REPUBLICANS PLAN PUSH FOR ELIMINATION OF IRS

The Drudge Report ^ | 8/1/04 | Drudge

[NeoCaveman]

A domestic centerpiece of the Bush/GOP agenda for a second Bush term is getting rid of the Internal Revenue Service, the DRUDGE REPORT has learned.

The Speaker of the House will push for replacing the nation's current tax system with a national sales tax or a value added tax, Hill sources tell DRUDGE.

"People ask me if I’m really calling for the elimination of the IRS, and I say I think that’s a great thing to do for future generations of Americans," Speaker of the House Dennis Hastert explains in his new book, to be released on Wednesday.

"Pushing reform legislation will be difficult. Change of any sort seldom comes easy. But these changes are critical to our economic vitality and our economic security abroad," Hastert declares in SPEAKER: LESSONS FROM FORTY YEARS IN COACHING AND POLITICS.

"“If you own property, stock, or, say, one hundred acres of farmland and tax time is approaching, you don’t want to make a mistake, so you’re almost obliged to go to a certified public accountant, tax preparer, or tax attorney to help you file a correct return. That costs a lot of money. Now multiply the amount you have to pay by the total number of people who are in the same boat. You can’t. No one can because precise numbers don’t exist. But we can stipulate that we’re talking about a huge amount. Now consider that a flat tax, national sales tax, or VAT would not only eliminate the need to do this, it could also eliminate the Internal Revenue Service (IRS) itself and make the process of paying taxes much easier."

"By adopting a VAT, sales tax, or some other alternative, we could begin to change productivity. If you can do that, you can change gross national product and start growing the economy. You could double the economy over the next fifteen years. All of a sudden, the problem of what future generations owe in Social Security and Medicare won’t be so daunting anymore. The answer is to grow the economy, and the key to doing that is making sure we have a tax system that attracts capital and builds incentives to keep it here instead of forcing it out to other nations."

[ovrtaxt]

Okay, I see your point, but as it stands, the ones who use the social benefits currently pay NOTHING, or they actually make money with the Earned Income Credit. How is your scenario different? (Except the border thing)

[Wondervixen]

What happens to those who are hopelessly in for back taxes?

[Petronski]

Read it-- that money is rebated monthly.

How does that rebate work? If I'm poor, I file a form stating my income and records of what I paid in sales tax and they send me a check?

I'm learning here.

[Remember_Salamis]

"1. Where would the government get the money to pay taxes? Their only stream of income is taxing us.

2. What are the consequences if the government is unable to pay its taxes? Would it eliminate services, cut payroll, shut down parts of itself, or simply raise more income (i.e., raise taxes; see question #1)?"

-- I'll answer both:

1. Government would have to decide whether they would (1) raise taxes or (2) cut spending. I feel us conservatives will win that battle. It will get to the point with a lot of programs that they'll jsut be better off letting people keep their money. Think of Education funding at the state level: The government has the option of (1) spending money on funding public schoiols and paying taxes on it, or (2) giving vouchers and having citizens NOT pay taxes on it (education is TAX-FREE under the FairTax). Do you think they'll give vouchers?

2. They government has to pay the taxes when they make the purchase; the government has to pay the tax at the point of sale (POS).

[July 4th]

I'm all for something like the NRST, but it can't be sold to the American people. Impossible. Far too much room for rhetoric to kill the issue entirely. A flat tax is unlikely, but at least it's doable. And if done correctly, the IRS could be pared down to virtually nothing.

[arielb]

apparantly everyone gets a rebate check from the government: rich or poor. Doesn't sound like such a good idea to me

[TexasCowboy]

As much as I'd love to see the IRS completely destroyed, if the states are going to collect the taxes, we're no better off than we were before.

I've been self-employed for many years. I have much more problems with the State of Texas taxes than the federal taxes.

[Drammach]

The Speaker of the House will push for replacing the nation's current tax system with a national sales tax or a value added tax, Hill sources tell DRUDGE.

VAT is one of the choices listed..

[ovrtaxt]

It's an administration issue. How are you going to track when someone has spent up to the necessity level every month?

It's easier to just cut a check and tax everything at the point of sale.

Of course, the upside for taxpayers, is that every time we make a purchase, we are reminded of the true tax rate. It isn't hidden by withholding, or being built into the cost of the product.

It's a revenue neutral plan, the total tax burden is just frontloaded so that we can all see it. read it, it's really pretty cool. --fairtax.org

[ovrtaxt]

A VAT is a monumentally bad idea. A NRST, however, actually makes a lot of sense.

[Libertarianize the GOP]

Even if the the government saved nothing from eliminating the IRS it would be worth it to no longer have to hassle with tax forms and the invasion of privacy inherent in an income tax.

[Agamemnon]

It's only appropritate that Bush's War of Terror would include the original purveyor's of domestic terror in his crosshairs: the IRS

[Remember_Salamis]

"No. I work in a retail business (restaurant). The burden of taxation will be focused on people like me."

