Rep. John Linder (R-Ga.) has authored H.R. 25 "To promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States." Before we look at whether a national sales tax is a good idea, how about a little Economics 101 just to convince you that government spending, not government taxation, is the true measure of governmental impact on our lives?
Keeping the numbers small, suppose the annual value of what Americans produce, our gross domestic product, is $100. If government spends $40 of it, of necessity the government must force us to spend $40 less. There are several ways this can be done. Government could tax us $40. Government could borrow, thereby driving up interest rates and reducing private spending. Government could simply print money, which would cause inflation and reduce our purchasing power. Finally, government could employ some combination of the three.
The bottom line is that if government spends $40 of our GDP, we can't spend that same $40. There's no question that tax reform is needed, but tax reform is secondary to a much larger issue -- federal spending. From 1787 to 1920, except during war, federal spending was a mere 3 percent of GDP, compared to today's 20 percent. If the federal government takes only 3 percent of the GDP, just about any tax system is relatively non-oppressive. However, if government were to take 50 percent, 60 percent or 70 percent of the GDP, you tell me what tax system would be non-oppressive.
There's no question that some forms of taxation are worse than others. In addition to its economic disincentive effects and intrusions on personal privacy, our income tax has huge compliance costs estimated to be between $250 billion and $500 billion each year.
Abolition of the IRS and the income tax code it enforces, replaced by a national sales, would create greater economic incentives, enhance personal privacy, and lower tax compliance cost by an estimated 90 percent. There'd also be greater faith and allegiance to our founders' constitutional vision, expressed in Article I, Section 9, which says, "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken." The founders feared the abuse and the government power inherent in an income tax. Another benefit of a national sales tax is that being taxed 23 percent to 30 percent with every purchase we become more aware of the cost of government. Income taxes and corporate taxes conceal that cost.