Income tax to end
within few years?

By Jon Dougherty

Legislation backed by national grass-roots efforts and constituent pressure on lawmakers over the next few years could lead to the replacement of the income tax in favor of a consumption tax, says the official spokesman for a noted tax-reform group.

“Patriotism, as it regards our American flag, is at an all-time high,” said Herman Cain of the 420,000-member Americans for Fair Taxation, or AFT. “But there’s also an analogy [regarding taxes] to the American flag that isn’t so patriotic.”

“When we get our paychecks with all the deductions of federal taxes, we see red,” Cain, who is CEO of the Godfather’s Pizza chain, told WorldNetDaily in a wide-ranging interview. “When we go to make a purchase, with the embedded, hidden taxes that are in the cost of goods and services, we see white. And then, on April 15, when we file our tax returns, we turn blue. Then, to make matters worse, when you die, your family sees stars” because of inheritance taxes, he said.

In short, Americans are getting taxed coming and going, say AFT officials, and most people aren’t even aware how much of their income goes to government – local, state and federal.

With that in mind, Cain says, AFT, coming off its first-ever national convention, is perhaps the country’s staunchest advocate for replacing the current income tax with a consumption tax. Says the group: “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 a fair tax.”

And at least partially because of the efforts of Cain and AFT, serious tax reform is once again emerging as a core issue among some lawmakers and the Bush administration. Indeed, the Washington Post in October reported that some in the administration have begun to support fundamental tax reform and are eyeing a consumption-tax plan over the current income tax because, they believe, if implemented, a consumption tax would simplify the process and be a boon to economic growth.

In the interim, the Washington Times reported yesterday, White House analysts and advisers – emboldened by Republicans’ historic midterm election gains – say they are considering presenting to the president economic stimulus packages containing, among other measures, new accelerated tax cuts.

Skeptics of the administration’s reform plan, however, said last week that while they supported an overhaul of the Internal Revenue Service and what they described as the cumbersome, inefficient income-tax system, they were wary that Americans could ultimately wind up paying a consumption and income tax.

One skeptic, Rep. Ron Paul, R-Texas, said the government’s fundamental flaw is that it is too big and as such consumes too much of Americans’ paychecks. He worries that Congress’ voracious appetite for earners’ wages could mean Americans would end up with an income and consumption tax. And he says unless government downsizes, its desire for cash isn’t likely to decrease anytime soon, regardless of the form of taxation used.

Cain said fundamentally he agrees that Washington’s tax appetite is too large – Americans now pay the highest peacetime rates in history, say analysts – but he thinks downsizing government should come second to radically reforming the system of taxation.

“The radical idea isn’t the national sales tax,” he said. “The radical idea is staying with the screwed-up system we currently have. Because of the way our system works, I do not believe we can solve both of those problems at the same time.”

He said addressing the waste, fraud, unfairness and abuse of the current code should come first before tackling “the second issue” of how the government spends tax money.

“People who are skeptical about change … are [also] skeptical about returning to people and workers more of the decision-making power that they would have over their own income,” Cain said. “What can possibly be wrong with the U.S. economy unleashing its full potential? Nothing. It’s win-win for everybody.”

Asked if he believed lawmakers had the political will to overhaul the confusing labyrinth of rules, regulations and loopholes that comprise the current system of taxation, Cain said he thought a window of opportunity would present itself if voters made their presence felt at the polls.

“A threat to being re-elected coming from the voters in every district in the country” would force most lawmakers from both parties to revamp the system, he said.

“I’m convinced that the only thing that will cause major needed change is a groundswell of voter support,” he said. And he believes AFT’s plan is the most sound and most salable.

“The national consumption tax is a single issue that is very difficult for the powerbrokers to confuse people [about] by talking about the other related issues,” he said. “[AFT’s] single objective is to … educate voters about” why it is better.

