America is in the midst of the longest and, perhaps, strongest period of economic prosperity in its history. Our economy has created almost 35 million new jobs, reducing unemployment to below five percent. Forty-five percent of Americans own stock, most of whom earn less than $75,000 per year. These figures from the National Bureau of Economic Growth suggest that Americans should be happier and more economically secure than ever before.
Such is not the case, however, because many Americans are growing increasingly burdened by the current tax structure. The system, reduced by Ronald Reagan to two income brackets during the mid-1980s, now stands at five. The IRS Taxpayer Advocates Report states that the "complexity of tax law is the single most burdensome aspect of compliance for most taxpayers and is an underlying cause of many, if not all, of the most serious problems encountered by taxpayers." Thousands of loopholes and regulations force businesses and individuals to spend as much on compliance with regulations as they pay in taxes. Each year, Americans spend more than $200 billion, wasting 5.4 billion hours merely complying with the American tax code. To compound this already difficult situation, the Citizens for a Sound Economy report that the Internal Revenue Service dispensed in excess of 8.5 million incorrect or incomplete answers in 1993, making compliance that much more difficult.
This causes one to question: what can de done about this dilemma? Many Democrats feel that the system is not hard enough on the rich, and to support their social programs, they feel compelled to expand the system. The only way to perpetuate the beauracracies they have initiated is to divest working people of their capital. This is accomplished by taxation at all levels of the system: income, sales, investments and inheritances, for example. All of these are taxed under the present system. Some have called for reform of the current structure, but many are calling for a complete reconstruction of the American tax system. Conservatives generally agree that it is necessary, as Bob Dole said, to "do away with the IRS as we know it." Thus far, two plans have been proposed on the same abolitionist theme.
The first plan has been proposed in various formats, most notably by Steve Forbes, editor of Forbes magazine, and Representative Dick Armey (R-TX), the House Majority Leader. It is commonly referred to as the single-bracket, or "flat" tax. Let us focus on Rep. Armey’s plan, as it is the most publicly favored incarnation of the flat tax.
Congressman Armey believes that the current tax code "is not just economically foolish, it’s immoral (and) indefensible. It’s complex, unfair, and imposes heavy burdens on American families." It is an instrument for economic tinkering and social engineering. The Armey plan, named the Freedom and Fairness Restoration Act, is based on his "four principles" of taxation. It is "simple, fair, direct, and economically neutral."
The plan has two forms, one for business and one for individuals, with each having ten lines. Simple. The current system allows billion of dollars to go untaxed via loopholes, while billions more are doubly taxed. His plan will put every taxpayer on an equal plane. Fair. Armey stipulates that only individuals will pay taxes, and that corporations will pay only for revenue after purchases and investments. Direct. This new plan is economically neutral, containing no special privileges; everybody pays the same flat rate. For the first two years, the rate would be 20%. After that, it will drop to 17%. The plan’s only exemption goes out to every American, regardless of income. For a family of four, the first $33,800 would be exempted outright.
A second, more "radical" wing of the conservative movement, however, has a plan which advocates the abolition of the Sixteenth Amendment altogether. They are led in Washington by Representative Billy Tauzin (R-LA), the House Majority Deputy Whip. Congressman Tauzin, along with Congressman Dan Schaefer of Colorado, is leading an effort to replace the income tax with a national sales tax.
Representative Tauzin claims that, at present, the income tax discourages earning, investing, saving, giving, and purchasing domestic products. "The federal government’s outdated, flawed, and unfair income tax system has become a nightmare for most Americans." Tauzin also believes that it is also a derivative of the Napoleonic Code and such infamous legislation as the Sugar Act of 1764, in which one must prove his innocence, as opposed to a prosecutor proving his guilt, as is the standard in the common law-based American legal system. For example: the IRS might audit a man at any time, without the government having any evidence of wrongdoing. It is then the citizen’s responsibility to prove that he has violated no law.
The solution, according to Tauzin, is to pay on consumption. That is why he and Schaefer have proposed House Resolution 2001, the National Retail Sales Tax Act. In this manner, he claims that people will be taxed only once, and what was previously discouraged will now be encouraged. In his plan, all retail goods and services will be taxed at the rate of fifteen percent. The federal income tax would thus be abolished, and Americans would decide when and how much tax they would pay, not Washington. It stipulates that the tax would be collected by the states, thereby eliminating the Internal Revenue Service. It also provides an exemption, to be adjusted regularly, so that no income below the poverty line may be taxed, in order to give working families more working income. Finally, it would require a two-thirds majority in both houses of Congress to increase the rate.
Curiously, both sides have expressed their support for each other. Rep. Tauzin says he will support the flat tax if the sales tax fails. Congressman Armey claims that "We hope to unite Americans behind a drive to abolish the current tax code and replace it with a system that is simple, fair and honest." To conservatives, Republicans, and taxpayers everywhere, one thing is clear: the time for change is now. It is imperative that reform be implemented immediately. The system is spiraling out of control and is stagnating the economy. The tax code is so complicated and burdensome that it is often easier for Americans to cheat on their taxes, in order to avoid the time and financial committment. Tauzin is quoted in the Wall Street Journal as wanting "to make golf our best reason to lie again," instead of our tax returns. Conservatives must work together to accomplish this common goal. The details, however, are going to take time.
Kevin Portteus is a freshman from Akron, Ohio majoring in Math and Political Science. Armey, Dick and Tauzin, Billy Debate: Flat Tax vs. National Sales Tax. Washington, DC: Sept 27, 1997. Hitt, Greg and Wessel, David "Taxing Ideas." The Wall Street Journal: Oct 10, 1997. Office of the Treasurer of the State of Ohio: Oct 2, 1997.
Kevin Portteus is a freshman from Akron, Ohio majoring in Math and Political Science.
Armey, Dick and Tauzin, Billy Debate: Flat Tax vs. National Sales Tax. Washington, DC: Sept 27, 1997.
Hitt, Greg and Wessel, David "Taxing Ideas." The Wall Street Journal: Oct 10, 1997.
Office of the Treasurer of the State of Ohio: Oct 2, 1997.