Citizens for an Alternative Tax System
(CATS)

Tax Visibility

Taxes should indeed be as visible as possible. Under a flat tax, if we were to ask anyone how much they pay in federal taxes, they could pull out their 1040 from the file cabinet and look up their tax total for last year. Under NRST, if we were to ask anyone how much they pay in federal taxes, they could immediately quote the federal sales tax rate, as the tax directly follows from the tax rate without exemptions, deductions, allowances, etc. If we were to ask them how much they paid on a given purchase, they could immediately pull out their receipt from the shopping bag and read off the amount from the cash register itemization. A flat tax will be visible to consumers once a year when they fill out a 1040. The NRST will be visible every day when they make a purchase, yet individual citizens will never need to fill out a 1040 or any other federal tax form. Thus, of the two, the NRST is both much more visible on a daily basis, and much simpler with no 1040 or similar paperwork, ever.

VAT

There is no question that we would not want a NRST to evolve into a VAT, any more than we would want a flat tax to evolve into another complex income tax like the one we have now. We can learn from the history of those countries where sales taxes have evolved into VATs, and legislate our NRST so that we do not repeat that mistake here. On the other hand, American history teaches that, in America, a simple income tax evolves into a complex income tax, indicating that a simple flat tax will not stay flat or simple for long. Thus, in America, the evolutionary risk of a NRST is arguably much less than that of a flat tax.

Another tax

Any and all NRST legislation to date eliminates the federal income tax while creating the federal sales tax. Repeal of the 16th Amendment is not a prerequisite to elimination of the income tax, as the 16th Amendment simply permits an income tax, not mandates one. (As an aside, some researchers believe the 16th Amendment was never properly ratified, making the current income tax illegal and the 16th Amendment moot.) In no case is a NRST being considered as an add-on tax.

Taxing the Underground

It is certainly true that the underground (illegal) economy will find a way to dodge any form of tax - whether it be a flat tax or NRST. This issue therefore cannot be used as an argument against NRST, or to justify a flat tax.

Eliminating the IRS

The prodigious size, and infamous reputation, of the IRS is the direct result of prodigious complexity of the current tax code. Under a flat tax, the IRS could be scaled back somewhat. Under a NRST, the tax collection and enforcement workload would be reduced to the point where this work can be distributed to other agencies, thereby making the elimination of the IRS a feasible option. Federal sales tax collection and enforcement would be delegated to the states, to be collected and enforced along with the state sales taxes. (States such as Oregon, which have an income tax but no sales tax, would likely follow the federal lead and swap their income tax for a sales tax.) The states would send the federal revenues directly to the U.S. Treasury, and be compensated by the Treasury for their services. Any rebate system could be handled by one of the many federal welfare agencies, most of which now require some form of income reporting to ensure an applicant qualifies for a transfer payment which, after all, is what a rebate would be. The FBI or the GAO could ensure the states don't cheat. In short, a NRST can easily be designed such that the IRS is no longer needed.

Common Cause

Yes, flat tax and NRST proponents really are working toward the same goal -- elimination of the current tax system and its inequities. The goals of a tax that is simple, economically neutral, visible, and treats every American the same, and recognition of the failure of the current system to meet these goals, are shared by us all.

The failure of the current system to meet the goal of visibility is a good case in point:

Interestingly, the most invisible tax of all is not a VAT, but the current income tax. This is because of the huge compliance cost associated with the current tax system. If one sums the total the cost of legislation, individual and business record-keeping, tax preparation, IRS enforcement and collection, and judiciary proceedings (50% of all Federal Court cases are income tax-related), the total bill comes to over $500 billion per year, or $10,000 per household per year when averaged across the population. This enormous drain on American time, resources, and productivity -- simply to compute and collect a single tax (over and above actually paying it!) -- is the most hidden tax of all. It is a primary reason why most families require two wage earners to make ends meet, while only one wage earner was needed in the 1950's when the tax system was much simpler.

We must work together to replace the current income tax. Certainly, proponents of a flat tax would agree a NRST is better than the current system, and visa-versa. The question is, which side will walk over the line to the other solution? Given the long term effect of any chosen approach, it is imperative the correct choice be made. But which is it?

One approach to resolving this question, and proving or disproving the claims of both sides, is to conduct a two-pronged experiment:

1. The economics departments of two or more universities are given a two-year contract to model the impact on the economy of replacing the current income tax with a flat tax, and with a NRST. No doubt, several universities already have computerized economic models which could be tuned for this purpose.

2. At the same time, a real-life experiment is conducted in two states. In one state, the federal income tax is replaced by a NRST for the two year period. In the other, the current income tax rules are waived in lieu of a flat tax for the same two year period.

A comparative assessment is made at the end of the two-year period of the predicted results of the economic models, and of the actual experiences of the states. The experience of the states should make clear which is the preferred approach, while the economic models should be able to explain exactly why.

It is better that rhetoric and guessing be put aside, and a systematic and scientific approach adopted, to help us achieve our common cause.