Houston. He’s lanky, white-haired and calm. Listen to him for a few minutes and you sense rare qualities— great patience and stunning analytical abilities. Even more striking is a sustained passion, untainted by malice. His name is Leo Linbeck Jr. His company has built some of the most striking buildings in America.
But I’ve come to talk about a different kind of construction, our tax system, which is broadly acknowledged to be one of the most wretched things ever built. I’ve come because Linbeck is one of the prime movers behind the idea of a national sales tax, a tax that would replace the entire 73,608-page tax code.
While our tax code has been called “an abomination” it is now clear that both political parties intend to do no more than tinker with the abomination, in different ways, to rebuild America to their vision. Neither party recognizes that our tax code is central to our current economic mess.
Linbeck thinks different. He says that if we want to rebuild America, we need to start with a paradigm shift. We need to start by building a brand new tax system.
When I asked him how the idea came about I was surprised by his answer. Nearly two decades ago he was having lunch with two friends. One, the late Jack Trotter, suggested that the biggest single problem in America was its tax system. Businessmen all, they agreed and decided to do the research and development for a tax system that would work.
They began with a blank page. “We started with research,”Linbeck said. “What do people dislike most? What would they like or not like? What would they like to have?”
Then they asked another question: “If people got what they wanted, would it be efficacious?” Would it work?
That’s where a lunch conversation ended and the heavy lifting began. Finding little academic work on differing tax systems, they selected 25 top economists and asked if they were interested. All 25 were. Then they narrowed the group down to 8, including well-known economists like Martin Feldstein at the National Bureau of Economic Research, James Poterba at MIT, Laurence Kotlikoff at Boston University and Dale Jorgenson at Harvard.
The result was a bold idea: replace the current mess with a national sales tax. Tax consumption and only consumption. Don’t tax investment, education, or income. Eliminate the income tax, the employment tax and the corporate income tax. Just tax consumption.
“It’s very progressive, but on a discretionary basis,” he said. “If you buy a Bentley and I buy a Ford, you’ll have to pay about twenty times the taxes I pay. People that spend more money will pay more taxes.”
Then, just as Procter and Gamble test new products, they spent millions to test “the market” for the tax. Result? Not only would it work, but the name FairTax came out of one of the consumer panels as well. “All I want is a fair tax,” one of the panelists said.
If the people liked the idea and understand it, I asked Mr. Linbeck, why isn’t it the law?
And that’s where I learned, once again, that the problem is called Washington.
To get the FairTax idea, now a piece of legislation, through the Ways and Means Committee they would have to hire lobbyists, one for each party. They would have to support frequent get togethers for Congressional staffers and they would have to provide money to support other political projects.
They first said no, then decided they would try the Washington way. After 6 months they fired everyone, Linbeck said, and decided to try a grass roots path.
“I’ve learned quite a bit over the last 17 years,” he told me. “I’m convinced that what we have for government is a contemporary form of feudalism.”
I asked what he meant.
“We have an elected elite, their staff, lobbyists, the academics. Perhaps 100,000 people. It’s a relatively small number of people, well educated, well-intentioned, not bad people. But they believe they ought to decide. They gravitate toward complexity, not simplicity. This group decides how the rest of us will live.
“If we want something, we have to go to (the king’s) court. We have to find someone (a lobbyist) who has the ear of the king.
“If you accept a simple idea— that complexity creates opportunities for manipulation— then you can immediately see that the largest single tool is our tax system,” he said.
Alas, the idea may make too much sense to go far in Washington.