CREATING A PEOPLE *S TAX SYSTEM THE RESTRUCTURING OF THE AMERICAN TAX SYSTEM Copyright 1989 by Douglas Ross [Jabari

Zakiya] INTRODUCTION The tax system that we live with in this country is an utter failure. It fails to meet the most important criteria a fair taxation system would be designed to fulfill. Now, even the people responsible for its creation, the moneyed ruling class, can no longer finagle it to meet their objectives. With the recent manipulations of the tax code, in the name of tax reform, Congress has signaled the beginning of another act in the ongoing play of fiscal futility. But people need to understand what the tax code is (and isnt) to understand the meaning of this new act. Congresss recent steps to reform the tax code must be understood to be an admission to years of screwing up the economic priorities of the government. It is not an admission of screwing up just the tax code, or the tax system. It is an explicit confession of the invalidity of various economic philosophies. Unfortunately, continual tweaking and modification of this present system of taxation will not deliver any substantial positive results. Merely tweaking something that violates Constitutional rights, economic theories, fiscal realities, human nature, and plain old common sense is doomed to continue to produce the same old failures. Arguments against continuing the present federal system of taxation, which most Americans have been conditioned to accept, can no longer be swept aside. These arguments have led me to the inexorable conclusion that the present system of taxation must be abolished. In its place a system of taxation that falls within the framework of the Constitution, that doesnt trample on economic laws, that doesnt ignore human nature, and doesnt fly in the face of logic and rationality, must be instituted. Can such a system of taxation accomplish the above goals and raise the amount of revenue this government will need in the immediate and long term future? The answer is an emphatic YES! What I will present is an alternative system of taxation that will allow the federal government to raise the revenue it needs in the manner least destructive to the country. It is designed to be progressive by its nature, and adaptable to all economic necessities with minimal modifications. The efficiency and beauty of the system is derived from its simplicity. All the criteria that I deemed necessary in designing this system are derived from a few simple concepts. This will allow for the widest range of comprehension by the people who will ultimately have to live with it the American public.

The Philosophy of Design and Analysis In order to judge something one must refer to two conceptual entities: 1) the purpose of the something that is being judged, and 2) a set of criteria which can be used to assess the achievement of that purpose. In fact, these same conceptual entities must be known in order to design something as well. As simple (hopefully) as this sounds, these principles are, nevertheless, widely disregarded outside of the engineering discipline. A thing cannot be judged (or designed) unless a concept of its purpose has been developed. One cannot hope to ascertain if this purpose has been met unless a set of (objective) criteria has, or can be, developed by which to measure fidelity to its stated (or assumed) purpose. Therefore, in the design process, the conceptual purpose is developed, which generates a set of goals and objectives that are to be met. The conceptual purpose would have a philosophical basis, but it should be able to manifest this in definable goals and objectives. So, you begin with a concept of purpose, develop a set of criteria to design around and test it against, and iterate this process until some acceptable level of consistency between what the purpose is and what the design actually produces, is met. To develop a set of criteria to measure, or test, the design process, the set of goals and objectives derived from the process above are used to develop tests that will determine if they have been met. The tests, of course, have to be relevant. Testing for unnecessary things is irrelevant, and not testing for relevant things is misleading. The analysis process is the reversal of the design process. Whereas in the design process you go from the idea to the concrete, in the analysis process you go from the concrete (the thing) to its generating idea. The purpose of following this procedure is to insure that you get what you want. Fidelity to the goals and objectives of the design process must be met in the real world in order to ascertain if the purpose has been achieved. If you dont get in the real world what you say you want on paper, something has gone wrong in the process. Understanding the Present Tax System To design a tax system the above process should take place as well. Except that our present system stems from a political and philosophical basis that is impossible to achieve. It is replete with misconceptions and inconsistencies that make any statement of purpose fraudulent. If one analyses the present tax system from an economic perspective, with an objective eye, it will become quite apparent there is no definable, consistent philosophy to it. It is quite understandable, however, if one analyses the system from a political perspective. The tax system, as it presently exists, is designed to meet certain political priorities first and foremost. It is not primarily concerned about whether these priorities satisfy a certain set of criteria that will serve the national interest. This point is crucial in understanding the failure of the present tax system. How can I come to that conclusion? First, let*s look at some numbers.

