Say goodbye to the IRS

[XtremeJibber2001]

Interesting read ... however impratical it is

Say goodbye to the IRS
Interview by Christopher Lancette

Seventh district congressman John Linder (R-Ga.) won a seat in the U.S. House of Representatives in 1992. He currently sits on the House Ways and Means Committee. He is also the author of the FairTax, legislation that would change the U.S. tax system.

Let's jump right into it - explain exactly what the FairTax is.

The FairTax is a bill that would repeal all taxes on income - no more corporate income tax, no personal income tax, no payroll taxes, no self employment tax - no gift tax, estate tax, capital gains tax or alternative minimum tax. Any tax that is pegged to income would be gone, as would the IRS. We would replace that with a consumption tax - a tax of retail sales on personal consumption at final purchase of new goods and services.

Currently, the average taxpayer gives the government 33 cents of every dollar they earn. In our system, they would give the government 23 cents of every dollar they spend. Then we would provide to every household - every household - a cash distribution at the beginning of every month that would totally untax them up to poverty-level spending.

And what's the status of the legislation?

Well, it has 54 co-sponsors, which is the most it has ever had. We're going to meet very soon with the leadership of the House and Senate, and the Speaker (of the House - Dennis Hastert) has gotten the President of the United States to agree on meeting with me for an hour. And I believe we (Republicans) have to have a big idea to run on.

You say that all corporate taxes would be repealed. How would that benefit businesses?

Businesses spend a considerable amount of time complying with the tax code. We paid $265 billion in 2004 just filling out IRS paperwork. We spend another $150 billion calculating the tax impact implications of a business decision. There is not a businessman or woman in America that does not think about the tax implications of any choice they want to make. Under our system, we would effectively give the American people a $400 billion tax cut - letting them keep in their pockets all that money they spent on compliance. Businesses would for the first time be able to consider their employees, their customers and their shareholders - and not worry about the government.

The estimates we've heard are that compliance costs could decrease by as much as 90 percent. Is that accurate?

That's very accurate. The only compliance left would be the compliance of the tax collectors - the retailers and the doctors and the dentists who have to collect the tax on personal consumption. Their compliance costs would be about 10 percent of the current compliance costs.

The event you and WSB radio talk show host Neal Boortz held at the Gwinnett Convention Center filled to capacity. Did the large turnout surprise you?

Yes it did. I expected to have a good crowd. We looked for different venues and that was the only one available that had 4,500 seats. We think we turned away 4,500 people. We think another several thousand people heard on the radio that the event was closed down, turned their cars around and went home.

I want to change tracks a little bit ... The Republican-controlled White House and Congress have increased federal spending beyond the level of any Democratic administration. Do you think your party has dropped the ball on federal spending?

Put me in that group of disappointed people. We've had a Republican majority for 12 years. We have never had a conservative majority. We have 25 Republicans in the Northeast who'll side with the Democrats on spending issues every time. We saw that it took us a long time to pass our budget - we passed it by one or two votes this year because our moderates wanted us to increase spending as much as the Senate did. So we have had a really difficult time.

When you're in the majority, you have to pass spending bills to keep the government from shutting down, and you have to make those compromises. I spent 16 years voting for people in the minority - 14 years in Georgia and the first two years in Washington. That's the easiest thing in the world - you just vote no and go home. When you're in the majority, you've got to pass the bills. I've cast more miserable votes in the last 13 and a half years that I did in the previous 16.

You've been married to your wife, Lynne, for more than 40 years. How did you meet her?

That's a long story. I'd finished playing a county-league softball game on July 16th of 1963. My brother and I were standing on a corner having an ice-cream soda when this car pulls up, asking for directions to Cedarwild Lodge in Minnesota. It was a town of 800 people and it's hard to get lost and we thought, "That's kind of cool, let's go out to the lodge." So we asked why she was in town and she said she'd just dyed her friend's hair and it had turned blue, so she was sent to town to get another dye to try to fix the problem. So I said to my brother, "Wouldn't you like to see the gal with blue hair?" So we drove out to Cedarwild Lodge, said we wanted to see the gal with blue hair and was introduced to my wife who, at the time, was quite angry about her blue hair. And three months later we were married. That was 43 years ago this year.

What's the most frustrating part of a congressman's job?

Inertia. Alan Greenspan told me that the toughest job is to overcome the inertia in this town. You get set in your ways, just go along step-by-step. My guess is that part of my problem in getting this bill moving is that 90 percent of the Congress has not even looked at it and doesn't even know it's there. Just to get them to think, "This is possible, this is do-able, the American people are ready for this," is very frustrating. We tend to get so occupied in doing what we must do that we don't have time to do what we should do. And that's frustrating.

