What Went Wrong? Identifying Root Causes
Their Lips Are Moving—Requiem For The Income Tax
Part 5 of 6
 

On a CNN talk show, then-Senate Finance Committee Chairman Daniel P. Moynihan indicated that a national sales tax could be considered as a candidate for replacing the income tax saying, “It is becoming the normal mode of taxation in the rest of the industrial world. You can talk about that. We’re grownups here.” President Clinton, in response to a question at a February 1993 Town Hall Meeting in Chillicothe, Ohio, said, “Let’s talk about the national sales tax…It is something, I think, we may well have to look at in the years ahead…” [16]

America cannot afford to wait years “to look at” solving its economic and social problems. During 1993 each passing day added about one billion dollars to the national debt. The Clinton administration had no strategy to get out of the hole, but instead planed, over a seven-year period, to dig it at least $1 trillion deeper. At that point, according to the plan, the lawyer-politicians would stop excavating. Or, maybe not. It would surprise few if some new war or other crisis “forced” them to change their minds.
 

“In 1815 when England faced the problems of a high national debt and a declining standard of living, the parliament stunned the world by eliminating the country’s income tax. The result? England experienced an unprecedented 60-year growth period that came to be known as the Industrial Revolution. But shortly after the British Parliament reinstated the income tax, the decline of Britain resumed again, and continues to the present day.” [17]

Now is the time to replace all types of federal income taxes—the personal income tax, the business income tax, and the capital gains tax—with a single uniform national sales tax. The two primary objectives for this action are simply stated:

1. Replace the taxes on production, dollar for dollar, with clearly visible taxes on consumption; and

2. Increase the efficiency of the tax collection system.

To achieve these objectives the new federal sales tax must be a simple, straightforward retail tax, not the European-style value-added tax known as the VAT.

A VAT closely matches the malignant nature of the income tax. The lawyer-politicians try to sell it to the public as a business tax. It is not. This tax actually hits each stage of production where “value is added.” Ultimately, the customer pays the entire amount, including its collection costs, hidden in the final price. The total take can be astronomical.

William E. Simon, a former Secretary of the Treasury, is one of America’s leading financiers. In an article for the August 1993 Reader’s Digest he writes, “A broad-based five-percent VAT, according to a Congressional Budget Office (CBO) study, would scoop $108 billion out of our pockets each year. But Hillary Clinton’s health task force reportedly discussed a VAT of up to 22 percent. VAT rates in European countries go as high as 38 percent.”

Of the 23 leading industrial nations, 19 have VATs. European countries developed the VAT to cope with an income tax rebellion by their citizens. As their income tax rates grew, compliance fell. The governments refused to decrease spending to compensate for falling revenues, nor would they decrease income tax rates to increase compliance. Instead, they increased income tax rates. Tax avoidance became almost an art. Does this sound familiar?

Unable to control millions of individual taxpayers , the European governments went after bigger targets. The VAT snatched money from more vulnerable industries and businesses, who, to recover the loss, became the government’s allies. Employing armies of clerks and accountants, they passed the cost through to the consumer, hidden in the price.

In Europe, the VAT did not replace or eliminate the income tax but was in addition to that tax. A study by the Heritage Foundation shows that personal and corporate income taxes are 48 percent higher in VAT nations than in non-VAT nations. [18]

One other trend is evident from the deplorable 20-year record of the VAT in Europe—the tax rate steadily rises. “Austria initiated an eight-percent VAT in 1973; today it’s 20 percent. Denmark’s VAT began at ten percent and is now 22. Sweden’s climbed from 11.1 to 25. Britain’s ten-percent VAT has risen to 17.5. Italy’s went from 12 to 19.” [19] Politicians of all nationalities cannot resist bigger government and promising more benefits.
 

16 Chapter Chronicles (March 1993 Newsletter, Citizens for an Alternative Tax System , 9401 East St., Manassas, VA 22110) 
17 Article by Steven L. Hayes, President, Citizens for an Alternative Tax System , and George Chelekis in the September 1993 issue of the American Legion  
18 Simon, Reader’s Digest , August, 1993 
19 Ibid .