Posted on 11/21/2004 10:26:12 AM PST by Dick Bachert
LAWRENCEVILLE, GA
U.S. Rep. John Linder has been pushing to replace the federal income tax with a sales tax for so long that he doesn’t have to pitch it to voters. Nowadays, they come to him. “I just want the IRS out of our lives,” Linder said one unprompted constituent told him recently at the Duluth Fall Festival.
That voter and other like-minded Americans are as close as they’ve ever been to seeing serious consideration of doing away with the Internal Revenue Service and the income tax it was created to oversee. Fresh off re-election this month, President Bush has embraced tax reform as a top priority for his second term in the White House. Swapping the income tax for a national sales tax, a proposal the president called “an interesting idea” on the campaign trail, likely will be on the table when a bipartisan commission on tax reform Bush is expected to create begins work next year.
Linder, R-Duluth, veteran of a dozen years in Congress, has been virtually a lone wolf during most of the decade or so he has made a national sales tax his signature issue.
But political developments have helped generate momentum for what he and his allies refer to as the “Fair Tax.” Linder started to notice the trend more than two years ago, when he defeated fellow Rep. Bob Barr in a Republican primary prompted by a redrawing of Georgia’s congressional map. Linder said he conducted a poll right after his victory to try to find out why the turnout was unexpectedly heavy. “Twenty-five percent of these people had never voted in a primary before,” he said. “(The poll showed) they came out because of the Fair Tax.”
Two years after that apparently isolated incident, the sales-tax bill Linder introduced into the House last year — and a companion Senate bill sponsored by Georgia’s Saxby Chambliss — became an issue during a host of this year’s congressional campaigns.
In South Carolina, victorious Republican Senate candidate Jim DeMint based his entire campaign on the Fair Tax. On the other hand, some Democrats used the legislation to bash Republicans. That happened in the Georgia Senate race, where Democrat Denise Majette employed it unsuccessfully against Republican Johnny Isakson, and in the state’s highly publicized 12th Congressional District contest, where Democrat John Barrow upended incumbent Republican Rep. Max Burns after Burns’ support of the Fair Tax became a hot topic.
By and large, however, the publicity over the Fair Tax helped the cause more than it hurt, said Tom Wright, executive director of Americans for Fair Taxation, a Houston-based nonpartisan group that has been working on behalf of Linder’s bill.
“All PR is good PR,” Wright said. “We really see the attacks ... as taking it to the next level.” Even as the Fair Tax grabbed attention on the campaign trail, it has built support in Congress. Linder’s bill, which started with about half a dozen co-sponsors, now has nearly 60.
By nature, a sales tax is more regressive than the graduated income tax the U.S. instituted in 1913 because it treats all taxpayers the same, regardless of their financial status. But Wright said Linder’s national sales-tax bill overcomes that drawback and, in fact, becomes progressive for several reasons: It includes a monthly rebate to all taxpayers, set high enough to cover the basic costs of goods and services. Because the rebate is set at the poverty level, it has the effect of exempting everyone living in poverty from paying any taxes. It ends all other forms of federal taxes, not just the income tax but the payroll tax that funds Social Security. Wright called the payroll tax the most regressive of all taxes because it is applied to income from wages but not investments. It ends “hidden” taxes on all the goods and services consumers buy, business taxes that force retail prices higher than they would be otherwise. It taxes only new goods or services, not used items. “If you choose to buy a brand-new Cadillac, you’re going to pay a tax,” said Wright. “But if you buy a used one, you don’t pay a dime in tax.”
Linder said a national sales tax would have huge benefits both for the government and the economy. He said it would boost domestic manufacturing by stopping the movement of factories abroad. “We’re kicking jobs overseas because of our tax system,” he said. “When we produce something here, there’s such a large tax component built into it that it’s not competitive.” Linder said dramatic economic improvement would mean higher tax revenues, allowing the federal government to come to grips with the looming shortfalls projected to hit Medicare and Social Security as the baby boom generation begins to retire.
But critics aren’t buying the rosy scenario painted by Linder and others. They have raised a host of concerns from whether a national sales tax would raise enough money to run the government to whether it would disproportionately benefit the wealthy, who spend a lower proportion of their incomes than low- and middle-income Americans.
According to a study conducted by the Institute on Taxation and Economic Policy, a nonpartisan research organization, a national sales tax — even with the rebate contained in Linder’s bill — would place a larger tax burden on 80 percent of the population, benefitting only those in the upper 20 percent of incomes. “The obvious winners are people at the very top,” said Joel Friedman, a senior fellow at the Center on Budget and Policy Priorities, a public-policy organization that focuses on issues affecting low- and middle-income families. The study also found that the tax would benefit states with high concentrations of wealthy residents, including several in the Northeast, while hurting less well-off states.
