In the meantime American taxpayers continue to suffer the crippling burden of a tax system which punishes work, savings, and investment, costs every man, woman and child in America over $850 per year in compliance costs alone (this is in addition to the actual tax they pay), and subjects them to more than 34 billion civil penalties assessed by the IRS each year. It's a tax code that's easy for dishonest people to cheat, but hard for honest people to comply with. It's intrusive, unfair, and robs millions of Americans of the opportunity to better their lives. It's ten thousand ugly, impenetrable pages of dead weight on the American economy. It's simply the worst law in America. Whether you like the Clinton or Cortez approach to tax reform, it's high time we had a serious debate on what a post-income tax world will look like.
| Well, here's a new world for you to consider for a moment: no income tax, no payroll tax, no self-employment tax, no capital gains tax, no gift or estate taxes, no corporate taxes, no withholding, no tax on Social Security. No tax forms, no record keeping, no personal tax filing whatsoever. No IRS. No April 15. All gone. Forever. |
No tax on income of any kind, for businesses or individuals. When you think about it, why would we ever tax income in the first place? Why punish what we want to encourage, which is work, production, and self-sufficiency? Where else in society do we punish achievement? Do the Chicago Bulls pay Michael Jordan less money when he averages 30 points per game? Does Harvard University flunk out its A students? Does a mother send a child to her room for being polite at the dinner table?
Consumption is what we must tax, not production. We should allow what people take out of the system to go through Washington's toll booth, not what people produce for society. And there's only one tax that truly accomplishes this goal, simply and honestly, and that's the FAIR TAX, the perfected version of a national retail sales tax.
| The Fair Tax, as advocated by Americans For Fair Taxation (AFFT), would replace the individual and corporate income tax, Social Security and Medicare payroll taxes, the self- employment tax and the estate and gift tax with a simple, single rate national retail sales tax on all final goods and services. The plan also includes a universal rebate that protects all families on the purchase of necessities, eliminating the regressivity of some sales tax plans. |
But wait, what about the flat tax? Well, I'm glad you asked. You see, I was for the flat tax before the flat tax was cool. I was the strategist behind the very first Congressional campaign of Majority Leader Dick Armey, the Congressional father of the flat tax. I was Armey's first Chief-of-Staff in Washington. I've studied every tax plan there is, and none more than the flat tax.
Dick Armey is as fine of a man as you will find, inside or outside of Washington. He's also the biggest country western fan I know, and Dick and I both can't wait to say to the income tax "Thank God and Greyhound You're Gone," (Roy Clark), but as for the best replacement, the Fair Tax is "The American Way" (Hank Williams Jr.) and the Flat Tax is a "Coca Cola Cowboy" (Mel Tillis).
The flat tax, as originally proposed in the early 1980s by Hoover Institution scholars Robert Hall and Alvin Rabushka, and more recently promoted by Steve Forbes, is a good proposal, much better than the current system. It would dramatically improve the economy and reduce the complexity and intrusiveness of our current tax system.
The Fair Tax and the flat tax are alike in many ways. The flat tax and the sales tax would have similar (although not identical) positive effects on the economy. They both would dramatically reduce marginal tax rates and reduce the tax bias against work, savings and investment. Each would provide a tax system that no longer discourages savings and investment. Each would lead to much higher rates of economic growth, greater productivity, higher wages, lower interest rates and a higher standard of living for the American people.
| But the sales tax clearly trumps the flat tax in a number of very important ways. Under the flat tax for instance, individuals would need to continue filing income tax returns. In fact, the Armey flat tax form looks very similar to today's 1040EZ form. Under the Fair Tax, individuals would be forever free from filing tax returns. No record-keeping would be necessary, and IRS audits of individuals would totally cease. Under a sales tax, what you earn would be what you keep. No more federal income tax or payroll tax would be withheld from paychecks. |
Businesses would also have a much simpler job under a sales tax. Instead of complying with a myriad of complex rules relating to the income tax and payroll taxes, they would simply have to answer one simple question each month: How much did you sell to consumers? Moreover, under the sales tax, retailers would be paid a fee to compensate them for the costs of complying with the tax system. And what of the flat taxers' objection that under a sales tax businesses would become tax collectors? Today, 95% of businesses already collect sales taxes for their states. In fact, today, business are tax collectors and tax payers. Under the sales tax, they no longer pay, they just collect, and they are paid for collecting. Oh, and the customers walking into their store have 100% of their paychecks in their pockets.
