Life is full of choices, and something that seems extreme today may seem not only rational but necessary tomorrow if conditions change. So perhaps recent revelations that the Internal Revenue System has been used as a weapon against the Obama administration's perceived political enemies will persuade Americans to take a second look at a tax-reform plan that has gained a lot of interest but little congressional support since it was first introduced in 1999.
At least Dave Armstrong hopes so.
“This could be the largest transfer of power (in American government) since the Revolutionary War,” Armstrong told members of the Anthony Wayne Rotary Club Wednesday, referring to the so-called “Fair Tax,” which would essentially replace federal income taxes with a national sales tax. “The power to tax is the power to destroy . . . The Fair Tax would stop punishing success. Government would be funded by prosperity.”
There are plenty of good reasons to be skeptical about a system that would allegedly generate more money for federal and state governments while reducing taxes and accounting headaches for most Americans. But with allegations of Nixon-style skullduggery making headlines on a seemingly daily basis, there's no denying the appeal of what may be the Fair Tax's most revolutionary feature:
The elimination of the IRS.
Extreme? Compared to what? The fact that one president has already faced impeachment for abusing the agency's awesome power and that current IRS has been caught demanding pro-life groups provide details about prayers and a promise to avoid annoying Planned Parenthood in exchange for tax-exempt status?
Fort Wayne resident Armstrong, state director of efforts to promote the Fair Tax, put the question in historical perspective by pointing out that the IRS didn't even exist until after the 16th Amendment created authorized the federal income tax in 1913.
At that time, Armstrong said, the federal tax code contained 400 pages. Today it numbers nearly 74,000 pages – pages containing countless loopholes designed to encourage Americans to engage in some activities and to avoid others and to vote accordingly.
By contrast, the proposed Fair Tax legislation (to learn more, go to www.fairtax.org), contains just 131 pages.
Armstrong told the Rotarians that so-called “embedded” taxes add about 22 percent to the cost of goods. Those taxes would be eliminated by the Fair Tax, which would boost process by about the same amount. But in part because more people would pay the national sales tax than pay income taxes, the Fair Tax would have boosted the federal government's revenues by $267 billion in 2010.
In addition, he said, the elimination of corporate taxes would increase annual economic growth by at least 7 percent while providing an incentive for individuals and corporations to bring home about $12 trillion now sheltered in offshore accounts.
“The Fair Tax returns us to capitalism. You work for $1, you get paid $1 and you take $1 home,” said Armstrong, noting – correctly – that the current tax system encourages class warfare by inviting politicians and voters to demand that the wealthy pay their “fair” share. In theory, Americans with more money in their pockets should encourage the very spending that would be fund the government through sales taxes. “You would determine the tax you pay (through your purchases). That's the way it was for (America's) first 125 years,” he added.
Eliminating the IRS would also save about $13 billion per year, Armstrong said. And although some collection and enforcement mechanism would be needed even under the Fair Tax, a huge new bureaucracy would not be required because 45 states already impose their own sales taxes.
And the states would be able to keep one-quarter of 1 percent of the Fair Taxes they collect. In Indiana, that would amount to more than $100 million annually.
Would such a tax be “regressive”? No, Armstrong said: Americans would receive rebates based on family size and income.
Even Armstrong acknowledged that passage remains a long shot despite the 70 percent of Americans who profess no opinion about the Fair Tax one way or another. But as the IRS' sins mount, and more taxpayers realize they cannot hide behind the Fifth Amendment as IRS executive Lois Lerner recently did before Congress, a proposal that for now still seems too good to be true may one day appear too attractive to dismiss without at least a serious review.