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National Sales Tax Promoted as Fairer System

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  • Sam Wright
    National Sales Tax Promoted as Fairer System Wednesday, September 08, 2004 By Peter Brownfeld WASHINGTON — The IRS and all payroll taxes should be scrapped
    Message 1 of 1 , Sep 10, 2004
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      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
      DeMint (search).

      "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
      same reason."

      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"
      income tax.

      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
      consumer activity.

      "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
      Capitol Hill.

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