block capital movements, corporations pay where the burden is lowest. Linder says $6 trillion in offshore accounts would have an incentive to come home under his plan.

Furthermore, by ending payroll and corporate taxes, America would become the only nation selling goods with no tax component -- such as Europe's value added tax -- in their prices. With no taxes on capital and labor, multinationals would, Linder thinks, stampede to locate here, which would be an incentive for other nations to emulate America. ``This,'' Linder says, ``would unleash freedom around the globe.''

Critics argue that ending the income tax, with its deductibility of charitable contributions, would depress giving. Linder says: Piffle. In 1980, when the top personal income tax rate was 70 percent, a huge incentive for giving, individual charitable contributions were $40.7 billion. In 1986 the top rate was reduced to 28 percent, and by 1988 charitable giving was $86.7 billion. The lesson, says Linder, is that we give more money when we have more money.

When Speaker Dennis Hastert published a book last year, he was startled that interviewers were most interested in talking about Linder's bill, which then had 54 co-sponsors. This year Hastert added Linder to the Ways and Means Committee. Linder cheerfully says his bill would reduce Ways and Means to ``a B committee'' by ending the political fun of making the tax code ever more baroque for the benefit of K Street's clients. Bliss.

[JimRed]

What frightens me is that this might eventually be in addition to other taxes.

Exactly! There has to be legislation outlawing other taxes on top of the "fair" tax.

[Critter]

The income tax doesn't do that?

[Nephi]

Yes, it does, just like the NRST, but not like tariffs. Hence, why globalists oppose tariffs. Its all about breaking down American independence and sovereignty. Globalism is incompatible with conservatism. Sadly, conservatives don't realize they bought the globalism dogma from the same people who support the UN, world government and tax the rich.

[Your Nightmare]

Don't you see? You are saying that I would have to keep my fees the same to receive the same amount of income. No sir Mr. YN. If I am not paying income taxes then I am saving at least 25% of my gross. So if my gross is 100,000 per year I am now going from an income of 75,000 to one of 100,000. But where is it written in the fair tax law that I have to give that 25,000 back to the government when they want it? You seem to infer that is the case.

You obviously don't understand what "real" income is. It is your income adjusted for inflation, basically the purchasing power of your income. If you make $100,000 and take home $75,000, you can buy $75,000 worth of goods and services. Under the FairTax, if you cut your fees and took home $75,000, you would only be able to buy $57,750 in goods and services. You've had a decrease in "real" income.

To avoid this decrease in real income you would have to keep your fees where they were. You are just rearranging where you pay your taxes.

You estate tax example is meaningless. In 2003, estate tax collections were only $20 billion. That is insignificant in our economy.

[groanup]

You estate tax example is meaningless. In 2003, estate tax collections were only $20 billion. That is insignificant in our economy.

The amount of money spent to avoid estate taxes is part of the compliance cost I am talking about. Not the tax itself. I'm out of here for a week. Spring break.

[painter]

Care to amplify, maybe by giving an example or two, with your take on why George Will is gullible?

I agree with you too.That fact that George Will is on board with this means that this is picking up some steam.

[Your Nightmare]

The amount of money spent to avoid estate taxes is part of the compliance cost I am talking about. Not the tax itself.

Then it is even more insignificant.

[Scotsman]

To short circuit your arguments ...

... assume, as you do, that there would be no benefits to the individual taxpayer in a change to the NRST and the elimination of the IRS.

The simple removal of the IRS from the individual US citizen's life and the consequent collection, storage, and dissemination of personal information across the governmental spectrum alone would be a lifting of a tyranny from our lives.

And there are other benefits, the totality of which we won't understand until the system is up and operating, but there will be other, financial benefits to all current taxpayers - only the gross amounts are in debate.

[lewislynn]

assume, as you do, that there would be no benefits to the individual taxpayer in a change to the NRST and the elimination of the IRS.

I don't think he ever assumed no benefit, but rather the benefits are so overblown by the sales tax pitch he's bringing it into perspective with what would be reality.

It wouldn't/couldn't be the near tax free nirvana with 20 to 30% cheaper goods and services that they claim. The fact they have to be deceitful about that and the rate itself is proof enough.

