Saturday, April 2, 2005

And You Thought Social Security Was a Hard Sell

John Linder, a Georgia Republican member of the House of Representatives wants to get rid of the Income Tax.  Yeah John, don’t we all? 


Well, not exactly all.  Certainly the lawyers don’t want that and the accountants blanch at the very mention . . . stir in the housing, conference, restaurant and airline industries, add a liberal dash of pubs and clubs, deferred, referred and inferred stock options and top off with taking the power of taxation away from the powerful who impose them and what you have left is a very small contingent of supporters.


But we really need this and it’s good for America so it probably hasn’t got a chance.


George F. Will’s brilliant Thursday column  lays out a pretty good case for Linder’s plan, but John Linder says it pretty well himself;  “Any fundamental tax reform must result in a tax code that is simple, fair, voluntary, transparent, border neutral, industry neutral, strengthens Social Security and has manageable transition costs.


”These neutral principles would all be fulfilled by my proposal to eliminate all income and payroll taxes and replace them with a national retail sales tax. This "FairTax" plan is a compelling proposal that would benefit the U.S. economy, businesses across the nation, and all American taxpayers. These principles include:


  • ”Simple: The tax reforms must result in a tax code that is easy to understand for all Americans - no matter one's education, occupation, or station in life. The FairTax plan is simple. It eliminates the more than 10,000 pages of complexities in the current income tax code once and for all, replacing them with a simple uniform sales tax.

  • ”Fair: Fundamental tax reform proposals must protect the poor and treat everyone else the same. No exemptions. No exclusions. No advantages. The FairTax plan is fair. It contains a rebate of the sales tax for every household, designed to totally rebate the tax consequences of spending up to the poverty line. This rebate mechanism protects low-income Americans, ensuring that every household can buy necessities tax-free. Under the FairTax, all Americans receive equal, fair treatment.

  • ”Voluntary: Americans deserve a tax system that is not coercive or intrusive. Under the FairTax, every citizen becomes a voluntary taxpayer, paying as much as they choose, when they choose, by how they choose to spend.

  • ”Transparent: The cost of government should be transparent to all Americans, with no "hidden" taxes. According to a Harvard study, the current tax component in our price system averages 22 percent, meaning that the least well off among us lose 22 percent of their purchasing power from the embedded costs of corporate taxes, payroll taxes, and compliance costs. The FairTax eliminates the hidden tax component from our price system and allows the market to drive the tax component out of the price system.

  • ”Border Neutral: Any fundamental tax reform plans must ensure that our exports are unburdened by any tax component in the price system, while imports carry the same tax burden at retail as our domestic competition. Under the FairTax, imported goods and domestically produced goods would receive the same U.S. tax treatment at the checkout counter. Moreover, our exports would go abroad unburdened by any tax component in the price system.

  • ”Industry Neutral: The President's tax reforms must be neutral between businesses and industries. There is no good reason that our neighbor who builds a bookstore, hires our kids, votes in our elections, and supports our community should be placed at a seven percent disadvantage against an Internet bookstore. Nor is there a good reason why I, as a dentist, didn't have to collect a sales tax in Georgia while my neighbor, the retailer, did. The first principle of government ought to be neutrality, and a plan like the FairTax would ensure industry neutrality.

  • ”Strengthens Social Security: Fundamental reform must address the future of Social Security. The FairTax plan would strengthen Social Security by paying Social Security benefits out of the general sales tax revenues. The sales tax would be collected from 282 million Americans and 51 million visitors to our shores. Revenues to Social Security and Medicare would double, as we expect the size of the economy to double, in 13 to 14 years under the proposal.

”Given the significant impacts of a weakened U.S. economy, Congress and the White House must no longer allow a tax code that inhibits economic growth to persist. Eliminating the income tax will bring long-term interest rates down to municipal bond rates, ultimately reducing interest rates by 30 percent. The FairTax would bring a 26 percent increase in exports in the first year, as well as a 76 percent increase in capital investment, leading to increases in productivity and real wages.”


So, if I understand this correctly, we all stop paying income taxes and the companies we work for stop collecting them on the government’s behalf.  Offshore tax havens will become merely places to vacation, the worldwide movement of American capital can free itself from tax implication and foreign capital can flow unencumbered to our shores.  I see losers, but they’re mostly in the second paragraph and the losses they sustain are the result of a gradual accumulation of special interest profitability. 

We are not a special interest nation, not when we are at our best.