National Sales Tax Promoted as Fairer System
- National Sales Tax Promoted as Fairer System
Wednesday, September 08, 2004
By Peter Brownfeld
WASHINGTON � The IRS and all payroll taxes should be
scrapped and replaced with a national sales tax
(search) that would require the poor to pay nothing,
some tax reform advocates are proposing as an ideal
plan to rejigger the U.S. tax code.
The proposal has been gathering strength among leading
lawmakers, and the issue has made its way into the
presidential campaign and at least one key Senate
Rep. John Linder (search), R-Ga., has been promoting a
national sales tax for years. He said he is gaining
more and more allies on Capitol Hill, including
members of the Republican leadership.
Linder, a six-term representative, dismisses the
central criticism of a national sales tax � that it
would disproportionately tax the poor � by saying they
would be exempted. But critics say Linder's plan is a
little too neat, that his math does not add up and
that it would be impossible to exempt the poor and
still avoid having a behemoth agency like the IRS.
"It's not worth the tremendous pain that it would
cause for a questionable promise of success in the
long run," said Adam Kovacevich, communications
director for Inez Tenenbaum (search), the Democratic
candidate for Senate in South Carolina who is facing a
national sales tax advocate, Republican Rep. Jim
"This is the kind of idea that sounds great at the
Heritage Foundation, but when you actually apply it to
South Carolina, it would cause serious pain in the
state," Kovacevich said, referring to the conservative
think tank in Washington, D.C.
Under Linder's plan, the national sales tax would be
set at 23 percent, which he claims would be enough to
replace the funds that the canceled payroll tax would
have raised. The national sales tax would be in
addition to the average 6.2 percent state sales tax
that people already pay.
Linder said low-income Americans would benefit the
most because they would receive a rebate or "prebate"
for the new 23 percent sales tax. Linder's plan would
abolish the IRS, creating in essence, he said, a $3
trillion to $5 trillion tax cut. The states would then
be responsible for distributing these funds.
Spending up to the poverty level, a figure determined
by the Department of Health and Human Services
(search), would be tax-free for all households.
Households would receive a "prebate" on the first day
of the month for all spending expected during the
In 2004, HHS estimated the poverty level (search) for
a single person to be $9,310. For a family of four it
was $18,850. Linder said "prebates" would result in a
huge increase in purchasing power at the bottom end.
Critics of Linder's plan say "prebates" would
complicate the supposedly streamlined plan, and make
it impossible to get rid of the Internal Revenue
"One of the reasons Linder and others have been
supportive is because you can get rid of the IRS, but
if you start doing rebates, who's going to be
responsible for that? The simplicity starts to
evaporate, so then what's the point?" asked Paul
Weinstein, chief operating officer of the Progressive
Policy Institute (search).
Linder responded that under his plan, prebates would
be administered by the states. He acknowledged,
however, that some additional bureaucracy would be
necessary, but nothing on the scale of the IRS.
Under his bill, the Fair Tax Act of 2003 (search),
Linder said that not only would the tax burden
actually be less regressive, but America would benefit
by creating a more competitive market with the
elimination of corporate payroll taxes. America would
be "ferociously competitive in world markets."
"We'd become the world's biggest tax haven and foreign
capital would be in our markets. We also know that
virtually every international corporation located
elsewhere would build their plants in the U.S. for the
Linder's measure has 54 cosponsors, and he said he
believes it is gathering support on Capitol Hill and
across the country. The bill has the support of House
Majority Leader Tom DeLay, R-Texas, and Linder
predicted that another powerful ally would soon start
lobbying President Bush.
"I fully expect him to hear from [Speaker of the
House] Denny Hastert on this," Linder said.
In Hastert's book "Speaker: Lessons From Forty Years
in Coaching and Politics," which was published in
August, he called for replacing the current income tax
system with either a national sales tax or a "flat"
Responding to a question at a Florida campaign rally
last month, Bush sounded open to discussion of a
national sales tax.
"I'm not exactly sure how big the national sales tax
is going to have to be, but it's kind of an
interesting idea that we ought to explore seriously,"
the president said. The next day administration
officials said Bush was not considering such a reform.
John Kerry's campaign quickly condemned a national
sales tax, and Bush for potentially supporting it.
�If [Bush] has his way, every trip to the supermarket
will feel like a visit to H&R Block and every day will
be April 15. And now that this plan has been exposed,
George W. Bush is trying to mislead the public into
thinking it was just an off-the-cuff comment," Kerry
spokesman Phil Singer said in an Aug. 12 statement.
Linder said he is unsure how the proposal would be
received in the administration.
"There is a battle going on in the administration
between those who think he should jump into this and
those who are afraid of big ideas," he said.
But while some think the system sounds good, critics
dispute Linder's expected tax rate of 23 percent.
William Gale, an economic expert at the Brookings
Institution (search), estimated that to replace the
income tax, the sales tax rate would have to be more
than 26 percent. Other economists place the number at
40 or 50 percent.
Adding to this chorus, Weinstein suggested that 30 to
36 percent would be more realistic, and said he
worried about the effect of a national sales tax on
"A considerably high tax may dampen consumption. Quite
frankly we got out of the last recession through
consumer spending," he said.
The debate is not only taking place in Washington. The
idea of a national sales tax has emerged as a major
issue in the race between Tenenbaum and DeMint. The
two candidates have written dueling op-eds in South
Carolina's leading newspaper The State, and debated
the issue last Friday.
"Helping our companies and workers drop the enormous
burden of our tax code is a vital first step," DeMint
wrote in his Aug. 22 op-ed.
Back in Washington, retiring Rep. Billy Tauzin, R-La.,
has also proposed legislation abolishing the IRS and
replacing it with a national sales tax. Tauzin's bill,
the Individual Tax Freedom Act of 2004 (search), was
introduced in April and has three cosponsors. It was
referred to the Committee on Ways and Means in April,
but no action has been taken on it since then.
Linder said he hoped to have a hearing on his bill in
the Ways and Means Committee this month, but one has
not been scheduled yet. He acknowledged that any
action before the election is unlikely, but with
powerful lawmakers like DeLay and Hastert interested
in the topic, the debate will certainly continue on
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