Don Feder
National sales tax --- looks better all the time
IF YOU WERE to deliberately set about devising a tax system that was the alpha and
omega of unfairness, that was so convoluted as to be virtually incomprehensible, that
was a sickening waste of resources and one which crushed investment and
productivity, you could hardly do better than the current income tax -- DOB, Feb. 13,
1913.
The Internal Revenue Code and regulations cover 17,000 pages. Taxpayers who call
the service for guidance through this maze get the wrong answer about half the time.
That is to say, the system's so complicated that even the agency charged with
enforcement doesn't understand it.
Individuals and businesses devote 5.4 billion hours a year to tax preparation and
record-keeping. The IRS and other agencies spend $13.7 billion annually to oversee
and enforce the monstrosity.
In 1992, the average medium-sized corporation incurred $7.24 in costs for every $1 
paid in federal taxes.
Last fall, the nation was treated to the spectacle of congressional hearings where
anonymous IRS agents testified on the abuses regularly committed by the
government's most-hated agency: audits ordered on a official's whim, critics harassed,
and illegal liens and seizures. If the service was an individual, it could be arrested for
impersonating the Spanish Inquisition.
But there is hope -- light at the end of this paper labyrinth. Americans for Fair Taxation
wants to make the 1040 form obsolete. It would replace the income tax, corporate tax,
estate tax and Social Security tax with a 23-percent sales tax on goods and services.
A national sales tax would be the essence of simplicity. There would be no forms to fill
out, no withholding, and no lobbying and campaign contributions to win those coveted
loopholes.
Workers would take home their entire paychecks. Consumers would pay the tax at the
checkout counter. They would know, down to the last penny, how much government
costs them on each purchase.
Nothing would be exempt -- neither food nor clothing. Trying to decide just which item
of apparel and which tidbit to exempt would be a hopeless undertaking. Is filet mignon
a necessity? How about Armani suits?
Instead, every household would receive a monthly rebate (based on family size) to
offset estimated taxes on basic purchases. A family of four would get roughly $300 a
month. The impact on the poor would be minimal.
The sales tax actually would be more progressive than the income tax. Under the code
and regs, the rich can hire clever tax lawyers to help them stash their income in
out-of-the-way shelters.
With a national sales tax, the filthy rich would have to come clean, as would the affluent
middle class. When John Q. Plutocrat buys his caviar and Jaguars, he'll surrender an
additional 23 percent.
The poor man will pay far less on his frozen pizza and Hyundai, and he'll get a monthly
rebate, based on poverty-level spending, to boot.
Cave-dwellers excepted, everyone will pay the tax. It will be unavoidable. The
underground economy will be no more.
Does a 23-percent tax on every purchase seem prohibitive? But the stuff you buy today
has built-in taxes (property, payroll and corporate) paid by the manufacturer and added
to the price tag. Eliminate these and prices will fall, partially offsetting the new sales
tax.
Most importantly, by taxing consumption not income, we'll be acting like responsible
adults. In keeping with the basic laws of economics, we will encourage savings
(interest won't be taxed), investment, enterprise and work (no more marginal taxes on
each extra dollar earned). Productivity won't be punished. The saver won't be savaged.
The nation will benefit, as well. Boston University economist Lawrence Kotlikoff
estimates that under a national sales tax the value of plant and equipment will rise by
42 percent, output by 12 percent and real wages will go up 8 percent.
A sales tax will help to level the field on which U.S. goods and imports play. To
encourage exports, many nations rebate their value-added taxes at the border. The
taxes built into the price of products made in America make it harder for us to
compete. Under the national sales tax, the levy on both will be the same.
The more you think about it, the better a national sales tax looks. On this national day
of rendering, Caesar-wise, replacing the income tax (designed by Rube Goldberg,
operated by Torquemada) with a consumption tax looks like Avalon, the Seven Cities of
Gold and nirvana all rolled up with a pretty pink bow.
Mona Charen