White House Floats Idea of Dropping Income Tax (altogether)

New York Times, Business and Financial Desk, Page 14, Column 5 ^ | 2/8/2003 | EDMUND L. ANDREWS

[Bigun]

White House Floats Idea of Dropping Income Tax Overhaul By EDMUND L. ANDREWS

WASHINGTON, Feb. 7 — President Bush, having already set off a firestorm over his proposals to cut taxes and revamp retirement accounts, suggested today that the time might be near to drop the income tax as a whole and replace it with some form of consumption tax...

[Bigun]

I read the article and there is nothing in the plans to prevent a re-imposition of the income tax as soon as the Democrats regain control of the government.

Ah! But there certianly IS something in THIS Bill, currently in the House Ways and Means Committee, which would prevent that!

Check it out!

[FreedomCalls]

How do you fix that?

They don't plan on fixing that. They hope you will go away. You are in the minority of Americans who have savings. This plan is for people who are way over their heads in debt. Those are the ones jumping for joy.

[Bigun]

Uh Oh! Bad link in 54!

Go Here!

[Kozak]

Just think of all the lobbyists who would be out of a job too!

It will never happen. Why? Because you will gut the ability of politicians to reward their friends and punish their enemies. Why do yo think the tax code is so complex? Special rules for special friends.....

They will NEVER relinquish this power.

[FreedomCalls]

I read the bill. There is nothing in it that would prevent a future Democrat adminstration from passing another bill to re-impose an income tax in addition to this tax or striking this bill altogether and replacing it with another more to their liking. It could only be done with a Constitutional Amendment.

[slimer]

If Bush can pull this one off, it would be, on the domestic level, comparable to the fall of the Berlin wall.

[FreedomCalls]

And how would he gain the support of the fixed-income AARP crowd?

[petuniasevan]

I'll bet that the industries which depend on "new" sales will have a conniption if this comes to pass.

Just imagine if everyone wanted to buy used cars to avoid the taxes.

Remember when some or other east coast state put a special tax on pickups? No pickups were sold until the tax was repealed! People bought cars, or went to other states for their truck purchase, or bought from private parties.

I predict that Detroit et al. will fight this tooth and nail.

To say nothing of H&R Block.

[Bigun]

Under the FairTax, senior citizens, like others, will receive a monthly cash rebate that will exempt consumption of necessities (up to the poverty level) from federal taxation. Thus, poor seniors will pay no consumption tax at all under the FairTax. In fact, the FairTax is the only tax plan, including the current income tax regime, that completely "untaxes" the poor. As a benchmark, in the year 2000, a family of four spending twice the federal poverty level would have paid an effective tax rate of about 11-1/2 percent under the FairTax.

Because income and payroll taxes are embedded in the price of everything we purchase, it is unlikely that prices, even when they are calculated with the consumption tax, will increase. This is because pre-consumption-tax prices will fall once the income and payroll taxes are repealed. Nevertheless, the FairTax plan makes sure that the Social Security benefits indexing formula will be adjusted so that benefits will increase to the extent, if any, that the consumption tax results in higher tax-inclusive prices. The income tax imposed on Social Security benefits will be repealed under the FairTax.

The income tax imposed on investment income and pension benefits or IRA withdrawals will be repealed. Pension funds, IRA's, and 401(k) plans had assets of over $9 trillion in 1998. An income tax deduction was taken for contributions to most of these plans, and all beneficiaries and owners of these plans expected to pay income tax on them upon withdrawal — but they will not be required to do so once the income tax is repealed.

Repeal of the corporate and individual income tax, and the estate and gift tax will have a substantial positive impact on the stock market. Those seniors who own stocks either directly or through mutual funds, Individual Retirement Accounts, 401(k) plans, or otherwise, will experience significant gains. More seniors own stocks than any other age group. In addition, unrealized capital gains that would have been subject to the income tax when realized will no longer be taxed.