Table 1. Federal Revenue from Individual and Corporate Taxes vs Total Revenue (In billions of dollars) Receipts by Source Individual Income Taxes Corporate Income Taxes Total Receipts Receipts by Source Individual Income Taxes Corporate Income Taxes Total Receipts 1974 119 39 263 1981 286 61 599 1975 122 41 279 1982 298 49 618 1976 132 41 298 1983 289 37 601 1977 158 55 356 1984 298 57 667 1978 181 60 400 1985 334 61 734 1979 218 66 463 1986 349 63 769 1980 244 65 517 1987 393 84 842

One thing that is obvious from the above figures is that the revenue received by the federal government from individual taxes greatly exceeds those generated from corporate taxes. And the difference is stark. From 1974-1980 individual taxes accounted for about three times the taxes generated from corporations. Then from 1981-1987, the Reagan years, individual taxes accounted from 4.6 to 7.8 times the taxes generated from corporate taxes. This is from a tax system that started out generating more revenue from corporations than individuals. Also, individual taxes have been steadily increasing, while corporate taxes have not; they even experienced a period of decline in the first Reagan term. What can be analyzed from looking at these figures? One thing is perfectly clear individuals are being asked to contribute more to the revenue base of the federal government than corporations. What people should ask themselves is why is this the case, and should it be that way? Determining Purpose I contend the present tax system is based on political priorities over economic priorities. Those priorities manifest themselves in tax laws and policies that give heavy advantages to big business and wealthy individuals. The corollary to this is that small businesses and normal individuals pay a higher, disproportionate amount of their wages and income into the system. This is by design. It is the implicit and explicit will of Congress to do so, for Congress has become increasingly the maintainers of the interests of the few that are wealthy over the interest of the many who are not. If this premise is used as a teleological base for the understanding of the tax system some consistency can be derived from it. In fact, you will be able to predict the essence of future tax modifications or reforms.

Analyzing The Present System What are the fundamental criteria behind the present tax system? Is the present system fair? First a definition of fair must be derived. I contend that a fair tax system (derived from my axiological perspective) is one that is progressive (the more wealth you have the more taxes you are likely to pay). It should also apply to all individuals and businesses in the same manner. No specia l privileges to certain interests with special Congressional pull. This means that a fair system would have to be as free from political manipulation as possible. Based on my definition the present tax system is definitely not fair. Is the present tax system simple? That*s an easy one hell no! Is simplicity a desirable characteristic of a tax system? Yes, because it would allow for the average individual to understand whats going on, which would make more Americans feel that they are a part of the system instead of its being out to get them. Is the present system efficient? Another hell no! It wastes hours of peoples and business time, money, and energy to comply with it. Even then it doesnt generate the amount of revenue necessary to meet budgetary requirements. Finally, is the present tax system Constitutionally valid? It will be surprising to most Americans to know that the implementation of the Income Tax system is totally unconstitutional and illegally enforced. It outright violates provisions of the 4th Amendment (unreasonable searches and seizures), 5th Amendment (due process), and 13th Amendment (banning slavery and involuntary servitude). Finally acknowledging these facts Congress, in 1988, passed a Taxpayers Bill of Rights, which made an attempt to eradicate some of the more egregious illegal IRS practices and tactics it has been known to use. But even this bill of rights did not attack the fundamental premise upon which the system is based. So, from my analysis of the present tax system we have the following: a very confusing, complex system that is highly inefficient and wasteful of people*s time and energy, that doesnt raise nearly enough revenue to meet the demands of government, that is regressive in its nature, that is extremely unfair and prone to political manipulation by special interests, which has been unconstitutionally implemented by Congress, and is being enforced by the IRS with the use of illegal policies, practices, and tactics. This being my judgement, I conclude that the only logical thing to do is to abolish the present tax system and develop a new system based upon a better conceptual model with a defined set of goals and objectives that will benefit the nation as a whole. Designing A New Tax System The principle philosophical basis of my tax system is derived from three fundamental concepts: 1) the government should never, tax productivity, only consumption 2) the tax system should be as simple (efficient) as possible, and 3) the tax system must fall within the framework of the Constitution. That*s it! 4

Now that Ive stated my design criteria I can begin to manifest goals and objectives based upon them. But first, Ill explain why I chose the three concepts above as the fundamental basis of my tax system. 1) The government should never tax productivity, only consumption. This concept is so basic, yet so violated by all levels of government, its a wonder we didnt become the worlds biggest debtor nation sooner. When government taxes the fruits of peoples labor people (businesses) dont produce as much as they would if they werent taxed. Its a concept the people who run our government just dont seem to understand. This is one of the primary reasons that the United States has one of the lowest rates of personal savings in all the western world. Its also the reason why the United States has one of the highest rates of personal debt in all the western world. But why shouldnt you expect that? When the government tells people (businesses), through the tax system, the more money you save the more you owe us, the more debt you incur the less you owe us, what do you think people (businesses) are going to do. You get the behavior to the stimulus you provide! Government should be structured to provide for and allow the highest level of productivity for all of its citizens. This not only applies to economic productivity but to all areas of personal growth and enlightenment. If the government doesnt allow this you get, by definition, a suboptimally productive society. So if the government shouldnt tax productivity, what is there left to tax? The answer is consumption. Taxing Consumption When people produce they are giving to society, when people consume they are taking from society. Both actions are necessary for an economy to thrive. However, productivity comes first. You cant consume what hasnt been produced. Government can only raise revenue by taxing one (or both) of those activities, since government itself cannot create wealth (printing currency is not creating wealth). Recognition of the fact that productivity comes before consumption leads me to the conclusion that taxing consumption is the least obtrusive, and fairest, of the alternatives. It is the fairest because everyone is a consumer at some level. Therefore, everyone would be taxed. And those who consume the most would be taxed more than those who consume less. This would create a naturally progressive tax system, because those who would consume the most would have the most money to spend. This freedom to produce will lead to many socially beneficial spinoffs, which Ill develop and address later. 2) The tax system should be as simple (efficient) as possible. Im a firm believer of the KISS (Keep It Simple Sucker) philosophy. If you know what you want to do, and you know how to do it, why wouldnt you do it in the simplest, most efficient manner? Looking at the present tax system, then, leads me to conclude that Congress doesnt know what the hell it wants to do and/or that it sure doesnt know how to do it. Even when they claim to be performing tax simplification the result is worse than what they started with. 5