Compliance costs under the flat tax would be lower than under present law but they would be much lower still under the Fair Tax. Under the flat tax, all Americans would still have to file tax returns. Under the flat tax, business would need to continue to track and report their income and their deductions. Businesses would still need to comply with withholding regulations regarding the income tax and payroll tax withholding from employees. Firms would still pay the employer share of the payroll taxes. And the self-employed would still pay the 15.3 percent self-employment tax. Under the Fair Tax, all of these burdens would no longer exist.
| The Fair Tax would do away with the IRS because a sales tax would be administered by the state sales tax agencies, assuming the states chose to do so. Given the incentives in the Fair Tax plan, most if not all would choose to do so. The federal role in tax administration would be dramatically reduced to oversight of the state sales tax collecting authorities and administering the collection of customs duties and the remaining excise taxes (such as the gasoline tax). As for cheating, what will be easier to police, 120 million flat tax returns, or 14 million Fair Tax returns? |
Most importantly, because the sales tax would dispense with the existing income tax apparatus, it would be very difficult for the federal government to go back to an income tax. On the other hand, it is very easy to turn a flat tax into the loophole-filled, unfair tax system we have today.
All that need be done is to change the tax rates and place exceptions in the law. Because the Fair Tax is an indirect tax that taxes goods and services rather than specific people, it is well nigh impossible to turn it into a graduated tax rate system where how much you earn or spend determines the tax rate you pay. Any changes will be brutally transparent.
The issue of international trade and competitiveness is another clear winner for the Fair Tax. The flat tax, like the current tax system, taxes U.S. exports but allows imported goods to enter the country free of tax. The flat tax thus places American firms at a decided disadvantage in both foreign and domestic markets. Under the Fair Tax, U.S. produced goods and foreign produced goods pay the same tax when they are sold at retail in the United States. When U.S. produced goods are exported they bear no sales tax since they will never be sold at retail here. In other words, only the Fair Tax makes U.S. firms more competitive both in foreign and domestic markets. Foreigners will invest here and U.S. firms will bring their capital home to take advantage of this improved tax situation. The US will in essence become a tax haven for international capital. And American workers and consumers will reap the benefits.
| The Fair Tax repeals payroll taxes (FICA). Many Americans pay more in payroll taxes than they pay in income tax. Theses taxes are highly regressive because the 12.4 percent Social Security tax is only paid on the first $68,400 of wages and not on wages above that amount or on investment income. Because of this aspect of the Fair Tax plan combined with the rebate, the positive impact on poor and middle income families is substantial. |
Congressman Armey often decries "government by deception," wherein Washington perpetrates ills on the American public without the action being visible. Well, the sales tax is the least deceptive, most visible tax of all. It conveys the actual cost of government to the American people with every single purchase. The flat tax retains the hidden employer payroll tax. It also shifts much of the burden of capital taxation to businesses by denying them deductions for interest, payroll taxes and other business expenses. Most people will remain unaware that these very substantial business taxes are being collected because they will simply be hidden in the price of their goods and services. American taxpayers will not be able to see the true cost of government.
| The Fair Tax shares all of the advantages of the flat tax. Where they differ, the sales tax is superior to the flat tax. Flat tax supporters who honestly examine the sales tax will surely reach the conclusion that while the flat tax is a positive proposal, the sales tax is by far the best. I hope they will then join me in the rapidly growing Fair Tax movement. In the first four weeks after public introduction, Americans For Fair Taxation received 250,000 requests for membership kits and information from people who support tax reform. Thousands more every day call the 1-800-FAIR-TAX line or log onto the http://www.fairtax.org/ website. Flat taxers of the world unite... behind the Fair Tax! |
* Denis Calabrese is president of a public relations firm in Houston, Texas and is the former Chief of Staff to Majority Leader Dick Armey.
Footnotes:
1) The AFFT membership mentioned by Mr. Calabrese at the time he wrote the article was 250,000. That figure now, in 2001, has grown to some 418,000 and is growing daily.
2) In addition to Calabrese, another former associate of Dick Armey, Stephen Moore now of the CATO Institute, also "saw the light" and changed from a Flat Tax'er to a NRST advocate. Moore worked for the Joint Economic Committee (JEC) of Congress when Armey headed it up and, at that time, Moore favored the so-called Flat Tax.
3) Armey, R-TX (debating for the Flat Tax) and Tauzin, R-LA (debating for the NRST) held over 30 "Scrap The Code" public debates in cities all across the USA. At virtually every debate, the audience gave Armey a "polite" round of applause and gave Tauzin a rousing, long & loud, standing ovation. Clearly, the audiences (judging by their questions and by their applause), preferred the NRST over Armey's Flat Tax.
I (Cliff Cofer) attended the Armey/Tauzin debate in Des Moines, Iowa. There were prox. 250 citizens in the audience. Judging by the audience's questions during the Q&A period (and the applause at the close of the debate), there was no doubt about which tax reform plan was the audience's preference... the NRST won hands down!
4) At the State of Texas Republican Party Convention a couple years back, Armey recommended that the Convention pass a resolution declaring its support for the Flat Tax. The Convention voted NO and, instead, voted YES for a resolution in support of the NRST.
Increasingly, Armey's "hang tough" position in favor of the Flat Tax is becoming more and more isolated. Pressure is mounting steadily to force him eventually to allow the NRST bill(s) to come to the floor of the House for debate.