The Public Policy/Consumption Tax Follies
Frum, David
Consumption Tax Follies by David Frum C an we talk like grownups for a minute? Over the past few months, triumphant Republicans have loudly proposed abolishing the income tax and even the Internal...
...Texas Republic .. Mr...
...John Kasich, ought to be estopped from promoting fantasies of a universe with two Christmases a year, zero-calorie ice cream, and no income tax...
...Whether progress is made toward limiting government depends almost entirely on Gingrich's determination to overawe the new Republican lairds of Washington's hungry fiefs...
...In fact, as methods of government finance go, the income tax deserves a little more respect than it's getting...
...Cutting foreign aid and the National Endowment for the Arts won't even begin to do the job...
...Corporate earnings should be taxed only once, not twice as now happens...
...Some, like presidential candidate Robert Doman, do not seem to take themselves entirely seriously...
...This isn't to say that the tax code is perfect the way it is...
...on the contrary, it is the product of the contradiction between GOP promises of revolutionary change and GOP fear of tampering with popular programs...
...What most The American Spectator September 1995 threatens to reduce the plan to doodlings on papers, however, is the ambivalence of the House Republicans...
...The American Spectator .. refreshingly pithy . . . a consise, honest and quietly forceful account of how one man and others like him have devoted their lives to a vision of what America can be . . ." —The Washington Times If your bookstore doesn't have it, then use the order form below...
...Cut its rates, flatten its structure, and the income tax will continue to prove itself—as it has proved itself for decades—the fairest and most rational method of raising money to support the necessary tasks of government...
...Most Republicans agree that higher-income Americans pay too much tax...
...Robert Novak "Washington journalists should spend some time learning about the ideas that motivate the new Congress, and about the conservative movement that developed it...
...They ought to know better...
...Economists who defend the consumption tax have devised a variety of ingenious improvements in response to criticisms of the tax's fairness...
...It's nice to have a more frugal Congress, but it would be nicer still to have a more frugal government...
...In other words, if the consumption tax takes the form of a sales tax or value-added tax, it simplifies everybody's life—but only at the price of harshly steeper tax rates on the poor than the rich...
...The test of the seriousness of the '94 crop of Republicans is the expenditure, not the revenue, side of the budget...
...It's not going to be easy to persuade the corner beer store, the college student painting his neighbors' houses, and the plumber fixing his dentist's drains to charge their customers an extra 17 percent (the impost probably needed if income taxes are to be completely replaced), and to send the money to Washington...
...0 "THOSE WHO REALLY WANT TO KNOW WHAT HAPPENED IN THE 60'S" —STAN EVANS, Human Events "The Thirty Years War is a stony . . . about the current struggle for the soul of America...
...Republicans now touting a per-child tax credit pledged in the Contract With America should be warned that a national sales or value-added tax like that being promoted by Rep...
...A good place to start is with Tom Pauken's fine book...
...Probably the opposite...
...That is the inevitable effect of a simple sales tax regime...
...Tax reform is a diversion...
...Over the past few months, triumphant Republicans have loudly proposed abolishing the income tax and even the Internal Revenue Service...
...Nor do the Republicans on the Appropriations committee seem eager to deny themselves the pleasures of handing out money at the very moment that the voters handed them the keys to the vault...
...government...
...45 AS995...
...Pauken's 30-year war with the 60's counterculture might fairly be deduced from his brief that, however imperfect America and its institutions might be, they were (and are) worth defending...
...What counts as "saving" and "investment" anyway...
...And it is just this that Speaker Newt Gingrich has so far declined to adopt as the prime task of the new Republican congressional majority...
...Since everything that isn't saved is consumed, the savings exemption would transform today's income tax into a hi-tech consumption tax...
...but does anyone really think that higher-income people should pay a lower effective tax rate than their nannies and gardeners...
...outgo, and punish them for cheating...
...T here's no way around the unpleasant fact: We're stuck with heavy taxes and intrusive tax-collecting so long as we demand spendthrift, interventionist government...