The FairTax plan imposes a consumption tax on newly constructed homes, but exempts existing homes and other used property from any consumption tax. Currently, equity payments on homes must be paid from after-income-tax earnings (i.e., principal payments are not deductible). The purchase of existing housing is thus subject to the income tax. All owners of existing homes will experience large capital gains due to the repeal of the income tax and implementation of the FairTax. Seniors have dramatically higher homeownership rates than other age groups (79.3 percent for seniors compared to 66.3 percent on average in 1998). Homes are often a family's largest asset. Gains, which will not be taxed, are likely to be in the 20 percent range.

Under the FairTax, the estate and gift tax will be repealed. The need for small businesses and farmers to engage in expensive estate planning, involving attorneys, complex estate freeze transactions, and expensive life insurance plans in anticipation of future estate and gift tax liability will disappear. Heirs will no longer need to sell the business or farm out of the family or borrow heavily, putting the business at risk, in order to pay the estate tax.

A consumption tax will make the economy much more dynamic and prosperous. Consequently, federal tax revenues will grow, spending will be under less upwards pressure, and the deficit will decline. Budget pressure on entitlement spending, already significant, will become much more pronounced once the baby boom starts retiring in 2010, in just 10 years. The economic growth caused by a consumption tax will make it substantially less likely that federal budget pressures will result in Medicare or Social Security benefits cuts.

According to recent work by Stanford University economist Joseph Kahn, those seniors with a net worth over $400 thousand (nearly four times the median) may see a reduction in their purchasing power. The largest decline in purchasing power, about 3.5 percent, is for those with net worth above about $700 thousand. The primary reason for this effect is that wealth spent for consumption purposes that is held in non-tax-deferred accounts like IRA's will be taxed when spent under a consumption tax and would not be taxed any further under current law.

Seniors will be able to take comfort in the fact that their children and grandchildren will no longer be laboring under the yoke of the income tax, and will once again be able to see their own standard of living improve, one generation to the next.

[dixie sass]

As MJ says Oh WOWOWOWOW! Have you talked to Ron Paul today? What does he say? Wow, at least they are talking about it publicly now, this is a giant step!!!!

[dixie sass]

Did we read the same story? Doing away with the current system and going with a Nation Retail Sales Tax is what it was talking about. It will also get rid of the IRS by doing that!!

[Bigun]

There is nothing in it that would prevent a future Democrat adminstration from passing another bill to re-impose an income tax in addition to this tax or striking this bill altogether and replacing it with another more to their liking.

If YOU think defunding the IRS and requiring the destruction of ALL their records is nothing (That IS in the bill!) I guess we will just have to disagree on that point!

[tomahawk]

OMG. Please be true. This would make the Republicans a virtually permanent majority party, if it were to pass.

[xzins]

Everybody rings up sales at the cash register. It doesn't matter who walks through the door of a retail outlet and tries to buy anything, it'll be taxed.

There are always cheaters and there's always an effort to find and catch cheaters. I guess some in the IRS will keep their jobs.

There are NRST sites that explain your concerns. Maybe someone knows it and can post it.

[dixie sass]

"President Bush, having already set off a firestorm over his proposals to cut taxes and revamp retirement accounts, suggested today that the time might be near to drop the income tax as a whole and replace it with some form of consumption tax."

That's it out with the old and in with the new!

[Liberty_Or_Die]

The problem I am worried about, has anyone noticed that Social Security and Medicare taxes on our income have increased over 200% over the last ten years? I remember when my income tax out paced these deductions over 200%. I would like to see an end to income tax, but I see a huge increase in these deductions along with a national sales tax.

Doesn't the Federal Government dip into these pools of money for what ever pet project they are trying to fund?
The best way to lower Medicare is to enact tort reform.

[Wolfstar]

Wouldn't it be wonderful, indeed.

[Bigun]

Our bill deals with ALL those issues VERY effectively!