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Congressional Testimony
September 7, 2000, Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3254 words
COMMITTEE:
HOUSE SMALL BUSINESS
SUBCOMMITTEE:
TAX, FINANCE, AND EXPORTS
HEADLINE: TESTIMONY IMPACT OF
COMPLEX TAX SYSTEM ON SMALL BUSINESS
TESTIMONY-BY: W.J.
"BILLY" TAUZIN , REPRESENTATIVE
BODY:
September 7,
2000 Testimony of the Honorable W.J. 'Billy" Tauzin (R-LA) before the House
Small Business Committee, Subcommittee on Tax, Finance and Exports The Impact of
the Complexity of the Tax Code on Small Businesses: What Can Be Done About It?
Mr. Chairman, it is my honor to address the Subcommittee on the benefits of a
national retail sales tax and my proposal, H.R. 2001, the National Retail Sales
Tax Act of 1999. 1 first introduced this legislation, along with my friend,
former Congressman Dan Schaefer in the 104" Congress. Since then I have been
joined in this effort by Congressman James Traficant and others, that understand
the economic benefits of a national retail sales tax. I look forward to working
with you and the members of the Subcommittee to overhaul our current system and
lift the burden of the income tax from the shoulders of small businesses and all
Americans. The federal government's outdated, flawed and unfair income-tax
system has become a nightmare for all Americans. It has grown from 14 pages in
1914 to more than 2,000 pages of law, 6,000 pages of regulations and hundreds of
thousands of rulings and interpretations. Tax preparers and income tax experts
who routinely testify before Congress admit that even they do not fully
understand all of the provisions and ramifications of the Internal Revenue Code.
Unfortunately, small businesses can not escape the harmful and detrimental
effects of the income tax code. In fact, the National Federation of Independent
Businesses (NFIB) calls the federal income tax code the "small-business owner's
most feared adversary." Unlike large corporations, small businesses often do not
have the resources necessary to hire tax accountants -and attorneys to help them
navigate the income tax code. As this subcommittee is well aware of, small
businesses are disproportionately affected by the death tax. Too many small
businesses and family farms have been forced out of business because of the
confiscatory power of the death tax. The House of Representatives is scheduled
to vote this week to override President Clinton's recent veto of legislation to
abolish this anti-family, anti-small business tax. The death
tax is just one of the punitive portions of the federal income
tax code. While I strongly support the repeal of the
death tax and other legislation to reduce the complexity of, and the
burden created by, the federal income tax code, I believe a fundamental
modernization of our federal tax system is required to restore freedom, fairness
and simplicity to the federal tax system. Majority Leader Dick Artney, who
supports a flat income tax, and I have taken our message of tax reform to tens
of thousands of people in over thirty cities on the "Scrap the Code" tour. At
every stop on our tour we have been met by hundreds and sometimes thousands of
Americans yearning to learn more about the major alternatives to the cur-rent
code. I am pleased that Congressman John Sununu is here today to testify on
behalf of the flat tax. While Congressmen Sununu and Armey, and I differ on
which tax- reform bill is best for America, we agree that Americans work too
hard for their money, have too little to show for it and should not have to
tolerate our inherently-unfair and overly-complex federal income tax code.
What's worse is that the federal income tax code tells Americans how to live
their lives - encouraging some types of actions and discouraging others. Let me
briefly explain my proposal, H.R. 2001, the Tauzin- Traficant National Retail
Sales Tax Act of 1999 (NRST). My legislation would eliminate the personal and
corporate income tax code - including taxes on capital gains and savings,
inheritance and gift taxes, and all non-trust fund dedicated excise taxes,
abolish the Internal Revenue Service and replace them with a 15 percent national
sales tax on the retail purchase of all goods and services. Simplicity Unlike
the current income tax code or even the flat tax, the national retail sales tax
requires no federal individual tax returns of any kind. Americans are forced to
spend in excess of 5 billion hours trying to calculate the amount of income
taxes owed to the federal government. This is absurd. Under my proposal,
individual Americans will pay their taxes when they make purchases of retail
goods and services. No receipts, no tax returns, no audits, no hassle. All goods
and services for consumption would be taxed at the same rate. If we exempted
food, clothing, and housing - which represents a substantial amount of the
American economy - the rate would have to be significantly higher. The broader
the NRST base the lower the rate. Freedom Fairness The NRST will empower all
Americans by giving them the choice as to how much tax they pay. Our present
income tax system takes our money through withholding before we even receive it.
Most of us now consider that our wages are really the "take-home pay" that we
get net of all the deductions. Under the present system, it doesn't matter if
one of us is more frugal than the other because we all pay the same amount of
tax. In fact, if we are more frugal than our neighbor we are actually going to
pay more and more tax because our earnings on our savings will be taxed each
year. With the national retail sales tax we receive all of the money we earn.