Having a simple tax system should have some real world benefits. It would be less expensive to administer. It would be simple enough so that the average citizen, the people who will have to comply with it, understand it. It would reduce paperwork and be as unobtrusive to people and businesses as possible.. A simple tax system would also be free from political tinkering by allowing only a small set of variables to be manipulated. Once in place it would not need to be jurry-rigged every few years by Congress, which would free its time to work on all the other pressing issues of this country. This would also eliminate special interest tax provisions, that everyone else ends up paying for. Finally, its structure would be flexible, and adaptable, to real world needs without a lot of bureaucracy. 3) It must fall w ithin the framework of the Constitution. I earlier stated that the implementation of the income tax system is unconstitutional and illegally administered and enforced. It is! Did you know that you do not have to allow withholding from your salary? Did you know that you don*t have to participate in a tax audit? Did you know that you dont even have to file income tax forms? Social Security taxes are also unconstitutional. Congress has knowingly instituted, and perpetuates, an income tax system that violates individual rights, limits personal freedom, and denies due process. The cost in peoples welfare, economic status, and even lives, is incalculable. It also creates distrust, and antipathy, feelings many citizens of this country feel toward their government. Whenever Congress produces legislation it must not violate the Constitution! Members of Congress take an oath to uphold the Constitution. They cannot, then, produce legislation that violates it. The present tax system should be abolished for that reason alone. My tax system not only falls within the framework of the Constitution explicitly, but also in spirit. Its implementation will create a new spirit of trust between the government and the people, whom they supposedly serve. Summary In short, I want to design a tax system that is simple and efficient, Constitutionally valid, that only taxes consumption. Using these three basic concepts I will now develop some goals and objectives which can be used to assess and test my proposed system.

Goals and Objectives of the New Tax System Given my design criteria the following set of goals and objectives can be used to assess and test the fidelity of my tax system to its stated purpose. These goals and objectives of my tax system are to: 1) raise money for the federal government to pay for things it has legal (i.e Constitutional) authority to do 2) raise this revenue in a progressive manner (the wealthier pay more than those less wealthy) 3) be within the bounds of the Constitution 4) be as simple as possible to implement and understand 5) be as free from political manipulation as possible and 6) allow for (not restrict) the most productive economic environment possible for individuals and businesses.

A New Tax System Using the above design criteria, goals and objectives I propose the following steps to bring about this new tax system for the government. 1) Abolish Income Taxes and Social Security Taxes. The present tax system will be discarded. Salary withholding will be abolished. Social Security taxes will be abolished. The government has no constitutional authority to play Robin Hood, stealing from working people to give to another group of people (retired people). Once this happens every person will be able to realize the full fruit of their labor. You will take home everything you work for, not 70%. There will be no more income tax filing. This would include state and federal filing, personal and business. This, of course, will eliminate mounds of paperwork, the time wasted dealing with it, the anxiety produced to comply with it, and the antipathy felt toward government by the people because of it. It will also eliminate the billion dollar tax industry which has proliferated around it. In fact, the biggest group of people standing in the way would be the tax industry, and its lobby. 2) Establish a National Sales Tax on retail goods. A national sales tax on retail goods will be established. This tax will not include food and other sustenance items that would impact the poor greater. Services would also not be taxed. Wholesale items would not be taxed because those items are not usually consumed by individuals. And since individuals always end up paying the cost of business the cost that businesses incur should be kept as low as possible. If this is done prices can be kept low for end user products (products that individuals purchase). An example: GM produces cars. GM buys steel, tires, paint and other items to produce those cars. The items that GM buys that go into the production of cars should not be taxed. If they are the cost of that tax will be passed along to the end user you. Therefore, when GM buys paint from DuPont and tires from Goodyear wholesale, it does no good to tax those purchases, because the corporation is not really going to pay for those taxes you are. But GM uses a lot of electricity, computers, paper and furniture. It would be taxed on these things it buys, because they do not go directly into the end product, the cars. And since GM takes from society a lot more of its resources (energy, water, etc.) it would (and should) pay more to compensate for the higher level of resource consumption. By taxing the consumption of goods at the retail level layers of hidden taxes will be eliminated, which only get passed on to us to pay. But since businesses are the biggest retail purchasers they would be paying their share, but doing it up front. Also, a national sales tax would create a naturally progressive tax system. Those who consumed (spent) more would naturally be paying more in sales taxes than those who spend less. Wealthy people (be they drug dealers, movie stars, foreign tourists, or corporate executives) spend much more than average people, so they would be taxed more.

