Posted on 03/31/2005 4:42:13 AM PST by 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.
Actually, the equivalent tax exclusive rate is 29.87%. Otherwise your math is correct. However, under current law I have to earn $148.48 (25% marginal tax rate) to buy the $100.00 item. I would rather earn $130.
It's like waiting for "world peace" to happen. It's a noble goal, but we'll always longingly talk about it.
Lobbyists make laws, not elected officials.
Well, might as well just go crawl in a hole somewhere.
I wouldn't go as far as to crawl in a hole. But you will be filing tax forms for the rest of your life.
Whether or not that is "hole worthy" is a matter of personal preference.
It is not that new of an idea. I would support it only if the income tax Amendment were repealed. Otherwise, they would pass the NRST and eventually creep the income tax back in when they needed more $ - instead of cutting spending.
One downside is that older people who have already paid income tax on all their income would be double-taxed on their savings.
One work-around is to provide a tax rebate based on age that would phase out over 10-20 years. Of course, an NRST plan includes an automatic payment to every household to return the tax paid on poverty level spending. I.e. if the poverty level were set a $15,000 per year, each person would receive $2300 in tax rebates ($256 per month check in the mail). Another rebate could be offered based on age.
i The IRS will have to be expanded to include its own army to collect the tax.
No, the IRS would become functionaries. The taxes would be mostly collected at the state level, since most states already have a sales tax bureau in place - and they are already very strict. In return for their collection efforts they would gain apx .25 or .5% of the sales tax to cover the cost of the additional work.
Real estate, for example.
Say you want to buy a newly constructed home (since it's new the tax would apply). It's a $200,000 home, you have 10%, or $20,000 to put down. But-with the tax, you actually now need over $69,000-your down payment plus the tax (this doesn't even figure in closing costs which would probably remain the same). The bank is not going to lend more than the house is worth, so you can't get the house and have to buy an existing "used" home. The construction biz would go belly-up without several years to cushion the blow.
Also-the effect it would have on those that have saved money for years and already paid tax on it having to pay tax again to use it.
I LOVE the national sales tax idea, but these are some concerns I have.
Another downside is that the 23% (Etched In Stone) rate could be changed for various items. Alcohol, tobacco, and firearms could be taxed at one rate, medical services at another. Imports from Britain, Canada, China, Mexico, and Greece at one rate, from India, Italy, and Indonesia at another.
The prospect for social engineering are great enough to get even Democrats to support the bill.
It costs the company I work for over $100,000 per year to pay apx $100,000 in taxes - payroll and state taxes. It is ridiculous.
Why wouldn't Congress create a "Tax Stablization and Simplification Board" whose job it would be to raise taxes?
You've got it exactly right
Does this mean that a housewife would no longer be able to barter with the plumber for a lower price? Much of the underground economy is just swapping labor.
This fixes Social Security. It takes a percentage of tax and puts it into a lock box. There would no longer be any FICA deducted from your paycheck.
"What a horrible article. I never knew George Will was so gullible. It sounds like he was just taking dictation from Linder. Practically every paragraph has something wrong or, at least, extremely questionable."
LOL What a bummer for you, YN. Everytime a public figure says something positive about the FairTax, you attack the messenger. So predictable.
How is your tax reform proposal coming? Have you decided whether you support a VAT or flat tax yet?
"This will not ever happen. Too regressive for one. Number two, I think all of us know that people aren't just going to pay the tax and be happy. This will create the most intricate black market that the world has ever seen. The IRS will have to be expanded to include its own army to collect the tax. We will have basement shops, no knock searches, wire taps, and spies all over the internet trying to see who is cheating the tax. The drug war has taught us what kind of fun that will bring."
The sky is falling!! The sky is falling!!
Not only that, but it will cause the cancer rate to increase and teen age pregnancy to skyrocket.
Your imagination is working overtime, mysterio. Try to think outside the box just a little, will you?
A plausible idea, but just remember that we are having problems with social security now because it is based on age, and a lot more of us are about to enter that age.
A lot of the savings you are talking about are in retirement accounts which have never had income taxes paid on them.
For more information on this go to : http://www.fairtax.org/pdfs/Homebuilders%20will%20benefit%20from%20the%20FairTax.pdf
But these changes would be a lot more visible.
That's great over time, but the initial shock to the system will be drastic. Sure, they could save more, but it would still take several years. That first few years would be hell for that industry.
Yup.
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