Sales tax and the IRS

October 02, 1997|By Douglas W. Kmiec

APOLOGIES and promise of closer administrative and legislative oversight are fine, but in the end inadequate. The IRS simply should go.

Back when a certain self-financing millionaire sought to be president, there was much discussion of a "flat tax," but in truth, the flat tax does absolutely nothing about the IRS. Whatever rate applies, the flat tax still applies to "income."

The idea of toting up "income" sounds simple enough, but when the government gets done with it, it would entail a code book the size of the telephone directory. It also would likely perpetuate a grab bag of indecipherable forms incapable of being prepared anywhere near the IRS-estimated hours.

The national sales tax as a replacement for the income tax holds greater promise. In one bold deduction, as it were, a national sales tax would eliminate the IRS and with it, its over-realized potential for intimidation. Also gone would be federal income tax withholding and up to $250 billion wasted spent by taxpayers and their employers in preparation and compliance costs. In short, every wage earner's and business' bottom line would start to look more like the top.

What's more, a national sales tax puts incentives where they need to be, on savings. America has one of the lowest savings rates in the industrialized world, and personal bankruptcies are at an all-time high.

The savings encouraged by a sales tax also would drive lending rates down to tax-free bond levels, and that means as much as $100 billion per year in lower federal borrowing costs and more money available for mortgages and business expansion. Eliminating the income tax would make U.S. goods for export cheaper, thereby making American products more competitive abroad.

No tax system is problem-free, but a national sales tax that could be efficiently piggybacked on the existing state sales tax system in 45 states and the District of Columbia comes close. A national sales tax would have to be 15 percent to 17 percent so as not to worsen the deficit.

This raises consumer prices, but it also discloses the true cost of government, and in this, simplicity is the harbinger of honesty. Wages without tax withholding in most cases would match or exceed the price jumps. Taxing conspicuous personal consumption is highly equitable. And tax fairness can be further ensured by exempting medicines and other necessities.

So here's the thing, Congress. Go ahead and hold your hearings. But when you are finished investigating yourselves, abolish the IRS and substitute an uncomplicated and responsible national sales tax system in its place. It is the only way to restore the economic and personal freedom that the IRS, by definition, denies. Working Americans deserve a tax system that is clear and unambiguous in meaning and application.

Douglas W. Kmiec is a law professor at Pepperdine University.

Pub Date: 10/02/97

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