But everybody would be paying less in absolute dollar amounts. Rather than 100 million people paying income taxes, and many businesses paying none, there would be 300 million people paying a national sales tax and every business paying at some level, based on their retail consumption. The IRS would be abolished, with sales tax collection duties integrated into the regular function of the Treasury Department. Therefore, the size, and cost, of government is reduced, paperwork is reduced, bureaucracy is reduced, and moneys are being collected on a regular basis. In fact, utilizing the existing states sales tax collection mechanism would preclude the need for a federal collection system. With this system the Treasury Department can produce monthly revenue reports of actual revenue intake. Congress, and the American public, can know then how close the government is to its budget goals. We won*t have to wait to the end of the year to be hit with an annual deficit report. 3) The National Sales Tax rate will be kept as low as necessary. The National Sales Tax should never go above 10%. In fact, the rate need not be higher than 5% in a bad year, with somewhere around 2% to 3% the norm. If Congress feels it really needs to go above that, it is virtually certain they are spending money unnecessarily. A cap, I say 10%, should be placed upon the rate. This is necessary to force Congress to live within its means. Since my system will be so efficient at raising revenue, a mechanism to restrict Congress from getting its grubby little hands on people*s money must be instituted. I would also restrict tax rate increases between a certain time period, say two years, to no more than 2% - 3% over that time period. This would allow for emergencies, but act as speed bumps on Congress. Last, ALL tax rate increases should be voted on by holding a national tax referendum vote. Let Congress explain its necessity, and the American public decide if it agrees. Voter participation will blossom. 4) The 16th Amendment will be repealed. This amendment, which states: The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration. must be repealed. This will require a Constitutional amendment to do, just as the 18th Amendment, the Prohibition Amendment, required the 21st Amendment to repeal it. The Effect On Individuals To show how the federal sales tax would affect individuals let us look at a few examples. The first figure is a table showing selected taxable income levels, and the corresponding tax on that taxable income taken from the 1988 1040 tables. The next table shows the tax that would be paid for various rates for a given amount spent on taxable goods. You can see that the amount an individual would pay is greatly reduced, compared to the 1988 tax tables. In fact, if you filed single, with a taxable income of $25K, Congress (through the IRS) wanted you to send them $4687. With a national sales tax of 5% an individual would have to spend $93,740 on taxable items in order to pay the same amount of federal tax.

Of course, in order to spend that much one would need to have at least that much income to spend. As the example shows, and as the tables illustrates, the amount individuals would pay will be greatly reduced. Even including state, local and federal sales tax together, the yearly individual tax paid will be substantially less for those who currently pay income taxes. Not only will the tax on individuals be less but it will be in the control of the individual. If someone were really concerned about how much they were paying in taxes all they need do is reduce their spending. But under this system you would be paying so little, relative to the present system, it would be unnoticeable after a while. The government would actually be raising revenue from more individuals than those that presently file income taxes. Approximately 95 million individual tax returns were filed for tax year 1987. However, the U.S. has a population of about 270 million (1988). Therefore, almost two times more people will pay national sales taxes than those who participate in the current income tax system. Not only will the national sales tax raise revenue from Americans but it will also raise revenue from foreigners who are here and purchase taxable goods. In 1987 over 3 million Japanese alone visited the U.S. spending, on average, $366/day. It will also recover revenue from illegal trade that currently goes untaxed. Individuals who are into illegal activities (drugs, gambling, etc.) certainly don*t file income taxes. If they do, they certainly don*t put that revenue down. But they do spend their revenue on items that would be taxed, thus enabling the federal government to recover some revenue from individuals that presently pay little, or nothing, in federal taxes. Rich people would pay more than people not so rich because they would be spending more. Low income people and middle income people would, first, have control of all their wages (no withholding) and they too would be paying greatly reduced taxes. From the governmental perspective the system would be virtually effortless to administer. The exact process by which state and local sales taxes are collected would be utilized. The government would also have a steady revenue flow, without having to worry about giving money back. The system would (should) be free from lobbying and manipulation by special interest groups flooding Congress to get special breaks for their company or market sector. The IRS, which is an agency of the Treasury Department, could be abolished (reducing government) and the functions of collecting excise taxes (which a sales tax is) would be integrated into the normal functions of the Treasury Department. From both perspectives, life would be simpler, cheaper and fairer.

