An All-American Tax System

by Patrick J. Buchanan – July 14, 1997

These are truly the dog days of the Republican Party.

Successive national tickets have been defeated by Bill Clinton as convincingly as the GOP Congress has been cowed. If the incoming mail of one writer on public affairs is a reliable barometer of public sentiment, the party is in trouble — for that mail is full of anger, despair and derision for the Republican leadership.

To endure, a great party must be more than a line on a ballot or a vehicle for advancement. It must embody people’s hopes. It must be, and be seen as, the vessel of a cause larger than itself. With the Cold War over, what is the great cause of the Grand Old Party?

If that cause is to stand for lower taxes, and smaller, less intrusive government, it is time to revisit an idea broached here years ago: replacement of the U.S. income tax with a national sales tax. What would a national sales tax (NST) — already adopted by Rep. Bill Archer, chairman of the House Ways and Means Committee — accomplish? It would:

— End, in one stroke, all federal taxation of salaries, wages, dividends, interest, gifts, estates and capital gains.

— Eliminate all federal income tax forms, saving 5.4 billion work hours spent each year filling them out.

— Shift the U.S. tax burden off work, savings and investment onto consumption — as economists have urged for years.

— Eliminate the Internal Revenue Service.

— Tax the “cash economy” and “underground economy” for the first time. All present tax evaders — from tourists to tax cheats, from illegal aliens to organized crime — would become U.S. taxpayers, chipping in, like the rest of us, every time they spent a dollar.

— Eliminate the need for hundreds of thousands of accountants, bookkeepers, tax lawyers and trust lawyers, turning them loose for more productive work than exploring the U.S. tax code for loopholes.

— Eliminate thousands of lobbyists now prowling the nation’s capital for special tax breaks for their industries or corporations.

A shift to an national sales tax would also have a dramatically favorable impact on the U.S. trade deficit. An NST of 15 percent would end the scandalous tax evasion by foreign corporations, putting U.S. goods on a level playing field with imports. Moreover, eliminating income and corporate taxes from the sticker price of U.S. products would strengthen America’s competitive position in world markets.

With all federal taxes on income and investment lifted, wealth would pour into the United States. Foreign corporations would move here. Wealthy foreigners would stampede to make America their official residence for tax purposes. U.S. citizens who have moved their money abroad to evade income or estate taxes would come scurrying home.

America would become the world’s greatest enterprise zone!

In the great GOP debate, between advocates of a flat tax and advocates of NST, the latter seem to this writer to have much the stronger case, for the flat tax has several fatal flaws.

First, a flat tax of 17 percent on all incomes above $35,000 would give the scores of millions of Americans earning less than $35,000 no incentive to cut federal spending and every incentive to increase it.

Second, since all capital gains and dividends go untaxed under a flat tax, the idle rich and the David Rockefellers, Warren Buffetts and their heirs would never pay a dime, though their employees would pay 17 percent a year. This exemption for coupon-clippers and trust-fund babies will never pass muster with Congress or the country.

The strongest argument against an NST has been that, under it, the poor, working poor and elderly living only on Social Security, who pay no income tax, would get a sharp tax hike — since all their income is spent. But the wealthiest Americans, who are taxed today at near 40 percent of income, would get a hefty tax cut.

GOP Reps. Billy Tauzin and Dan Schaefer propose a way around this formidable obstacle. Under their NST, food, clothing and shelter are exempt, and the poor and working poor are made whole with rebates.

As Rep. Tauzin argues, the U.S. income tax does not need to be reformed — it needs to be pulled up by its roots. No system will satisfy all, and none is perfect, but the NST seems to be the best of all possible worlds.

It eliminates the IRS. It ensures that everyone pays — but only when we consume, not when we earn, save or invest. Tax evaders would now pony up, like everyone else. Imports would carry the same taxes as U.S.-made goods. Exports would go untaxed.

Everyone would contribute to the national defense and all the other necessary duties of government, which is as it should be. In a democratic republic, there should be no freeloaders.

The NST — call it “America’s tax code”!