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WASHINGTON – Is it real or is it an election year scheme to win votes?

That’s the question many in this town are asking about House Speaker Dennis Hastert’s proposal to eliminate the income tax and abolish the Internal Revenue Service in a second Bush administration.


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In his upcoming book, “Speaker: Lessons from Forty Years in Coaching and Politics,” Hastert says the bold move – sure to be immensely popular with voters – will be the centerpiece of President Bush’s domestic agenda in a second term.

Hastert, for his part, says he will push for replacing the nation’s current tax system with a national sales tax or a value added tax.

“People ask me if I’m really calling for the elimination of the IRS, and I say I think that’s a great thing to do for future generations of Americans,” he writes in “Speaker,” set for release tomorrow.

House Majority Leader Tom DeLay, R-Texas, offered a preview of the House GOP leadership’s post-election tax agenda in a March speech in which he said the Republicans are determined to repeal the federal income tax.

Long an advocate of a national sales tax, a confident DeLay told a conference of tax lobbyists that House Republicans will have hearings and push the issue in 2005 and 2006.

He said that replacing the income tax, payroll and other related federal taxes would provide more money for people to use, and he endorsed a proposal from Rep. John Linder, R-Ga., for a national sales tax.

Yet, even as Republican leaders in the GOP-led House, Senate and Bush White House have praised the concept of tax simplification over the last 3 1/2 years, the U.S. tax code has been expanded by over 10,000 pages as the Bush tax cuts and other changes – part of a total of 227 changes to the code – were implemented.

“Pushing reform legislation will be difficult,” admits Hastert. “Change of any sort seldom comes easy. But these changes are critical to our economic vitality and our economic security abroad.”

Americans for Fair Taxation has been pushing the plan for years. Recently, the group has been pushing H.R. 25 as the vehicle.

“The current federal income tax system is broken. Patching up the existing code is pointless. It’s time for a fresh approach, a fair approach. It’s time for the FairTax,” says the group’s website. “From its humble beginnings, the income tax has grown like a cancer by taxing our hard work and discouraging savings and investment.”

H.R. 25 would eliminate the federal income tax and replace it with a 23 percent consumption tax paid by the end user. That means business-to-business purchases for the production of goods and services would not be taxed. The organization estimates consumer prices will drop by an estimated 20-30 percent as a result of the change.

The group’s website describes how the bill’s rebate function works. It assures that those living in poverty would not pay any tax.

“Under the FairTax, no American will pay taxes on necessities. The rebate will be equivalent to the tax paid on essential goods and services. The rebate will be mailed before the tax is actually paid [and] will be paid in equal installments at the beginning of the month. The size of the monthly rebate will be determined by the federal poverty level for a particular household size.”

The bill’s Senate version is S.1493, sponsored by Sen. Saxby Chambliss, R-Ga., was introduced last year.

“If you own property, stock, or, say, one hundred acres of farmland and tax time is approaching, you don’t want to make a mistake, so you’re almost obliged to go to a certified public accountant, tax preparer, or tax attorney to help you file a correct return. That costs a lot of money,” writes Hastert. “Now multiply the amount you have to pay by the total number of people who are in the same boat. You can’t. No one can because precise numbers don’t exist. But we can stipulate that we’re talking about a huge amount. Now consider that a flat tax, national sales tax, or VAT would not only eliminate the need to do this, it could also eliminate the Internal Revenue Service (IRS) itself and make the process of paying taxes much easier.”

Would a campaign promise to eliminate the IRS be taken seriously? If the Bush administration were really planning such a dramatic move in a second term, why would campaign officials not be making more of it? Could Bush really deliver on a promise so bold?

These were some of the questions being asked around the Capitol today. Nevertheless, the leak from Hastert is sure to sell books.

“By adopting a VAT, sales tax, or some other alternative, we could begin to change productivity,” Hastert continued. “If you can do that, you can change gross national product and start growing the economy. You could double the economy over the next fifteen years. All of a sudden, the problem of what future generations owe in Social Security and Medicare won’t be so daunting anymore. The answer is to grow the economy, and the key to doing that is making sure we have a tax system that attracts capital and builds incentives to keep it here instead of forcing it out to other nations.”


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Previous stories:

Effort to dump income tax gains steam

Income tax to end within few years?

National sales tax gains momentum

Group plans ‘fair tax’ convention

Congress to consider ‘fair tax’

Tax reform drive builds steam

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