FROM 1988 TAX TABLES INDIVIDUAL INCOME TAXES UNDER PRESENT SYSTEM TAXABLE INCO ME 1,000 2,500 5,000 7,500 10,000 12,250 15,000 17,250 20,000 22,500 25,000 27,250 30,000 35,000 40,000 45,000 - 1,025 - 2,525 - 5,050 - 7,550 - 10,050 - 12,300 - 15,050 - 17,300 - 20,500 - 22,550 - 25,050 - 27,300 - 30,050 - 35,050 - 40,050 - 45,050 50,000 75,000 100,000 | SINGLE | | | | 152 | | 377 | | 754 | | 1,129 | | 1,504 | | 1,879 | | 2,254 | | 2,591 | | 3,287 | | 3,987 | | 4,687 | | 5,317 | | 6,087 | | 7,487 | | 8,887 | | 10,380 | | 12,022 | | 20,272 | | 28,522 | MARRIED FILING | HEAD O F HOUS EHOLD JOINTLY | SEPARATELY | 152 | 152 | 152 377 | 377 | 377 754 | 754 | 754 1,129 | 1,129 | 1,129 1,504 | 1,504 | 1,504 1,879 | 1,879 | 1,879 2,254 | 2.273 | 2,254 2,591 | 2,903 | 2,591 3,004 | 3,673 | 3,004 3,379 | 4,373 | 3,379 3,754 | 5,073 | 3,900 4,091 | 5,703 | 4,530 4,540 | 6,473 | 5,300 5,940 | 7,873 | 6,700 7,340 | 9,477 | 8,100 8,740 | 11.127 | 9,500 10,133 | 12,769 | 10,893 17,288 | 21,019 | 18,561 25,538 | 29,269 | 26,811

TAXES UNDER THE NATIONAL SALES TAX SYSTEM TAXABLE GOODS | SALES TAX RATE | AMOUNT SPENT | 2% | 5% | 10% | ----------------------------------------------------------------------------1,000 | 20 | 50 | 100 | 2,500 | 50 | 125 | 250 | 5,000 | 100 | 250 | 500 | 7,500 | 150 | 375 | 750 | 10,000 | 200 | 500 | 1,000 | 12,250 | 245 | 613 | 1,225 | 15,000 | 300 | 750 | 1.500 | 17,250 | 345 | 863 | 1,725 | 20,000 | 400 | 1,000 | 2,000 | 22,500 | 450 | 1,125 | 2,250 | 25,000 | 500 | 1,250 | 2,500 | 27,250 | 545 | 1,363 | 2,725 | 30,000 | 600 | 1,500 | 3,000 | 35,000 | 700 | 1,750 | 3,500 | 40,000 | 800 | 2,000 | 4,000 | 45,000 | 900 | 2,250 | 4.500 | 50,000 | 1,000 | 2,500 | 5,000 | 75,000 | 1,500 | 3,750 | 7,500 | 100,000 | 2,000 | 5,000 | 10,000 |

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The Effect On Business The elimination of corporate taxes (which are passed on to consumers) would have quite a few beneficial effects on businesses. Some of these are: 1) lower operating costs 2) decisions made for profitability reasons and not tax consequences 3) simple cost accounting 4) simple, consistent budget projection mechanisms 5) no adverse financial government intrusion and 6) higher profit making conditions can lead to lower consumer prices. 1) The elimination of business taxes will lower operating costs. Without corporate taxes the suffocating amount of regulations that businesses small and large have to contend with will be eliminated. All the forms and records that have to be filed and maintained for tax purposes, and the people who have to be hired to manage them, will be eliminated overnight. When this happens, the cost of doing business will be dramatically lowered. But not only will businesses not have to incur a cost of the actual people and materials to manage the tax aspects of their businesses, they can now apply the time spent dealing with issues concerning taxes to issues concerning profitability of the business. That loss of time is incalculable to a business, but is passed along to consumers through higher prices and shoddy products. The businesses that will benefit the most are small businesses. Many individuals choose not to go into business solely because of the paperwork associated with establishing a business tax status (partnership, solely owned, corporation, etc.). Many individuals choose going out of business versus contending with IRS regulations. The tax system particularly hurts individuals who are consultants, or people who are marketing themselves as their product. The system tries so hard to catch the little guy whos out to make a living for themselves, that it forces countless people into the underground economy (cash only), or out of business entirely. Elimination of business taxes would allow these people to operate in a normal manner, which would be good for them and society in general. Big business would gain the most, in terms of absolute potential dollar savings. Whole tax departments can be wiped out, and those people applied in a productive business capacity to other jobs. Decisions concerning the business should then be made solely on the merits of their financial impact on the company and their social impact on the community, and not their negative tax consequences. 2) Decisions will be made for business reasons, not tax consequences. With no corporate taxes, it would make no business sense for one company to buy another just to use it as a tax writeoff, or to acquire its tax credits. Bad business decisions will result in lower profits that cant be used to lower the amount of taxes a business would pay. Stupidity could not be passed along to the consumers. Since all businesses would not be able to get out of sales taxes, it would not pay to remain inefficient. All revenue generated is retained by the business. Therefore, it wouldnt make sense to do things to reduce revenue potential. Three martini lunches, corporate jet fleets, business meetings in Hawaii, all would eventually have to be evaluated on the merits of them creating higher company revenue versus being operating costs that don*t do anything but increase operating expenses.