But Wright questioned the value of the study because the researchers assumed that the national sales tax would have to be higher than the 23-percent rate contained in Linder’s bill in order to raise the same amount of revenue as the current tax system.
In fact, the figures in the study are based on a sales tax rate of between 45 percent to 53 percent. “Many of the commentaries from think tanks purport to be talking about the Linder bill, but they’re not,” Wright said. “They’re giving answers based on their version of what they think will happen.” Other criticisms that have been leveled at the Fair Tax are that the high rate could encourage widespread evasion and that it would broaden the sales tax to goods and services Americans aren’t used to paying taxes on, from health care to real estate. Most current state sales taxes do not tax services, and many — including Georgia’s — exempt most groceries.
The National Retail Federation has come out against a national sales tax because of concerns that tacking it onto the price of goods and services would make people think twice about making purchases, particularly big-ticket items such as cars and major appliances. “Clearly, it’s going to dampen consumer spending considerably,” said Rochelle Bernstein, the federation’s vice president and tax counsel. But Wright has an answer for these fears. He said worried retailers are missing the point that the Fair Tax wouldn’t drive up their prices because they would no longer have to add the costs of business taxes to their products. “We’re not raising or lowering taxes here,” he said. “All we’re doing is taking all the taxes that are hidden and putting them at the bottom of a retail-sales receipt.” Wright said compliance with the Fair Tax could be enforced through a much smaller agency than the IRS because the sales tax is simpler than the income tax and involves far fewer collection points. However, even President Bush apparently is leaning toward other approaches to tax reform than the Fair Tax.
Published reports last week quoted unnamed administration sources as saying he is more likely to go with less radical changes in the current income-tax system aimed at encouraging investment. But Wright remains optimistic. He says Bush and his advisers are simply lowering expectations that they will undertake a major overhaul. “This is the first time they’ve had time and energy to pay attention to this,” Wright said. “They don’t want the pot to boil before they’re ready for it to boil.”
As blue is not my favorite complexion color, I will NOT hold my breath until it appears in the Atlanta Journal/Constitution (aka The Cox Fishwrapper).
NO NATIONAL SALES TAX!!!
Flat tax only.
I agree!
A National Sales Tax is to much like Europe.
Let's call it a National Health Care Tax.
Sooy, no thanks. What we have now started off as a flat tax. The problem with income taxes is that you can hide it at multiple levels before passing the cost on to the consumer. For example, GM's income tax reutrn for a particular year was 53 feet high. Over 150,000 pages that cost millions and millions of dollars to produce and even more billions to comply with and pay. And guess who ultimately pays those billions, not the company but people who buy GM's cars and trucks.
I read that just keeping up with the incme tax and paying it cost taxpayers $200 BILLION each year.
I want National Sales Tax instead of a Flat Tax because then there were no longer be an April 15
no more tax forms to fill out
no more of the government in our business, in our back pocket, in our face
No more Audits
no more IRS
Just simply pay the tax when you buy something
No more punishing us for savings
I agree. If we implement a flat tax, it won't be long before we're right back to where we started, with Congressmen on both sides seeking and obtaining exemptions for their pet special interest groups and Dems using class warfare to make the code more "progressive".
It would get rid of the income tax.
Where's the double taxation? Isn't this just a VAT? You are only taxed on what you spend, not on what you save.
Can you imagine a paycheck with NO deductions taken out?
And the IRS, and every tax attorney, and every tax accountant, and save oountless hours on the part of citizens in preparing and worrying about taxes.
Something must be done and will be done...
I sure can. I'm an advocate of the national sales tax, all the way. People don't even realize how much they pay in taxes. This puts it right in their faces. To raise taxes, Dems would have to explain to the public why they want the prices of milk and gas to go up.
Looks like you are going to have a busy ping season. ;)
There is more and more discussion of this.
Maybe it actually has a chance.
Here in Lost Angeles, we already pay 8.75% sales tax. How much more would be added by the national sales tax?
--Boris
Define "new". Define "used". I can think of several dodges which would allow 'new' cars to be sold as 'used'...and not only cars.
--Boris
Never a lazy moment, guess it's time to crank my oxygen supply up a couple of notches to keep me awake. grrrmmbl grrrmmbl, jess ain't no rest for the wicked ;O)
A Taxreform bump for you all.
If you would like to be added to this ping list let me know.
John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:
H.R.25, S.1493
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.Refer for additional information: http://www.fairtax.org, http://www.salestax.org & http://www.geocities.com/cmcofer/ftax.html
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