[Scotsman]

At this point, attempting to assign any sort of cost/benefit ratio to the NRST is meaningless.

Until the ideas congeal into proposed regulations (first, a Law is passed, then the regulations get promulgated - that's the way a Law is enforced - through the framework of regulations for enforcement of the Law) ...

... it is going to be almost impossible to figure out the benefits to various classes of current taxpayers.

Without going through every single post here, I doubt that there has been very much intentional deceit, on either side. The key point to the whole NRST is the elimination of the IRS - so it is much more important to focus on that as the one overriding benefit that will positively effect every class of current taxpayer.

And because of that, it is important to make certain that the IRS IS eliminated as a part of the overall push to implement a NRST. There is a Bill in both the House and Senate to amend the Constitution to repeal the 16th (I think that's the IRS Amendment) Amendment and efforts should be focused on that, with the NRST to be part of the solution to the elimination of the IRS.

[lewislynn]

Without going through every single post here, I doubt that there has been very much intentional deceit, on either side.

Well, you're wrong.

[groanup]

Without going through every single post here, I doubt that there has been very much intentional deceit, on either side. The key point to the whole NRST is the elimination of the IRS - so it is much more important to focus on that as the one overriding benefit that will positively effect every class of current taxpayer.

You will learn that there are people on here who will go to any ends of the earth to maintain the IRS. Deceit? Maybe, but it is too easy to ferret out. The real culprits are those who obviously have an agenda to see that the IRS stays as it is.

[groanup]

Maybe insignificant to you, moneybags. Not insignificant to a mom and pop company that wants to pass its legacy to children. Of course the generational transfer of wealth was one of the things the early communist leaders warned about.

Once again, compliance costs do not simply reside in CPA's fees. There are billions of dollars spent on tax advantaged oil and gas programs, housing tax credits, various other limited partnerships that are set up for tax reasons every year. Many of these programs exist because of taxes not because they are necessarily the best place to invest. Then there is the whole trillion dollar or so muni bond market that exists as a separate market because of the tax code.

[rwrcpa1]

You estate tax example is meaningless. In 2003, estate tax collections were only $20 billion. That is insignificant in our economy.

Then why don't they get rid of the dang thing?

[Your Nightmare]

Then why don't they get rid of the dang thing?

They are.

What's interesting is that the FairTax would function as an estate/inheritance tax for most people. People who inherit money would have it taxed when they spend it. The "real" value of an inheritance would be reduced by 23%. This wouldn't happen with a flat tax.

[rwrcpa1]

Except that you are assuming that assets would be converted into cash and spent on taxable items. If the assets are never sold or are turned over into other investments they would never be subject to the Fair Tax. If the income thrown off is spent on taxable items then that is taxed, but the income is taxed under the current system, too. Under current law, which includes estate taxes, the value of the assets is taxed at date of death (if over exemption amount), and then the income from the assets (if you have any assets left after the estate tax) is taxed, too (except for municipal bonds, of course).

I think to say that the "real" value of an inheritance would be reduced by 23% is an exaggeration. Theoretically, I suppose after 100 years that all of the estate's assets could be converted into cash and spent on taxable items, but with the time value of money I think the estate tax paid now would be much greater versus the Fair Tax paid over the next 100 years. You have a choice whether to pay tax or not, too. Under current estate tax law, you have no such choice.

[Your Nightmare]

Most estates are liquidated so that debts can be paid and the remaining assests can be divided amoung the beneficiaries. Most estates are not businesses.

[rwrcpa1]

Of course. But most large estates have some business ownership involved. My employer's estate got socked with over $10 million in estate taxes (part of your insignificant $20 billion dollars referenced earlier). Fortunately, we had anticipated his death after some asset sales and had the cash stashed, but just think what we could have done with that money instead of giving it to the government. We are an oil and gas company. We could have use that money for exploration or other capital investments instead of paying Ted Kennedy's liquor bill. This company will not be liquidated. I'm sure we are not the only example. Unfortunately, when his widow dies we have to repeat the process. That may be any day now.

[Your Nightmare]

part of your insignificant $20 billion dollars referenced earlier

We were talking about prices and $20 billion is insignificant in our economy.

[rwrcpa1]

Agreed. But $10 million was very significant to our company.