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Stock holders would hold their management to a higher standard of accountability, especially when it comes to management perks. Why? Since lower operating costs would lead directly to higher stockholders dividends, given just the same revenue level, all outrageous and extravagant non-profit making business expenses would probably not be looked upon too kindly by most companies stockholders. With this reemphasis on making business decisions for business reasons hopefully a new breed of American management can be ushered in. A management mentality which is more concerned with keeping a company truly profitable in the long run, not just for every quarter reporting period. Every American could truly benefit if such a climate is created. 3) Elimination of Business Taxes Would Simplify Accounting. With no business taxes accounting becomes very simple. There will be no depreciation of equipment, no playing games over how many years to keep something on the books, to be able to writeoff. If a business is considering purchasing capital equipment or expanding a plant, it should do so because it will enhance the productivity and profitability of the business. Whether to buy something this quarter or next year, or whether to sell assets this month or next quarter, should be based purely on whether it would enhance the business, not on whether it would reduce the business taxes. 4) Businesses Will Be Able To Make Simple Consistent Budgets. With no income tax, and a simple sales tax, determining the operating cost side of budgeting becomes trivial. Those items that a business purchases that would be taxable can be simply added into the operating expenses of the business. No depreciation tables, tax credits, or deferred debts. A budget projection for a business should consist of determining how much the business thinks it needs to spend that year and how much it thinks it would make off that spending. The sales taxes would be in the operating cost. Therefore, consumers would not be paying for the layers upon layers of tax costs passed to them by various businesses in the economic ladder. 5) Government Interference In The Financial Affairs of Business Stops. Without business taxes, business, like individuals, will feel free to do what they want with their assets and reap the reward of their decisions, or suffer the consequences of them. But they would live or die on their own accord, not by being given an unfair advantage through tax legislation or being harassed to death by the IRS. The elimination of the intrusiveness of government*s hand in businesses will enable the economy to flourish. Also, since government will not be extracting as many financial resources out of the private sector, the cost of money will be reduced. This will enable more small businesses to get financing. With more small businesses being created, obviously more people will be able to get employment. The more people that are employed and can provide for their own welfare the less government has to do. Therefore, government will be allowing a climate for economic growth to blossom, and it will be reducing its spending requirements. With less government spending the potential for deficit reduction is created.

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6) No Business Taxes Will Enable Higher Profits And Lower Prices. The previous points, when realized, all enable businesses large and small to reduce operating costs, simplify accounting, utilize the businesses time to the business, make efficient use of personnel, plan budgets more effectively and accurately, receive financing at lower costs, thus allowing for easier expansion and making it possible to sell goods and services to the public at lower prices. Simply put, this will provide for a higher standard of living for all Americans. The government would benefit from the elimination of business taxes in the same manner that it benefitted from the elimination of individual taxes. The cost of collecting taxes would be virtually eliminated. As with individual taxes, the number of businesses that actually pay under the present system is much smaller than the number of businesses in the country. All businesses would pay something, compared to the present system in which some big corporations not only don*t pay anything but get credits, or refunds, from the government. The Effect On Society The present income tax system has been with us only since 1945. Only after World War II ended did wage withholding and income tax filing become institutionalized on a national basis. The effects on society have been increasingly disastrous. Not only does the present tax system not work from an economic point of view, but it is unconstitutionally implemented, and socially destabilizing. Not only does the present system deny citizens the use and access to their own assets, but it shifts those assets to groups, or people, who can curry favors with the political establishment. It produces a system where accountability to the public is virtually absent and undocumentable. It, in the end, creates a feeling of resentment and hostility among most citizens toward the government, who know the system is unfair and unyielding, and who know they are being screwed, but may not know just how, or to what degree it is being done. One way the present system affects people directly is by forcing people, and businesses, to waste countless hours keeping records, seeking information, sending in information and complying with a whole host of rules, regulations, statutes and laws. The economic and social cost of this waste of time is enormous. For the year 1987 it has been estimated that, for individuals alone, on the order of 1.7 billion hours (Parade Magazine, July 3, 1988) were spent complying with tax requirements. That averages out to about 18 hours each of the 95 million tax filers spent a year dealing with taxes. Some would say this is an understated number, since it doesnt take into account mental anguish and other negative states of emotions that linger on long after (and before) the forms are filed. The effects on business are similar, but more pronounced, with much bigger social costs. Not only do businesses waste many times more time complying with tax requirements but the economic implications directly affect society in many adverse ways. Many companies make decisions concerning their business with the tax consequences of the decision, if not determining outright what the decision is, then strongly affecting the decision. Some of these decisions have devastating effects on workers of those companies and the towns and cities they live in.