Our checks are increased by the amount previously deducted for federal income
tax. With this money in hand, we have the power to determine the amount of
federal tax we pay based on how much we choose to spend. The more you consume
the more you will pay in taxes. The less you consume the less you will pay in
taxes. The American people, not Congress or the IRS, will have the power.
Eliminating "Hidden" Taxes Also, because of the way that the present income tax
system hides the amount of taxes we pay in the price of goods and through
withholding, I don't think any of us can really tell how much tax we are paying
to the federal government. Currently, Americans are in effect taxed twice by the
IRS. Americans pay a federal tax on their income, and pay what amounts to a
"hidden" sales tax (believed to be as high as 15 to 20 percent) on the retail
purchase of all goods and services. The federal government calls this the
"corporate income tax" -- as if it were really paid by corporations. But, in
reality, consumers pay this tax in the price of goods they buy. So under the
present code, American income is literally taxed coming and going. This "hidden"
sales tax makes it harder for American goods to compete overseas. Due to the
income tax and its burdensome compliance costs, American products produced for
export leave the U.S. at a 15-20 percent competitive disadvantage. What's worse
is that products imported into the United States enjoy a 15-20 percent
competitive advantage over our American- made products. Most industrialized
countries simply exempt products for export from most of their taxation'. This
exacerbates our trade deficit and translates into millions of lost American
jobs. Mr. Chairman, that's unfair to American workers, products and businesses,
both small and large. No business would have to pay federal income taxes under
the NRST. In addition, since the NRST is designed to only tax consumption, all
purchases made for business purposes would NOT be subject to the IS percent tax.
The net effect of the NRST, is to eliminate two taxes and replace them with one
clearly defined tax on goods and services sold at the retail level. Under a
NRST, no national sales tax will be placed on a product exported from the United
States. As our country becomes more and more dependent on foreign markets for
our goods and services it is becoming increasingly clear that we must
fundamentally modernize our tax code to increase U.S. competitiveness around the
world. There will also be what some economists call the "sponge effect". The
U.S. is the world's largest market and has the best infrastructure of any
country on earth. When the income tax is replaced with the national retail sales
tax, it will become the world's largest tax haven and a "sponge" for capital
from around the world. Enforcement Enforcement is an serious issue for any tax
plan. Will there be people who try to evade the national retail sales tax? Yes.
There are always going to be people who refuse to pay any tax. The current code
has become so complex that it makes it easier for people to cheat the system.
Under the NRST there will be dramatically fewer collection points to monitor.
Instead of having to audit and collect information on 250 million taxpayers and
millions of businesses, the government will have to watch a substantially
smaller number of collection points. All but five states levy state sales taxes
(Alaska, Deleware, Montana, New Hampshire and Oregon do not). The other 45
states and the District of Columbia already have the mechanisms and experience
in place to enforce the sales tax. Local administration and collection will
translate into better compliance rates. States will also have an incentive to
enforce the tax because the more they collect, the more they receive to cover
their administrative costs. Under the Tauzin-Traficant plan, States would
collect the 15 percent national sales tax from the retailers within the state
and remit the tax to the United States Treasury. Participating States may keep
1.0 percent of their collections to offset their collection expenses. Similarly,
any business required to collect and remit the sales tax would be permitted to
keep 0.5 percent of tax receipts to offset compliance costs. The NRST would
ensure that the underground economy, those individuals and businesses that
currently don't file income taxes, would pay their fair share. The underground
economy encompasses not only illegal sources of income, such as drug dealing,
gambling, and prostitution, but also the ordinary citizen who accepts a lower
price for cash payments and doesn't report the income or the businessman who
keeps two sets of books and pockets a portion of the sales or takes improper
deductions. In closing, I believe that we should re-examine the basic ideas on
which this government was founded. Our Founding Fathers insisted on the use of
indirect taxes on individuals and specifically forbade direct taxes like the
income tax. We have an opportunity to eliminate the income tax, the IRS, tax
returns, audits, and the penalties on our work, savings and investments and
replace them with a national retail sales tax. We must free Americans from the
trappings of the income tax code. The beauty of the national retail sales tax is
its simplicity and fairness. Those who spend the most will pay the most. Those
who spend the least will pay the least. No more income tax forms. No more
compliance costs. No more hidden taxes. No more loopholes for the corporations
and the rich. What's important now is to begin a national dialogue and a
dialogue within Congress, with the assistance of your Subcommittee, on tax
reform. This debate isn't simply about a flat tax vs. a national sales tax. This
is about fundamental tax reform vs. preserving the status quo. Revolutionary
change, such as scrapping the federal income tax and abolishing the IRS, will
never happen unless Americans demand it. Mr. Chairman, thank you again for
holding these hearings and for your initiative on this critical issue.
LOAD-DATE: September 8, 2000, Friday