As you look back not only on your political life but your personal life are there people that stand out in your mind that made a real impact on you?

One who really moved me was Ronald Reagan. I spent more time with him than with any president. I traveled on his campaign plane in 1976 whenever he was in the Southeast. Every time I'd see him he'd forget who I was. But he knew who he was. I'll take the guy who doesn't know me but knows himself any day.

[Cityskier]

"One who really moved me was Ronald Reagan. I spent more time with him than with any president. I traveled on his campaign plane in 1976 whenever he was in the Southeast. Every time I'd see him he'd forget who I was. But he knew who he was. I'll take the guy who doesn't know me but knows himself any day. "

Now that's some funny sh*t!

[yeti]

They can in effect create a simplified flat tax... by doing nothing.

All they have to do is not modify the Alternative Minimum Tax. Left to its own devices, in 10 years most taxpayers will be subject to the AMT which in many ways resembles a flat tax.

This requires no legislation, no new regulations, no action at all.
While many people bitch that is is "not fair" (to *their* situation) it is indeed pretty damn flat, and definately simpiler than the code most of us are subject to.

[2knees]

This would hurt retail business for sure. There is no way that people wouldn’t change their shopping habits if that was the primary means for tax collection. Hell, its nearly impossible to get anyone to purchase goods unless its bogo or 50% off. Now you throw this into the equation and people are going to be wearing clothes much longer, not buying 30 pairs of shoes etc etc. And retailers typically don’t get taxed to anywhere near the degree of heavy industry simply for the lack of taxable items. Inventory is purposely reduced dramatically and there is little in terms of other assets to tax. Most stores are leased, home office and warehouses have some machinery but not a ton. So the reduction in corporate tax would quite possibly not come close to recouping the $ lost to the reduction in discretionary spending.

Or, its possible that i dont know what the f**k i'm talking about.

[Dr. NO]

This would hurt retail business for sure. There is no way that people wouldn’t change their shopping habits if that was the primary means for tax collection. Hell, its nearly impossible to get anyone to purchase goods unless its bogo or 50% off. Now you throw this into the equation and people are going to be wearing clothes much longer, not buying 30 pairs of shoes etc etc. And retailers typically don’t get taxed to anywhere near the degree of heavy industry simply for the lack of taxable items. Inventory is purposely reduced dramatically and there is little in terms of other assets to tax. Most stores are leased, home office and warehouses have some machinery but not a ton. So the reduction in corporate tax would quite possibly not come close to recouping the $ lost to the reduction in discretionary spending.

Or, its possible that i dont know what the f**k i'm talking about.

It could hurt retail, but many states have added taxes to retail you never even see. If you need it you will buy it, and you would only be paying the federal tax when you purchase something, kind of like Canada's GPT or what ever it is. Think of the extra cash you would have in your pocket to use as you wish, the choice of how to pay your federal taxes would be yours.

I still think the FLAT TAX is the way to go. After a minimum earnings, everyone gets taxed the same rate. 10% or 25% of your earnings is the same whether it is $50K or $1.5MM.

[Bubba]

This would hurt retail business for sure. There is no way that people wouldn’t change their shopping habits if that was the primary means for tax collection. Hell, its nearly impossible to get anyone to purchase goods unless its bogo or 50% off. Now you throw this into the equation and people are going to be wearing clothes much longer, not buying 30 pairs of shoes etc etc. And retailers typically don’t get taxed to anywhere near the degree of heavy industry simply for the lack of taxable items. Inventory is purposely reduced dramatically and there is little in terms of other assets to tax. Most stores are leased, home office and warehouses have some machinery but not a ton. So the reduction in corporate tax would quite possibly not come close to recouping the $ lost to the reduction in discretionary spending.

Or, its possible that i dont know what the f**k i'm talking about.

I'd be much more concerned with real estate markets, and the market value of your home after the mortgage deduction goes away.

[2knees]

This would hurt retail business for sure. There is no way that people wouldn’t change their shopping habits if that was the primary means for tax collection. Hell, its nearly impossible to get anyone to purchase goods unless its bogo or 50% off. Now you throw this into the equation and people are going to be wearing clothes much longer, not buying 30 pairs of shoes etc etc. And retailers typically don’t get taxed to anywhere near the degree of heavy industry simply for the lack of taxable items. Inventory is purposely reduced dramatically and there is little in terms of other assets to tax. Most stores are leased, home office and warehouses have some machinery but not a ton. So the reduction in corporate tax would quite possibly not come close to recouping the $ lost to the reduction in discretionary spending.

