- The Washington Times - Friday, November 26, 2004

Some tax-reform advocates in Congress want to begin work on a new tax system immediately, with action taking place in the first two years of President Bush’s second term.

Rep. John Linder, Georgia Republican, authored a bill to eliminate the Internal Revenue Service and to create a progressive national retail-sales tax. The legislation had 54 co-sponsors, including House Majority Leader Tom DeLay, Texas Republican, but without any formal Democratic support, the bill never got to the House floor.

Mr. Linder said the work to transform the revenue stream for the country must begin in the 109th Congress.

“It’s very unusual for a president to get anything done in the last two years of a term, so he has to get it done in the first two,” he said.

Mr. Linder’s plan would have created a consumption tax in which consumers would pay taxes based on the amount of goods and services they buy, with a maximum tax of 23 percent on goods and 25 percent on services.

Tom Wright, executive director of FairTax.org, a tax-policy think tank that worked with Mr. Linder to develop his proposal, said such a system would eliminate business taxes and offer middle and low-income families tax obligations comparable to the current payroll-tax system.

Mr. Wright said the government would subsidize the household necessities of every American citizen up to the poverty level set by the Health and Human Services Department (HHS) based on a family of four.

“Right now, HHS says the poverty level for a family of four is about $24,000 a year. That means a family is going to spend $2,000 a month on food, shelter, clothes, entertainment and health care,” he said. “If you calculate that in terms of consumption, it’s about $479 a month. So you send them a check for $479 each month, with no hidden taxes.”

Frugal families that stay within that margin essentially will pay no taxes, but the middle class and wealthy likely will spend more, and that is where the tax will begin. On the first dollar over the poverty level, the tax will be “less than one-half percent,” Mr. Wright said, and will rise progressively up to $250,000, at which point the maximum tax of 23 percent kicks in.

Mr. Linder said consumers already are paying nearly 22 percent in hidden taxes for business compliance and transferred expenses and that his proposal not only makes the taxpayer invisible to the federal government, but also would open the government’s coffers to the “underground economy.”

“We have a $1 trillion underground economy, pornography, drug trafficking and other activity that is untaxed, and that is a tenth of the economy,” he said.

Both parties agree that reform is needed.

House Speaker J. Dennis Hastert, Illinois Republican, wrote in his autobiography released this fall that he endorses any of three tax-reform proposals: a consumption tax, a national sales tax or a value-added tax.

Rep. Chaka Fattah, Pennsylvania Democrat, said he will introduce a plan for a “transaction tax” when the new Congress convenes in January. The plan would put a tax on all noncash transactions, with some exemptions for small purchases of necessities.

But Republicans are fearful that the Democrats will politicize the issue rather than work toward reforms.

“When I spoke to the Democratic leadership, they agreed that change is needed, but essentially said they would do it when they reclaimed the majority,” Mr. Linder said.

House Democratic Whip Steny H. Hoyer said it is the White House that has backtracked on tax reform and simplification.

“All along the campaign trail, President Bush talked about the need to make our incredibly complicated tax system more simple and more fair,” the Maryland Democrat said. “But now, just days after the election, there are signals that the administration is backing away from its commitment to tax reform.”

Mr. Hoyer said the White House is lowering its expectations for reform and will use the issue as a “Trojan horse” to shift the overall tax burden to middle-income taxpayers.

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