Do you pay taxes as it is? Do you file as both an individual and a business? Under the FairTax, you'll only file once. Read the following on the FairTax and retailers. There's a reason why the national association of retailers is endoring the FairTax.

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Why Retailers Should Support the FairTax(SM)




Retailers Will Be More Profitable
• Like other firms, retailers will enjoy a zero corporate tax rate and their shareholders will not be taxed on dividends or capital gains on their investments.
• Retailers will receive a collection fee of 25 basis points on federal funds collected.
• Compliance costs (discussed below) will be lower by a conservative estimate of $225 billion.[1]


The Economy Will Grow, More People Will Have Jobs, Incomes Will Increase More Rapidly
• Those taxpayers who receive a payroll check will benefit from more disposable income from the first day under the FairTax, due to the repeal of the payroll tax in its entirety.
• All known economic projections predict a much healthier economy.[2] People are willing and able to purchase more goods and services in a healthy economy. Typical estimates are that the economy will be 10 to 14 percent larger within 10 years and consumption will grow very substantially. Some studies show the potential gains to be much higher.[3] Real wages will increase. Retailers will make more money in a prosperous, growing economy.
• Consumer interest rates will fall dramatically, between 25 to 30 percent.[4] Therefore, consumer’s ability to finance consumption will increase. In the case of interest that is presently deductible (home mortgage interest deductions, etc.), this projected drop in interest rates should more than off-set any benefits lost due to the lack of deductibility.[5] With regard to consumer loans, since consumer interest is not deductible under present law, the effect of lower interest rates will strongly and positively impact credit card or consumer loan financed purchases.

Consumption Is Taxed Once Under Both an Income Tax and a Sales Tax
• Under the current federal income tax system, as well as under the FairTax, consumption purchases must be made from after-tax dollars. Therefore, the primary difference between a sales tax and an income tax is not the way they impact consumption, but rather how they impact savings. The income tax double or triple taxes savings, while the sales tax does not tax savings until consumed.
• The criticism by some that consumers will not have available funds to pay the sales is incorrect. Consumers will see their paychecks immediately increase by over $1.6 trillion because income and payroll taxes are eliminated (estimated for 2001). In addition, Dale Jorgensen, head of the Economics Department at Harvard University, has shown that producer prices will drop between 15 and 25 percent after the switch to consumption-based tax. A substantial part of producer price reductions can be passed on to the consumer in the form of lower retail prices, which will increase consumer demand. But, while offering lower prices, retailers will be able to maintain their current profit margins.

Retailers Suffering From Direct Mail Competition and Cross State Sales Should Benefit
• Direct mail sales from out of state sources, and in practice, made tax-free because state use taxes are not enforced. Under the new system, retailers must collect the federal sales tax on all sales occurring within the United States. States that choose to conform to the federal base will have the added advantage of information sharing and clear interstate revenue allocation rules. The ability for the state to collect these heretofore-uncollected taxes would be a major incentive for states to conform their sales tax to the federal sales tax base. Retailers suffering from tax-free direct mail competition or from tax-free sales from out of state retailers would see a major competitive disadvantage removed.

Retailers’ Compliance Costs Will Be Lower
• Instead of having to comply with the complexities of the income tax and payroll tax, there will be one sales tax on all goods and services.
• The firm will simply need to calculate its total retail sales on a monthly basis.
• No more uniform inventory capitalization requirements.
• No more complex rules governing employee benefits and retirement plans.
• No more tax depreciation schedules.
• No more tax rules governing mergers and acquisitions.
• No more international tax provisions.
• Over time, most states will conform their sales taxes to the federal sales tax, reducing the costs of complying with multiple rules in each state and its political subdivisions.
• The firm’s accounting, tax and personnel (human resources) departments will shrink dramatically.

The Mad Dash to Consume Prior to Enactment of the FairTax
• Some retailers have speculated that in the period prior to the enactment of a consumption tax, there will be a "mad dash" by consumers to purchase durable goods without tax. This positive spike in consumption prior to enactment would then be followed by a compensatory drop in consumption of equal magnitude. This drop in consumption would translate into a lack of sales tax revenue for the government during a period following enactment.
• The government would not, however, lack funding during this period. It would benefit from the income tax imposed on corporate profits as a result of any increase in earnings during the period preceding the enactment of the FairTax. In other words, a drop in revenues from retail sales, should it occur temporarily, would be offset by revenues derived under the old income tax system—from corporate income taxes on earnings, payroll taxes, and income taxes received from individual workers earnings as a result of increased demand for goods. It should be noted that consumption of durable goods represents only 14% of total consumption.