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When a company decides to close down a plant, when and how it does it is largely determined by the tax consequences of the decision. Deciding when to do it will determine when the writeoff can be used, and how it can be deferred. How it is done will determine the value of the writeoff to the company. If a company wanted to relieve itself of a plant it could decide to close it down or sell it. Many companies make this decision based on the tax consequences and not profit making rationales. In fact, making profits is the farthest thing on their mind, because then they would have to pay taxes on it. Many plants are closed, not because they are losing money, but because they arent making enough money for that company to rationalize keeping it in operation. To the MBAs and accountants running these companies, it would present a better financial bargain to close the plant and use the writeoff than to keep it operating and make marginal profits, which increases their tax liability. Sad, but true. If there were no income taxes, businesses which wanted to get out of certain sectors or markets, would now want to sell off plants and assets for as much as possible. In order to do that these businesses wouldnt be able to let these assets deteriorate on purpose, as is presently sometimes the case. In order to sell off the plant they would have to make it look attractive to a buyer, who is out to make money off the deal, not out to buy a tax writeoff. In fact, plants that are being closed today would probably be seen by the companies who own them as underutilized resources, if they were analyzed from a profit making viewpoint, versus a liability viewpoint. This would have a positive social impact because less people getting thrown out of work would lessen all the associated social and economic costs that ensue. With less people out of work the requirements of government state, local and federal to provide for them is decreased, lowering the cost of government. The Housing Example A more direct, and pervasive example of the present tax system, is on housing. You can go into any major, and even not so major, urban areas and you see countless boarded up houses or apartment buildings. Why? The reason is because its more financially advantageous for the owners of these properties to allow them to rot than it is to fix them up or sell them. Why? The owners can writeoff the taxes they pay on them and the mortgage interest, on their personal or business taxes. In fact, in a lot of instances, from a mere financial perspective, it makes more sense to do that than to secure financing to renovate and upgrade property into profit making condition. This kind of scenario is especially real to minority owners, or would be owners, who are strapped for cash and cant do what they really want to do with their property. So, they let it deteriorate, even at tenants expense. If there were no income taxes personal or corporate this situation could virtually change overnight. Why? What good would a piece of property be, that you still would have to pay property taxes and mortgage on, that is generating no income? From a financial perspective, present owners of boarded up houses or apartments would have two choices, 1) sell the property and realize some gain or 2) upgrade the property to livable, profit making conditions. How and why would these conditions exist, that don*t exist under present conditions? 14

First, as stated before, with no income taxes the cost of money should be much lower than it is now. This means real interest rates that real people can get from financial institutions should be lower. This will mean that owners of properties, who probably can*t get buyers now, will be able to sell off these properties because people can get lower interest loans to buy them with. Who will these buyers be? Hopefully, many will be tenant associations, individual buyers who want to live in the properties, small business interests, and people in general who care about the communities where these properties are located and want to provide housing for people, and still generate reasonable revenue from it. With the lower cost of capital, and no income taxes, many of the present owners of dilapidated housing will find it desirable, and necessary, to put their property back into circulation. Since there are no more tax writeoffs, and if they choose not to sell, unless they are willing to allow their properties to be financial drain, that would be their only alternative remaining. The positive social consequences should be apparent. Without government spending one cent for construction of housing, the number of housing units in a city would go up. As housing becomes more available low income housing in particular homelessness, and government sponsored housing, decreases. Low income housing could flourish because citizens groups churches, tenant associations, individuals could buy housing and provide livable rents to people, and create profits that could be reinvested into the maintenance of the property. The conversion of apartments into condos would likely be slowed. The construction of rental units would be seen as profitable, not only because of the better financial conditions for rental owners, but also because would be renters now have more money to put toward their rent, based on their same salary. Therefore, a heightened expectation of potential renters (demand) would fuel a natural economic push to satisfy it through the increase in housing, at all levels. The ramifications of the social consequences of taxation on the area of housing alone is enough to consider the abolition of the present system. But the present systems demise would have the same positive affect throughout all areas of society. Once individuals and businesses retain access and control of their hard earned resources you will see a proliferation of socially beneficial, economically motivated behavior. Why? Because then you pay for your stupidity and benefit from your intelligence. The laws of nature and economics would be able to ensure that businesses profited not because, of a tax bill Congress wrote, protecting them from their own narrowmindedness and greed, but because they produced good products or services at affordable prices that consumers felt were worthwhile to purchase. As Supreme Court Justice John Marshall wrote, The power to tax is the power to destroy, and we have seen the result of that statement come true.