...Unfortunately, schemes like this, while mitigating the potential unfairness of consumption taxes, also end up eliminating their virtues...
...Similarly, Republicans who take pride in the party's gains among lower-middle-class voters in 1994 should ponder what those voters are likely to say when they discover that the gleaming new Republican consumption tax imposes a dramatically higher effective rate of tax on them (because they consume nearly all their income) than on their boss and his investors (who consume a much lower fraction of theirs...
...But others, like House Ways and Means Chairman Bill Archer and presidential candidate Richard Lugar weigh in pretty heftily on the gravitas scale...
...Canada permits companies to deduct from their income all money paid out in dividends, a sensible solution to the problem...
...The new Republican fascination with radical tax reform does not—alas—indicate zeal to curb government...
...Testing the limits of those definitions will employ at least as many lawyers and accountants as the peculiarities of the income tax do...
...We have all heard that John Kasich's plan to balance the budget by the year 2002 is encountering opposition in the White House and the Republican Senate...
...Make no mistake: Switching from income taxes to consumption taxes won't mean any less government surveillance of the citizenry...
...National Review "Cultural conservatives will applaud it...
...r PLEASE RUSH ME copies of "The Thirty Years War" at $22.50 each...
...Bud Shuster, chairman of the Transportation committee, and Pat Roberts of Agriculture have already moved more or less openly into opposition...
...The Dallas Morning News "Tom Pauken cherishes and nourishes the dangerous idea that the Republican Party should stand for something...
...Wall Street Journal .. a must for conservatives born yesterday...
...The IRS is demanding and obtrusive not because it is administered by pointy-headed bureaucrats, but because the federal government spends so much—roughly $1,575 billion in 1995...
...But the Republican Party, whose appropriations committee is staging amutiny against the budget cuts pledged by Rep...
...Check (payable to TWP, Inc...
...This is where some of the money goes: Social Security $337 billion Defense $248 billion Medicare $163 billion Housing, Food & Cash Aid to the Poor $150 billion Medicaid $104 billion Highways & Transportation $43 billion Education, Student Loans & Training $40 billion Farm Programs $15 billion Foreign Aid $15 billion National Endowment for the Arts $0.174 billion The point, I hope, is obvious: large and permanent reductions in the appetite of the IRS must wait for large and permanent reductions in the commitments of the U.S...
...Annual tax reports must still be filed, taxpayers must still maintain detailed records, auditing will continue, and aggressive tax planners will go on pushing the system...
...If the Reagan years should have taught conservatives anything, it is that tax relief cannot and will not last without major reductions in the cost of government...
...Gingrich cajoled and coerced a sometimes-reluctant Republican caucus to enact his reforms of the institution of Congress...
...Something yery like the 1986 tax reform—let's say 15 percent up to $22,000, the median personal income, and 27 percent thereafter—would do nicely...
...Taxes on capital gains should take inflation into account...
...enclosed for $ Ship to: Phone: Address: City: State: Zip Code: Send order form to: TWP, Inc., P.O...
...Box 595808, Dallas, Texas 75359 or call 1-800-268-6220...
...What better way to appear to transform the way Washington does business, while leaving all its most popular and expensive functions alone, than to announce work on the fourth major reconstruction of the tax code since 1980...
...We'll need to inspect their account books, audit their income and David Frum is the author of Dead Right (New Republic/Basic Books...
...The main difference from the 44 The American Spectator September 1995 present system would be that any money saved or invested would be exempt from tax...
...In other words, we'll need the IRS...
...One proposal would tax all families more or less the same way they are taxed now, with lower rates for lower-income families and higher rates on the better off...
...Rates should be lower and the rate structure should be flatter to minimize disincentives to work...
...Archer would almost certainly impose larger burdens on big families—who buy more food, sneakers, and Mighty Morphin action figures—than on childless yuppies earning the same salary...
...If the consumption tax takes the form of a new tax deduction for investment, all we've accomplished is to add a new, and extraordinarily complex, wrinkle to the existing tax system...
Vol. 28 • September 1995 • No. 9