The National Retail Association and the Nathan Associates Study
• A study prepared by Nathan Associates[6] for the National Retail Institute, which by its own admission made every conceivable adverse assumption, represents the worst case scenario for a consumption tax. It predicts that the economy will grow only three percent more in ten years than it would have under the income tax and that the increase in consumption will be 1.15 percent less in the first year relative to what it would have been under the income tax. The Nathan study concludes that consumption will be higher in the fourth year and every year thereafter than it would have been under the income tax. In other words, even in the Nathan Associates worst-case scenario, consumption will continue to grow at a healthy pace. (The Nathan study did not assume the repeal of the payroll tax in its entirety, as called for by the FairTax plan.) Even if the growth in consumption is reduced in the first year by the amount predicted by Nathan Associates, retailers will be more profitable after-tax because of the repeal of the income tax and lower compliance costs. This study assumes 1) very low labor responsiveness to lower tax rates on labor, 2) that every dollar in new U.S. investment must come from the U.S. rather than foreign investors and, 3) there will be very small effects of increased investment on productivity. Additionally, the study assumes no gain in productivity from lower compliance costs.


[1] Compliance Costs of Alternative Tax Systems II, Arthur P. Hall, Ph.D., Senior Economist, The Tax Foundation, Special Brief, House Ways & Means Committee Testimony, March 1996; Testimony of Arthur Hall, before the Ways and Means Committee, March 20, 1996 on "Replacing the Federal Income Tax" wherein he estimates that under a national retail sales tax plan compliance costs would decline by 95 percent to $8.2 billion.

[2] See, e.g., "The National Sales Tax: Moving Beyond the Idea," Tax Notes March 21, 1996, David R. Burton and Dan R. Mastromarco. "The Economic Impact of Replacing Federal Income Taxes with a Sales Tax"; Laurence J. Kotlifkoff, April, 15, 1993, Cato Institute Policy Analysis; The Economic Impact of Taxing Consumption; Dale W. Jorgenson, Ph.D., Harvard University, Testimony before the Ways and Means Committee, March 27, 1996; "The Economic Impact of Fundamental Tax Reform, Dale W. Jorgenson; Testimony before the House Ways and Means Committee, June 6, 1995.

[3] "The Economic Impact of Fundamental Tax Reform, Dale W. Jorgenson, Testimony before the House Ways and Means Committee, June 6, 1995. "Looking Back to Move Forward: What Tax Policy Cost Americans and the Economy; Gary Robbins, Aldona Robbins, September 1995, Policy Report Number 127, Institute for Policy Innovation.

[4] John E. Gobb, Economic Review, Federal Reserve Bank of Kansas City, "How Would Tax Reform Affect Financial Markets?", Fourth Quarter, 1995. He estimates a 25–35 percent drop (p. 27). See also The Flat Tax, 2nd Edition 1995, Robert E. Hall and Alvin Rabushka, The Hoover Institution Press.

[5] "The Economic Impact of Fundamental Tax Reform, Dale W. Jorgenson, Testimony before the House Ways and Means Committee, June 6, 1995. "Looking Back to Move Forward: What Tax Policy Cost Americans and the Economy."

[6] Replacing the Federal Income Tax with a Consumption-Based Tax System, Nathan Associates, Inc., for the National Retail Institute, March 1996.

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[Kackikat]

Amen.

[Remember_Salamis]

"I am talking about the total economic cost which includes the economic disincentives to work, save and invest. See James L. Payne's work -- he calculated .$65 in 1995. It has gone up since then."

-- I thought I read at FairTax.org that $0.65 is the high-end number.

[ThinkDifferent]

How does that rebate work?

Everybody gets a rebate check for the same dollar amount: you, me, and Bill Gates. It's enough to cover the taxes paid on purchases up to the poverty level or thereabouts. This turns the FairTax into a progressive system; as you spend more, the rebate cancels less of your taxes percentage-wise, so your effective rate increases.

[phil_will1]

"How does that rebate work? If I'm poor, I file a form stating my income and records of what I paid in sales tax and they send me a check?"

The rebate has nothing to do with income level, or spending. It depends only on family size (as determined by verifiable SSNs). It is a very simple and clean way to ensure that the system is not regressive. Those living at or below the poverty level would see a 15 - 30% increase in purchasing power.

[ovrtaxt]

This is from the fairtax.org website:

No federal sales tax up to the poverty level means progressivity like today's tax system. Furthermore, to ensure that no American pays tax on necessities, the FairTax plan provides a prepaid, monthly rebate for every registered household to cover the consumption tax spent on necessities up to the federal poverty level. This, along with several other features, is how the FairTax completely untaxes the poor, lowers the tax burden on most, while making the overall rate progressive. However, the FairTax is progressive based on lifestyle/spending choices, rather than simply punishing those taxpayers who are successful. Do you see how much freer life is with the FairTax instead of the income tax?

Check out the overview of the whole tax plan here.

[YankeeDoodleBoy]

It's a wonderful idea, and perhaps this is just the crusty old cynic in me, but I don't see it passing in any pure form, and I see our corrupt politicians exploiting too many loopholes, passing exemptions, or just plain ignoring it.

We still need meaningful spending limits. Else how much is each government department going to know how much to spend at the POS?

[arielb]

it will also create lots of opportunities for fraud and abuse. Several people will try to get more than one check once you have this new attitude of "who cares who you are-just take the check"