[Congressional Record Volume 144, Number 5 (Tuesday, February 3, 1998)]
[Extensions of Remarks]
[Pages E80-E81]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                COOKING THE NUMBER TO SELL A SALES TAX?

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                       Tuesday, February 3, 1998

  Mr. STARK. Mr. Speaker, we must have the facts to debate the relative 
merits of alternative tax systems. I commend the following New York 
Times article to my colleagues and urge them to take a hard look at the 
math before endorsing the concept of a national sales tax to replace 
the current income tax.

                [From the New York Times, Jan. 23 1998]

                        The 23 Percent Solution?

      (By Robert S. McIntyre, Director, Citizens for Tax Justice)

       Washington.--Suppose a bunch of rich people want to promote 
     a national sales tax to replace the Federal income tax. How 
     do they try to persuade the public to support such a plan? 
     Simple: play with the arithmetic.
       Earlier this month, the well-financed group Americans for 
     Fair Taxation, based in Texas, kicked off a sales-tax 
     campaign with a full-page advertisement in several large 
     newspapers. It called for replacing all the main Federal 
     taxes--personal and corporate income taxes, payroll taxes and 
     the estate tax--with a 23 percent national retail sales tax.
       According to the group, such a plan would raise exactly as 
     much money as current laws do, while cutting taxes for just 
     about everyone. The group's plan has been implicitly endorsed 
     by Representative Bill Archer, a Republican from Texas, the 
     chairman of the tax-writing House Ways and Means Committee 
     and a longtime sales-tax fan and income-tax hater.
       I was curious about how the group did its arithmetic, so I 
     checked about its Web site--www.fairtax.org_and sent a note 
     to the E-mail address to get further information about the 
     group's calculations.
       According to the group's figures, at 1995 levels a new 
     sales tax would have to raise $1.36 trillion to replace all 
     Federal income taxes, payroll taxes and estate and gift 
     taxes. Under its plan, the group says, taxable spending would 
     be $4.6 trillion (after accounting for rebates to partly 
     protect lower-income families). So, $1.36 trillion divided by 
     $4.6 trillion would be the required sales tax rate. Fine, 
     except that $1.36 trillion divided by $4.6 trillion is not 23 
     percent. It's about 30 percent.
       It turns out that the group's purported 23 percent tax rate 
     is misleading and hypothetical. It came up with that number 
     by dividing the sales tax by the cost of a purchase plus the 
     tax. So if the tax on a $100 purchase is $30, the group 
     prefers to call it a 23 percent ``tax inclusive rate'' ($30 
     divided by $130). Ever hear of computing a sales tax like 
     that?
       The fact that the group's sales tax, even by its own 
     figures, entails a 30 percent tax rate is only the beginning 
     of the math problems. The group's backup materials also 
     assert that almost a third of its projected sales-tax revenue 
     is supposed to come from taxes the Government will pay to 
     itself. Build a road, pay yourself a tax. Buy some planes for 
     the Air Force, pay yourself some more. And so on.
       Unfortunately, that shell game won't work. Without these 
     phantom governmental tax payments, the sales tax rate would 
     have to jump to 42 percent to break even.
       A bit more digging reveals that a quarter of the remaining 
     sales taxes are supposed to be paid on things like church 
     services, free care at veterans hospitals and a variety of 
     hard-to-tax financial services like free checking accounts. 
     If we discount the taxes on these items, the sales tax rate 
     would have to climb to an astronomical 56 percent to break 
     even.
       Apparently, the millions of dollars that American for Fair 
     Taxes says it has spent on focus groups and polling have 
     taught it an important lesson: giving people the real facts 
     about a national sales tax is politically disastrous for its 
     proponents. So the group is trying the only other available 
     route: cooking the numbers.


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