Or, its possible that i dont know what the f**k i'm talking about.

I'd be much more concerned with real estate markets, and the market value of your home after the mortgage deduction goes away.

True, except my career happens to be with a small retail company. I've already had 3 other retailers in CT go out from under me so I’m a little hyper sensitive to anything that may facilitate our demise.

[ski_adk]

Tell ya what, I think i might be more inclined to barter for goods or try to buy them under the table if this took place. Sure, I could afford more w/out income taxes, but with that much extra money, I think I'd rather save it and buy something significant, like reinvest it into property or something. While I was doing that, I'd continue to live relatively frugally when it comes to goods and such, utilizing things like garage sales, e-bay, craigslist and such.

I dunno, while I see this benefitting me, I don't see how practical this idea is. Seems like it could be too much of a shock to the system.

[Dr. NO]

Tell ya what, I think i might be more inclined to barter for goods or try to buy them under the table if this took place. Sure, I could afford more w/out income taxes, but with that much extra money, I think I'd rather save it and buy something significant, like reinvest it into property or something. While I was doing that, I'd continue to live relatively frugally when it comes to goods and such, utilizing things like garage sales, e-bay, craigslist and such.

I dunno, while I see this benefitting me, I don't see how practical this idea is. Seems like it could be too much of a shock to the system.

Not much different than bartering your time and being paid under the table, is it?

[ski_adk]

Not really much different, but the economic incentives might be a little more prevalent.

[BigKahuna13]

This would hurt retail business for sure. There is no way that people wouldn’t change their shopping habits if that was the primary means for tax collection. Hell, its nearly impossible to get anyone to purchase goods unless its bogo or 50% off. Now you throw this into the equation and people are going to be wearing clothes much longer, not buying 30 pairs of shoes etc etc. And retailers typically don’t get taxed to anywhere near the degree of heavy industry simply for the lack of taxable items. Inventory is purposely reduced dramatically and there is little in terms of other assets to tax. Most stores are leased, home office and warehouses have some machinery but not a ton. So the reduction in corporate tax would quite possibly not come close to recouping the $ lost to the reduction in discretionary spending.

Or, its possible that i dont know what the f**k i'm talking about.

I'd be much more concerned with real estate markets, and the market value of your home after the mortgage deduction goes away.

It'll never happen specifically for that reason. Housing is one of the - if not the - primary components of our economy. Doing away with the mortgage deduction would kill housing starts and probably significantly impact the economy as a whole.

[yeti]

Well I agree with that - take away my mortgage deduction and I will vote Green Party if I have to to oust the fool that voted to nix that deduction!

However.... while it is generally considered political suicide these days to even mention doing away with the mortgage interest deduction.... there are good reasons to do so. Not only that, but under a revamped tax code, you may actually end up better off. The only people that would lose would be those that purchased very recently (say three years ago or less) who are still paying mostly interest on their loans. But after a few years, this would even out, and a few years after that they would catch up and be better off in the long run.

I read an interesting article about this in The Washington Post about a year ago (I can't find it now). While I knee jerked my way out of buying into the guys argument, it was somewhat interesting.

[XtremeJibber2001]

Speaking on ignorance here .... is the mortgage deduction a way for you to get the interest you've paid back?

For example lets say I buy a $300,000 home today. Most likely the first 12 payments will be primarily interest, so I can deduct that in my taxes and get "most" of that money back right?

[SkiDork]

Speaking on ignorance here .... is the mortgage deduction a way for you to get the interest you've paid back?

For example lets say I buy a $300,000 home today. Most likely the first 12 payments will be primarily interest, so I can deduct that in my taxes and get "most" of that money back right?

You just get to deduct that from your income. So whatever your tax bracket is, you get that percentage back. i.e. if you're taxed at 33% you "effectively" get back 33% of the interest

[XtremeJibber2001]

Speaking on ignorance here .... is the mortgage deduction a way for you to get the interest you've paid back?

For example lets say I buy a $300,000 home today. Most likely the first 12 payments will be primarily interest, so I can deduct that in my taxes and get "most" of that money back right?

You just get to deduct that from your income. So whatever your tax bracket is, you get that percentage back. i.e. if you're taxed at 33% you "effectively" get back 33% of the interest

So since I'm in the 25%, if I owned a home that cost $300,000 and the payments were interest only payments for the first year (say $1,000 a month) ... I'd get $3,000 back. Not bad. Now I just need a house