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The Effect On Government The cost to administer a national sales tax system will be virtually nothing, especially compared to the cost of the present system. Not only will the size of government be able to be reduced (the IRS), but now Congress could spend much more time dealing with other pertinent issues than tinkering with the tax laws. The political shenanigans, that are common place goings on in Congress, could be eliminated. Companies, and lobbyists for various industries, would have no effect on the outcome of tax legislation, because once the system is in place the only thing that need change is the rate. Congress would be spending no time altering tax laws in favor of the rich. Congress would be better able to develop revenue projections that are directly related to actual real world parameters, and not smoke and mirrors. Therefore, Congress could be held more accountable for its budget projections by the citizens. With the system being so much simpler the average person can see just where the government is raising revenue, and how much. The present lies hidden in the budget now would be much harder for Congress and the White House to get people to swallow. Lets see how this could be done. For the tax year 1986 the U.S. government said it raised $350 billion from personal income taxes and $63 billion from corporate taxes (notice the disparity). This $413 billion represents 54% of the $770 billion the government said it raised for that year (including $284 billion in social security payments). Therefore, to assess how much a national sales tax would bring in an assessment of spending projections for various sectors of society would be done. Based on demographics of population age, locality, education, employment, and others factors, government can come up with a fairly accurate model for basing its revenue projections. Now remember, with a national sales tax government would be able to monitor, say on a monthly basis, how close projections are to reality, on a state-by-state basis if need be. Over time, the projection models could become very accurate if modeled as adaptive feedback systems. Government could also use GNP as a floor for projecting sales tax revenue by applying a factor to represent the portion of GNP that would fall under a sales tax. Using this approach, a minimum expectation of sales tax revenue can be calculated. You must realize that this would be just a floor for projections, because GNP as presently computed, doesnt account for the underground economy (cash only), drug and other illegal commerce, and various other things. All of these would be indirectly taxed under a national sales tax. An example. For 1986 the government said GNP was $4.l92 trillion. Now if only half of that came under the national sales tax ($2.096 trillion) at a 5% rate, that would generate about $105 billion. But again, this figure is a baseline using existing (faulty) government figures. If the goods purchased by revenue derived from present illegal activity, or activity that is legal, but goes unreported, is taken into account, the real GNP could easily be $l-4 trillion more. This real GNP would be taxed at a greater percentage than the 50% of GNP used in the model above. When drug dealers buy expensive items (cars, boats, planes, etc.) that revenue is spent to a higher degree on taxable goods. 16

When people in, what is presently called the underground economy (cash only), spend money on goods they presently don*t pay any federal taxes. Eliminating income taxes would 1) eliminate the underground economy, because people wouldnt need to hide their wages and income, so they would become a part of the regular economy and 2) when they spend what would have been underground money it would now be subject to the sales tax just as all other spending. The same would be true of foreigners here as students or visitors, and undocumented foreigners living in the states who are presently invisible. All of these groups of people would be contributing to the revenue base of the government as they spend their money. But now, since corporations would be subject to the same type of taxation as individuals, and since businesses would buy more taxable goods than individuals, they would pay more than the present system extracts from them, collectively. This corporate and business factor in the sales tax revenue base would be much greater than personal spending. If Joe Blow spent $20,000 on taxable items a year (a lot) a 5% tax would raise $1000. If Joe Blow Inc. spent $200,000 on taxable goods a year (a small to medium size business or corporation) at 5%, that would raise $10,000. An example. In 1987, IBM had net income of $5.3 billion on revenue of $54 billion. That means IBM had expenses and taxes totaling about $49 billion. If they had expenses of only $25 billion on taxable goods a 5% sales tax would generate $1.25 billion for the government. However, now IBM would get to keep all $54 billion of revenue it generated. And the government got theirs up front, and unintrusively. Plus, as shown previously, IBM*s profits in time (revenue minus expenses) should increase because a major portion of their present costs could be eliminated overnight by not having to deal with the income tax system. With this type of analysis it is easy to see that just from the Fortune 500 companies a simple 5% sales tax would generate enormous revenue for the government. If these 500 companies paid an average of only $250 million a year in sales taxes that would mean $125 billion to the government. That*s over twice the revenue generated from all corporate taxes for the tax year 1986 from the present system! Another way to project revenue is to project how many financial entities (people or business or governments) would spend at a certain level, then add up the projected revenue for each level of spending to get a total revenue base projection. Somewhere between using a real GNP floor model, and a spending level model, will be a model that, over time, can be tweaked to give accurate real world verifiable results.

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Conclusion I have presented here an alternative to the present tax system that is superior to it in all aspects. I have derived it from a defined philosophical and conceptual basis, that, even if you disagree with it, at least you know whats motivating it. Thats more than can be said of the present system. From my conceptual basis, I have presented goals and objectives which I, or anyone, can use to test my system against the real world. I state the results which I say it should achieve, and present a means of verifying those result. The system I present here can not do everything to reform government. A tax systems purpose is to raise revenue for government to spend. The people who run government must spend this money wisely. If they dont, that problem resides outside of the scope of the revenue generating process. However, my system will make the revenue generating process more understandable to the average citizen, and requires a direct level of accountability to the people from government. In a democracy, if the people dont have a direct say as to how the result of their labor will be manifested then we fall ever farther away from the democratic ideal. My tax system is designed to allow for, and enhance, all levels of human growth. For no society can progress and advance unless its citizens are allowed to develop to their greatest capacity. The present tax system acts to deter that capacity for people of this country. I offer this proposal as a means to rectify that situation.

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