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Kill the exemptions, and FairTax could work

It requires a leap of faith.

Fitting, actually, since there are 115 people on a Wednesday afternoon sitting in the annex of a Catholic church in Land O' Lakes. The gospel this day is tax reform and the preacher wears a sport coat and open-collared shirt.

The sermon comes from U.S. Rep. John Linder, R-Georgia. He pays homage to U.S. Rep. Ginny Brown-Waite in absentia. This is her 5th Congressional District and she is one of the 76 disciples in Congress, co-sponsors of Linder's legislation to abolish the Internal Revenue Service, eliminate the personal income tax and replace it with a national sales tax called FairTax. (U.S. Rep. Gus Bilirakis is on board as well.)

It is a tax rate of either 23 or 30 percent depending on who spins. But what it means is of every $100 you spend on new consumer goods and services, $23 will be set aside in federal sales tax. The tax cost is inclusive; that is, it is embedded in the price you pay at the register.

It is not a new idea. Dubbed a value-added tax in previous incarnations, Democrats chairing the House Ways and Means Committee advocated for it circa 1980 and again in the 1990s. A 1992 presidential candidate included it in his platform, and the Clinton administration suggested it as a way to pay for health care reform. Many of those ideas, however, also maintained some variation of the income tax.

So, what happened? The first Democrat, Al Ullman of Oregon, lost his 1980 re-election bid after 24 years in Congress; the second, former U.S. Rep. Sam Gibbons of Tampa, lost his chairmanship when Republicans gained control of the House in 1994. The presidential candidate, Democrat Jerry Brown of California, wasn't taken seriously, and the Clinton health care reform died a political death.

Let's just say the political will hasn't been particularly strong since. Linder believes that is changing and will continue to do so. He points to Mike Huckabee as proof. The little-known former governor of Arkansas came from nowhere with little money to win the Iowa Republican caucus in January. It was not the evangelical vote that propelled Huckabee, says Linder, it was the FairTax advocates.

The end result, he maintains, is inevitable.

"We're going to come to this point whether I'm here or not,'' Linder tells the (mostly) faithful.

The crowd is predominately retired and men outnumber women. Many have read Linder's two books on the subject. A few are rightfully skeptical, not because they are fans of the IRS, but because they doubt the federal government has the ability to change or to cut spending.

Gary Wilner, a Pasco Republican stalwart from Trinity, wants to believe, but not quite. Why, he asks, would home buyers purchase a new house and pay the national sales tax — $69,000 of a $300,000 price — when the same preowned house is exempt and could be had for $231,000?

The theory holds that housing prices will follow the falling labor and material costs because the built-in overhead of a payroll tax is eliminated. Wilner is not convinced. Afterward he poses the same question about boats, luxury automobiles or any high-end purchase. Why buy new and absorb the added tax costs?

It is indicative of the non-believers not being ready to leap. For the FairTax to work as envisioned, there must be no exemptions. Services must be taxed. State legislators must roll back their own sales tax rates and eliminate the exemptions. (Ostrich feed, stadium luxury boxes and lap dances, anyone?) Businesses must reduce the retail price of their products to consumers. Otherwise, all this does is add accountants, tax attorneys and lobbyists to the unemployment line in the name of corporate profits.

"You believe in the marketplace or you don't,'' says Linder. "I believe in the marketplace.''

The statistical data is too voluminous to detail here, but can be found at www.fairtax.org. Here is a sample of why this discussion is taking place: Complying with the U.S. income tax code costs up to $500-billion annually, money and productivity that could be of better use elsewhere. Data from 2001 showed Americans with more than double the amount of consumption dollars, $8.55-trillion, than taxable income, $4.22- trillion. Most of the rest of the industrialized nations charge similar national sales or value added taxes, meaning Lender's plan should level the playing field for U.S. manufacturers competing in a global economy.

In theory, it should create jobs, invite investments, increase productivity, reduce retail prices, and produce greater revenue for Social Security and Medicare.

What is needed to achieve all this? The believers ask.

"It's political will,'' answers Lender. "The biggest problem in America is inertia.''

Reach C.T. Bowen at bowen@sptimes.com or at 1-800-333-7505, ext. 6239.

Kill the exemptions, and FairTax could work 08/23/08 [Last modified: Friday, August 29, 2008 3:48pm]

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