Outside the Beltway

Dumping the Income Tax?

James Joyner · Monday, August 2, 2004 · 4 comments

I’m more than a bit dubious of the latest from Matt Drudge:

A domestic centerpiece of the Bush/GOP agenda for a second Bush term is getting rid of the Internal Revenue Service, the DRUDGE REPORT has learned.

The Speaker of the House will push for replacing the nation’s current tax system with a national sales tax or a value added tax, Hill sources tell DRUDGE.

“People ask me if I’m really calling for the elimination of the IRS, and I say I think that’s a great thing to do for future generations of Americans,” Speaker of the House Dennis Hastert explains in his new book, to be released on Wednesday. “Pushing reform legislation will be difficult. Change of any sort seldom comes easy. But these changes are critical to our economic vitality and our economic security abroad,” Hastert declares in SPEAKER: LESSONS FROM FORTY YEARS IN COACHING AND POLITICS.

““If you own property, stock, or, say, one hundred acres of farmland and tax time is approaching, you don’t want to make a mistake, so you’re almost obliged to go to a certified public accountant, tax preparer, or tax attorney to help you file a correct return. That costs a lot of money. Now multiply the amount you have to pay by the total number of people who are in the same boat. You can’t. No one can because precise numbers don’t exist. But we can stipulate that we’re talking about a huge amount. Now consider that a flat tax, national sales tax, or VAT would not only eliminate the need to do this, it could also eliminate the Internal Revenue Service (IRS) itself and make the process of paying taxes much easier.”

“By adopting a VAT, sales tax, or some other alternative, we could begin to change productivity. If you can do that, you can change gross national product and start growing the economy. You could double the economy over the next fifteen years. All of a sudden, the problem of what future generations owe in Social Security and Medicare won’t be so daunting anymore. The answer is to grow the economy, and the key to doing that is making sure we have a tax system that attracts capital and builds incentives to keep it here instead of forcing it out to other nations.”

I’ve long thought that some sort of consumption tax would be preferable to an income tax, for a variety of reasons. I can’t imagine, though, that there’s much chance of it passing since it would take away much of the power of Congress to micromanage the economy for political purposes. Further, its passage would be hindered by the fact that there would be many losers in the transition since, despite the mythology, most people don’t pay that much in federal income taxes under the current system. Even a somewhat progressive consumption tax–perhaps excluding food and medicine and taxing certain “luxury” items at a higher rate–would still result in lower income people paying substantially more federal tax than they do now (most pay none under the current system) and would be a tax cut for the super rich who, despite the rhetoric coming out of Boston last week, pay a grossly disproportionate share of the tax burden.

Certainly, though, such a proposal would shake up the campaign. Getting rid of the IRS would be a very popular idea, indeed. I don’t think it could survive the demagogic reaction that would surely follow, however.

Others blogging:

• Paul at Wizbang thinks this could be “bigger than 9/11.”
• Matt Yglesias is intrigued but correctly notes that we’d still need an IRS since someone would have to collect and monitor.
• Jon Henke is thrilled but notes that this is rather complicated.
• Steve Antler fears that we’d wind up with a consumption tax plus an income tax.
• Duncan “Atrios” Black thinks that proponents will lie about the underlying tax rate, although doesn’t note that its opponents will lie about the magnitude of the downside.
• Ezra Klein thinks the proposal both brilliant and insane.
• Ed Driscoll thinks it would be a lot of fun to watch Kerry try to defend the IRS.