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Tax and spend

Money | The idea of a national sales tax is gaining acceptance in Washington

Issue: "Illegal passage," April 15, 2006

If U.S. Rep. John Linder (R-Ga.) has his way, April 15 will no longer be a dreaded day on the calendar; the only Americans paying taxes on that day would be those who go shopping.

That's because Mr. Linder wants to replace the current federal income tax system (personal taxes, payroll taxes, corporate taxes, all of it) with a 23 percent national sales tax. The tax would be collected at the point of sale for new goods and services, and it would appear on every retail receipt. Each American would choose how much he pays in taxes by deciding how much to spend, and each American would receive a rebate for spending on necessities up to a poverty-line level of consumption.

Mr. Linder's radical bill is a long way from becoming law, but it does seem to be picking up some steam in Washington and around the country. Mr. Linder now has a seat on the House Ways and Means Committee, which writes tax laws, and his "FairTax" bill has over 50 House co-sponsors. The FairTax Book by Mr. Linder and radio talk-show host Neil Boortz made The New York Times bestseller list when it was released last year.

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FairTax advocates make a strong economic case for their reform plan. A national sales tax, they say, would free up the hundreds of billions of dollars in compliance costs exacted by the current system, not to mention all the hours wasted on filling out tax forms. Dropping the tax on capital and labor would also spur growth, they argue, and encourage wealthy Americans to bring home money in overseas accounts and foreign companies to locate factories here. The FairTax would also turn the tens of millions of foreigners who visit the United States each year into U.S. taxpayers every time they buy something.

But beyond arguments about efficiency, the FairTax could also have positive cultural and moral consequences: In a nation of unrestrained consumer appetites, a national sales tax would put government policy squarely on the side of thrift. It would be a tax on ostentation and conspicuous consumption, two vices so prevalent in American culture that they are no longer even seen as vices.

The purchase, for example, of fancy, status-symbol vehicles that are meant to make neighbors envious would face a tax, but the productive work and investment that serves neighbors would not. America's favorite hobby, piling up debt on credit cards, would be discouraged, while the quaint notion of saving part of one's paycheck would be encouraged.

"There is an old adage," said Rep. Gil Gutknecht (R-Minn.), a FairTax co-sponsor, "that if you want more of something, you should subsidize it. If you want less of something, you should tax it. And what do we do in America? We tax income. We tax investment. We tax savings. We tax productivity. We tax all the things we want more of, and yet we subsidize consumption, indirectly."

But not all conservatives are on board with the FairTax. Flat-tax advocates like Steve Forbes worry that Mr. Linder's sales tax, if unaccompanied by a repeal of the 16th Amendment (which gives Congress the authority to tax incomes), would leave the door open to a European-style system of both consumption and income taxes; the temptation to restart the income tax would be tremendous for big-spending politicians, they say, and the country could end up with a tax structure far worse than what it has today.

This debate between competing tax reforms has been brewing in conservative circles for a decade, and it's one worth having again during a campaign season. Don't be surprised if you hear more about it as the 2008 presidential campaign approaches.

Timothy Lamer
Timothy Lamer

Tim is managing editor of WORLD magazine.

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