The group’s tax focus centers on legislation originally offered in 2000 by Rep. John Linder, R-Ga. Called the “Fair Tax Act,” Linder’s bill calls for the repeal of all federal taxes except excise taxes; it repeals all corporate and individual income taxes, payroll taxes, self-employment taxes, capital gains taxes, estate taxes and gift taxes, and in their place imposes a revenue-neutral national sales tax on all new goods and services at the point of final purchase for consumption.

The “fair tax,” says Cain, is a truly voluntary tax because it hinges on taxing consumption, not income. Besides being more universal, he said it would also fully fund the federal government, including Social Security and Medicare. As an added benefit, you wouldn’t need an expert to determine your federal taxes.

The fact that the administration is even considering such dramatic changes to the tax code is encouraging, Cain said, because “at least there will be a dialogue” about what to do and how to do it when it comes to taxation.

Consideration “leads to dialogue in the press and in Congress about not just reform but replacement,” he said. “That’s significant.”

Indeed, since the Post article there has been increased dialogue about reforming taxes.

“Tax experts from universities and research institutes have trooped into Treasury Secretary Paul H. O’Neill’s spacious office for months now,” the New York Times reported Sunday. “Some come to feed his passion for overhauling the tax code, others to temper it. Some come bearing specific plans for achieving his ambitious goal, others with advice based on long experience in the political trenches, where the idea of making the tax code simpler, fairer and more economically efficient is as perilous as it is alluring.”

On Nov. 7, Office of Management and Budget Director Mitch Daniels told Fox News that President Bush “wants a full range of options and he has commissioned a look at everything from a very far-reaching reform to simplifications of the code we have now.”

Daniels said Bush had “not made any decisions” but said the president “just wants to know what his choices are.”

On Nov. 17, columnist Nolan Finley, writing for the Detroit News, said Americans could be “richer” if lawmakers would “kill the income tax.”

O’Neill “is quietly exploring a plan to do away with the income tax, that punitive system of taxation adopted in 1913 that spawned an un-American strain of collectivism,” Finley wrote. “The income tax promotes the notion that the first fruits of hard work and enterprise belong to the government, not the individual.”

The income tax, he said, “places a high price on success, hard work and risk-taking, and seeks to force equalization by confiscating a greater share as incomes rise.”

Finley wrote that Stephen Moore, president of the Club for Growth in Washington, D.C., and a leading proponent “of nuking the income tax,” believes “the goal of taxation should be to make the poor richer, not the rich poorer.

“A tax code designed to redistribute wealth can’t accomplish that. But one that stimulates growth and investment can,” said Finley.

Also, Michael J. Graetz, the Justus S. Hotchkiss professor of law at Yale University and a former deputy assistant secretary of the treasury for tax policy, says 100 million Americans shouldn’t be paying an income tax.

“In his essay, ‘100 Million Unnecessary Returns: A Fresh Start for the U.S. Tax System,’ published in the current issue of the Yale Law Journal, Graetz cites several reasons to reform the current U.S. income tax,” says the M2 Presswire. “Among them are growing public perception that the income tax is unfair and overly complex; the trend toward aggressive tax planning and tax avoidance; and the increasingly unmanageable administrative burden placed on the Internal Revenue Service.”

Graetz is proposing a value-added tax, or VAT, used by 120 countries. It is similar to a national sales tax, but it is collected at all stages of production rather than just from retailers.

“Between now and two years from November, AFT will engage in a massive voter-education effort to keep this issue on the front burner, along with the war on terror and, possibly, another potential war we’re considering,” said Cain. “The more we can bring visibility to this idea to the forefront in the next two years, within the next four years perhaps we can get some movement on it.”

Of AFT’s first national convention, Cain said, “it exceeded our expectations.”

“Over 200 people paid their own money to come to the convention,” he said. “In terms of the motivation people had when they left there, it was exceptional.”

Related stories:

National sales tax gains momentum

Group plans ‘fair tax’ convention

Congress to consider ‘fair tax’

Tax reform drive builds steam