If tax-writers set out to write a whole new federal tax code, would they produce the intricately complicated, thousands-of-pages long monstrosity that frustrated Americans must deal with today? Of course not.
This is why, as we look toward the 21st century, movement is growing to toss out the current code and start from scratch. Republicans in Congress hope to add to this momentum with a a bill striking down all federal tax laws in 2002. It's a good idea. With nothing to fall back on, lawmakers would be forced to come up with something new and better before the extinction date arrives.
One radical new plan that received considerable publicity in the 1996 presidential campaign from publisher Steve Forbes is the flat tax -- backed by House Majority Leader Dick Armey, R-Texas, among others. But another radical plan is moving to challenge the flat tax and it's also backed by powerful members of Congress, including House Ways and Means Chairman Bill Archer, R-Texas.
It's a national sales tax and you'll be hearing a lot more about it in the months ahead as Americans for Fair Taxation, with the support of grass-roots business groups, kicks off a campaign blitz across the nation. Backers don't expect quick results. The idea is to educate the American people, so that as momentum builds to revamp the tax code, the national sales tax will be No. 1 on the list of options.
What's particularly gratifying about the AFT proposal, however, is that it doesn't deal in fuzzy generalities. It's detailed and specific -- so much so that former Federal Reserve Bank of Dallas chairman and AFT founder Leo Linbeck Jr. even presented the plan to President Clinton in the Oval Office. (According to Business Week, Clinton was intrigued, but non-committal).
AFT sets the federal sales tax at a uniform 23 percent (to bring the government the same revenues it receives now). The levy is on all goods and services -- no exceptions, not even for food and medicine -- at the time of final sales. Business sales are exempt. Also exempt: second-hand goods, such as used homes or cars. The tax is paid once when these items are new -- no double-taxation.
Even though the wealthy would obviously pay more taxes because they buy more, the AFT plan recognizes the hardship the tax puts on the poor who spend more of what they earn on necessities. To offset this, monthly rebates would be given to all families, but it would be based on size not income. A family of four, for instance, would be rebated $308.
To be sure, the plan has its critics. The most telling criticism is Americans won't accept a combined federal and state tax rate that could exceed 30 percent. The AFT responds the focus should not be on the tax rate, but on prices at time of sale. Those will actually decline as business taxes, which boost underlying costs of today's goods and services, are repealed.
There are other benefits, too, which strongly recommend the plan. Unlike the flat tax, which only replaces the income tax, the national sales tax gets rid of both income and payroll taxes. For many wage-earners, the payroll tax -- which funds Social Security and Medicare -- takes a larger bite of the paycheck than the income tax.
Are U.S. taxpayers ready for such a revolutionary tax revamp? We think they will be, once they fully understand it. Of all the new-tax options presented so far, AFT's is easily the most fair and comprehensive. But first, let's get on with step one -- and sunset the current tax code for 2002.
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