The Only Tax Reform Worth Talking About
February 01, 2005

The Only Tax Reform Worth Talking About

In Oscar Wilde’s novel, “The Portrait of Dorian Gray ,” the protagonist leads a debauched life but remains unsullied, handsome, and witty. It’s his portrait--- locked in a room no one can visit--- that changes. Over time, it shows an aged, decrepit, and deeply corrupt man.

    I think of Dorian Gray whenever I see a politician. With notable exceptions, most present themselves well. Regardless of party, they want us to see them as honest, on our side, and plugging away to preserve America.

    But, like Dorian Gray, the politicians have a portrait that shows their true selves. It’s called the tax code. In spite of annual revisions, reforms, and “simplifications,” the Tax Foundation says that the federal income tax code and related regulations has grown from 744,000 words in 1955 to an incredible 6,929,000 words in 2000.  
It’s still growing. It will continue to grow until we have fundamental reform.

    Our tax code is ugly, disgusting, and corrupt. It does little of what it purports to do. It wastes entire lifetimes in scheming and complying.

    So here’s my suggestion: let’s chuck the whole thing. Let’s eliminate the regressive employment tax, the Phase-of-the-Moon income tax, the Buy-Your-Amendment corporate tax, and the Don’t-Die-Til-2010-estate tax.  We’ll eliminate withholding taxes, estimated taxes, extensions for late filing, and the universal April 15th heart in the throat.
Let’s replace all those taxes with a single new tax, a national sales tax. We’ll tax consumption.  We won’t tax capital. We won’t tax labor.

    This is not a new idea. But whether you are a Republican or a Democrat, it is an idea whose time has come. The leading advocate for a national sales tax is Americans for Fair Taxation ( Based in Houston, the group has spent a decade funding economic research and formulating exactly how we could have a “revenue neutral” sales tax--- one that would neither increase nor decrease the revenue from the existing system.

    Their solution, in brief, is a 30 percent sales tax, the equivalent of a 23 percent income tax rate. They would make it a progressive tax by giving tax “prebates.” No citizen would pay any taxes until their income had passed the poverty level. Because it would be levied on consumption, not income, there would be no tax on business profits, corporate dividends, or interest payments. Money that was working would work unimpeded, financing growth and new job creation. It would be a major step toward proper funding of retirement benefits.

    Only when we bought consumer goods and services would we pay taxes. We wouldn’t pay taxes on used goods. Entrepreneurs would pay little in taxes; spendthrift heirs would pay more in taxes. Before you worry about losing your mortgage interest deductions, think about getting 100 percent of your salary. Think about lower interest rates: they could fall when financial institutions no longer pay taxes. Think about how competitive we could be in foreign markets with no burden of embedded tax costs.

    What’s the biggest impediment to passing the two bills (House 25 and Senate1493)  that would start the fair tax revolution?

Dorian Gray. The politicians. Both parties.

That’s why we’ll need to fire quite a few of them.    

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