WHETHER YOU CALL IT a consumption tax, a value-added tax or a national sales tax, its time has come. Let's replace our current income tax law with this simpler, fairer alternative.
Many industrialized nations - but not the United States - raise revenue through taxes on consumption. Under these systems, those who spend the most money pay the most tax.The method is uncomplicated, easy to enforce and far more equitable than our complex tax code. It also encourages savings because there is no tax on earnings that are not spent.
The U.S. income tax law is fast approaching 1 million words in length. Another 5 million words are expended in the written federal regulations that interpret the law.
Businesses spend about $127 billion annually in complying with the tax law, according to the Tax Foundation. In fact, most firms lay out more money for federal tax compliance than they do for their actual tax liability.
Individuals spend around $65 billion to get their returns done. Don't we have better things to spend money on?
Collecting the income tax is tremendously expensive as well. More than 130,000 people are employed by the federal government to administer the tax law, and the cost for this is nearly $14 billion a year.
The sheer size and complexity of the tax law has generated a large increase in what could be called the tax industry. Of necessity, tax accounting practitioners have specialized in various segments of the tax law to gain the most benefits for their clients. This specialization, in turn, creates more detailed rules from the government for dealing with the complexity.
This vicious circle must stop. Many taxpayers have dropped out of the system and no longer file returns. The underground economy is rampant. Respect for the law and the government is eroded.
The system is so sick that we must put it to sleep and start over.
Reps. Bill Archer, R-Texas, and Sam Gibbons, D-Fla., argue for a consumption tax to replace the income tax and still provide enough revenue to reduce the deficit.
Individuals would file no tax returns. They would pay their tax when they bought goods and services, similar to the sales tax now employed by many state and municipal governments.
Under this system, only businesses would file tax returns, reducing the number of returns from more than 100 million to approximately 10 million. Take-home income for employees would increase. Isn't this a simpler and fairer way to raise money?
So who could oppose a simpler, more equitable system that would increase the incentive to save money? The political reality is that there is no lack of tax reform foes.
The real estate industry, for example, prizes the deduction for home mortgage interest payments. State and municipal governments are wary of changing the rule allowing people to deduct local income and property taxes from their federal tax liability. Nonprofit organizations such as charities, churches and colleges fear the impact on their finances if contributions are no longer tax-deductible. Tax professionals, of course, have good reason to prefer the status quo.
The greater good, however, requires change. I sense a growing sentiment to replace our federal tax code with something uncomplicated and more just.