Letters

From the November 1995 issue

(Page 2 of 3)

Any proposal, if it is to actually reduce the size of government, must reduce the number of people who perceive themselves to be receiving a net benefit and increase in numbers those of us who feel we carry more than our share of the burden. This will happen only if tax policy and tax rates apply equally to everyone.
Warren Michelsen
Page, AZ

We cannot assume the IRS would simply roll over and die. Although under a sales tax, the IRS may have less reason to intrude in the lives of private citizens, they would still be there to insure compliance under both plans. As long as there is a chance of creative bookkeeping, of underreporting, of evasion, there will be a need (in the eyes of the IRS) to enforce compliance with the tax code. In essence, if there are taxes, there will be a taxman.

There is also an inequity in either system. The one assumes the more I spend, the more I should pay to offset government expenditures. The other assumes the more I earn, the more I am obligated. Either way, it seems a crazy way to finance a government to me.
Stephen Kolcow Jr.
Albany, NY

In your recent tax debate, only Grover Norquist had a handle on the answer, which is to devote our energy to reducing the size of government and worry less about how its cost is gouged out of our hide.

As he correctly realizes, any national sales tax at the retail level will quickly deteriorate into a value-added tax such as the Hawaii State Excise tax, which is on every transaction at every level. One can only imagine the creativity in tax avoidance which will ensue when transaction taxes rise from 6 percent to 30 percent. A national sales tax will simply force more transactions, and busi nesses, underground. Once underground, businesses no longer pay any taxes, cannot borrow or enforce contracts, and ultimately the country slides into a Third World economy.

The Hall-Rabushka flat tax has a major flaw in that it allows low-income people to pay no direct tax at all. People who pay no direct tax have no stake in government spending and will be come tax-and-spend constituents supporting whoever promises to raise other people's taxes and spend it on them.

The flat tax is my favorite, but with no one left out and with no exemptions. Only when a vast majority feel the pain directly will we get budget reliefwhich is my ultimate goal.
Larry Bartley
Kailua, HI

In offering their opinion on the optimal tax system, the analysts in REASON's roundtable on tax reform necessarily assume that the next tax change will be the last.

The Kemp-Roth changes in the 1980s essentially gave us a flat tax; the second bracket kicked in at about the same income level at which FICA withholding ended. But presidents of both parties agreed to impose new, higher rates on "the rich." The contract of the 1980s, in which we ceded some tax exemptions to buy lower rates, was broken. The exemptions are gone but we are now back up to five tax brackets. Imagine either the flat tax or the national sales tax/VAT 10 years later after several "millionaires' taxes" have been enacted as additional taxes on income. The result is on display in Europe and Canada.

Limiting Congress's power to sell tax favors is more important than the details of the resulting tax. I suggest that the gist of such an amendment should be: 1) There shall be only one federal tax; and 2) It shall have only one rate.

Separately, the zeal to abolish the IRS should be tempered by noting how some state tax agen cies have fished through credit card and licensing records for evidence of out-of-jurisdiction pur chases. This indicates that a consumption tax or VAT (especially at current federal levels of revenue and evasion) does not alone end the risk of intrusive enforcement.
Spike
Brentwood, NH

I was rather bemused by the flat tax ver-sus sales tax debate in your July issue. Presenting such a choice reminded me of the one given the condemned manshooting or hanging? Each side de scribed the evils of the other's proposal, and both were absolutely correct. Rather than debating the best way for the state to pick our pockets, libertarians need to concentrate our energies on reducing government spending (and thus intrusiveness) to the absolute minimum. When the federal role has been returned to that conceived by the Founding Fathers, how remaining taxes (if any) will be collected will be of little interest.
Hal W. Noyes
Orlando, FL

Edward H. Crane makes a strong case for the federal retail sales tax. But he makes an interest ing point that is hard to support: "Suddenly wehave taxpayer solidarity. Suddenly, with no with holding or other hidden taxes, everyone is aware of the cost of government every time he or she buys a product."

Today, no one is aware of the tax paid to the federal or state governments on each gallon of gasoline he or she buys. In days past the cost of the gas, the federal tax, and the state tax was posted on every pump. That made it hard for federal and state legislators to increase the tax without a public outcry.

Once the retailers were unable to show the tax automatically the politicians could raise taxes and bury them in the cost of gasoline. Whenever taxes were raised, as far as the consumer was concerned, the price of gas went up. The same system would soon follow with other products. If you enjoy blank looks, ask anyone how much he paid for gas last time he filled up. If he even knows, then ask how much was the federal state tax and how much was the state tax.
Thomas Akin
North Hampton, NH

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