Ax the tax - income tax abolition; includes related article on the history of the income tax - Cover Story

National Review, April 17, 1995 by Stephen Moore, Paul Craig Roberts, Lawrence M. Stratton, Jr.

CLOSE your eyes and imagine for a moment an America without an income tax. April 15 is no longer a day of dread. The federal tax on personal income, corporate income, and capital gains is zero. Estate and gift taxes have been abolished. The most intrusive institution in America, the Internal Revenue Service, has been shut down and its 115,000 auditors and enforcement agents have been disbanded. All federal revenues are collected through a national sales tax, and it is no longer the government's business how much money you make and what you do with it once you earn it. H&R Block has gone into Chapter 11; tens of thousands of tax accountants, attorneys, and lobbyists are finding new professions; and now even drug lords pay their taxes.

That giant sucking sound you're hearing is investment capital from all over the globe pouring into the world's newest tax haven: the United States. Freed from the shackles of an anti-work, anti-investment, anti-saving tax system, America surges ahead of Japan, Germany, and the rest of Europe in economic growth.

Sound like a utopian fantasy? Until a few months ago it did. But increasingly there are signs that the political foundations of the modern-day income-tax system are beginning to crumble.

On November 9, Representative Bill Archer (R., Tex.), the chairman-in-waiting of the tax-writing Ways and Means Committee, stunned the Washington establishment by announcing that his top priority was the total replacement of the income tax. ``On a scale of zero to ten,'' he said, ``the income tax rates a zero.'' He pledged to ``pull up the income-tax system by its very roots.''

This month Representatives Dan Schaefer (R., Colo.) and Billy Tauzin (D., La.) will introduce legislation to repeal the income tax and replace it with a national sales tax. They note that since the great income-tax ``reform'' of 1986 the Internal Revenue Code has been amended some four thousand times. To his GOP colleagues who wish to ``fix'' the tax code, Schaefer offers this sensible advice: ``Give it up. The income tax is beyond repair.''

The latest convert appears to be Newt Gingrich. At his recent town-hall meetings in Georgia, the Speaker has confronted ferocious opposition to the income tax. At the February 17 gathering, Gingrich elicited ecstatic applause when he said that he too wants to ``get back to an America free from the IRS. . . . It's time to get the IRS out of your wallet and out of your records.''

Even before the turning of the political tide, the income-tax system looked to be about to collapse under its own weight. Earlier this year the General Accounting Office reported that the IRS was one of the ``most mismanaged agencies'' in the Federal Government, incapable of collecting tens of billions of dollars of unpaid income taxes. A recent National Research Council report foresaw a ``major breakdown of the tax system'' by 2000.

In January, Parade magazine ran an article entitled, ``What if We Abolished the Income Tax?'' Parade asked its readers to write in saying whether they were in favor of a consumption tax rather than an income tax. At last count, more than forty thousand responses had been mailed in, running 50 to 1 in favor of replacing the income tax. Even some IRS agents wrote in opposition to the tax code.

Grass-Roots Anger

REPRESENTATIVES Archer, Schaefer, Tauzin, and now Gingrich have seized upon an issue with potentially massive grass-roots appeal. Vic Krohn, chairman of Citizens for an Alternative Tax System (CATS), a 15,000-member group dedicated to abolishing the income tax, predicts that ``the anti - income-tax movement will burst onto the political scene in the last half of the Nineties in much the same way that term limits did in the first half.'' At a typical CATS meeting, the audience is likely to include construction workers, housewives, school teachers, bus drivers, small-business owners: average Americans with an intense fear and loathing of the IRS. They call themselves ``abolitionists,'' and they're fed up. As a sales assistant at a 1994 CATS event in Cleveland declared, ``The Internal Revenue Code is turning middle-class, working Americans into a criminal class.''

As with term limits, the Washington establishment has greeted this citizen-driven political movement with a yawn of contempt. Opposition on the Left is predictable and easy to explain. Liberal Democrats oppose the sales-tax alternative because the progressive income tax has been the cash cow for a half-century of government spending initiatives. The Left recognizes that any tax system that reminds Americans that they are making payments for welfare, farm programs, shark research, and the Department of Energy every time they visit the cash register threatens to make them even less enthusiastic about funding big government than they already are. The complete replacement of the income tax would require a sales tax of about 16 per cent. Every retail purchase Americans make -- from big-ticket items such as a new $18,000 Ford Bronco, to routine purchases like an 89-cent grape Slurpee at the 7-Eleven -- would include right there on the receipt a reminder of what a bad deal government really is. Eradicate the income tax, and much of the rest of the Washington empire could topple in short order.