Citizens for an Alternative Tax System
(CATS)

I certainly appreciate the frustration Americans harbor toward the income tax system. The current tax code is unfair, complex, and inhibits economic growth. I studied the tax system for almost a year before deciding to propose a flat tax as a complete replacement for the current system.

My plan replaces the current code with a 17 percent flat tax. Individuals would pay 17 percent on wages, pensions, and salaries. Business income is treated similarly, with a 17 percent tax on the difference between revenues and expenses. The flat tax ends all deductions and credits, but permits a generous personal allowance: $12,200 for an individual, $24,400 for a married couple, and a dependent deduction of $5,500. It's an open, honest, straightforward tax. And Americans will finally receive relief from high taxes.

The idea of a national sales tax sounds appealing, but I don't believe it's the best approach for those who support smaller government. The first concern I have with a sales tax is that it's hidden. Ask anyone leaving a store how much they just paid in sales tax, and chances are they won't know. A tax that is not visible is easier for politicians to raise. [response]

The most hidden of all tax schemes is a European-style value-added tax (VAT). A VAT is assessed at each stage of the production process, and is built into the price of consumer goods. Because VATs are almost completely invisible to the taxpayer, they have led to the rapid growth of government where they have been implemented. Unfortunately, 20 of 21 sales taxes in developed nations have turned into VATs over the past few decades. [response]

I'm also concerned that the sales tax will not replace the income tax, but rather become an add-on tax. As a person who has fought to reduce the size and scope of government, I cannot support the creation of an entirely new taxing authority in Washington without the repeal of the 16th Amendment first. And to be honest, this simply is not going to happen. [response]

I might also add that the two purported advantages of a sales tax over a flat tax don't hold up well to scrutiny. For example, proponents of a sales tax often observe that the sales tax will tax the underground economy. However, neither the sales tax nor the income tax achieves this goal. Take, for example, the drug trade. Under an income tax, we tax the income of the drug consumer but not the dealer. Under a sales tax, we tax the purchases of the drug dealer, but not those of the consumer. Either way, the value of the drug economy is not taxed. Remember, both systems rely on the drug deal to report the sale and purchase of drugs, whether for sales or income tax purposes. The same holds true for legal goods and services, such as those a plumber or carpenter perform. Taxing the underground economy requires a tax code that is fair and simple in order to make it easier to comply and to minimize the incentive to cheat. [response]

Sales tax advocates also argue that their plan eliminates the Internal Revenue Service (IRS). But as long as the government collects revenue, it must have a revenue collection agency. Under the sales tax proposals I've examined, most Americans have to file with the IRS for a rebate. Without a rebate, a sales tax would amount to a tax increase on most Americans. Also, most sales tax proposals do not call for the elimination of the payroll tax, which means the IRS would still collect this tax. [response]

I appreciate your taking the time to write me on this issue. My view is that those who favor a sales tax are trying to accomplish the same goals that I am with a flat tax. Our only difference is how we get there. I believe the flat tax holds the greatest promise to replace today's archaic tax system with one that is simple, economically neutral, visible, and treats every American the same. [response]

Again, thanks for contacting me.