[Congressional Record (Bound Edition), Volume 145 (1999), Part 1]
[Senate]
[Pages 1041-1042]
[From the U.S. Government Publishing Office, www.gpo.gov]



   SENATE RESOLUTION 24--EXPRESSING THE SENSE OF THE SENATE THAT THE 
 INCOME TAX SHOULD BE ELIMINATED AND REPLACED WITH A NATIONAL SALES TAX

  Mr. LUGAR submitted the following resolution; which was referred to 
the Committee on Finance.

                               S. Res. 24

       Whereas the savings level in the United States has steadily 
     declined over the past 25 years, and lagged behind the 
     industrialized trading partners of the United States;
       Whereas the economy of the United States cannot achieve 
     strong, sustained growth without adequate levels of savings 
     to fuel productive activity;
       Whereas the income tax, the accompanying capital gains tax, 
     and the estate and gift tax discourage savings and 
     investment;
       Whereas the methods necessary to enforce the income tax 
     infringe on the privacy of the citizens of the United States 
     and, according to the Tax Foundation, divert an estimated 
     $225,000,000,000 of taxpayer resources to comply with income 
     tax rules and regulations;
       Whereas the Internal Revenue Service estimates that each 
     year it fails to collect 17 per centum, or $127,000,000,000, 
     of the income tax owed to the Federal Government;
       Whereas the income tax system employs a withholding 
     mechanism that limits the transparency of Federal taxes;
       Whereas the most effective tax system is one that promotes 
     savings, fairness, simplicity, privacy, border adjustability, 
     and transparency;
       Whereas it is estimated that the replacement of the income 
     tax system with a national sales tax would cause the savings 
     rate of Americans to substantially increase;
       Whereas the national sales tax would achieve fairness by 
     employing a single tax rate, taxing the underground economy, 
     and closing loopholes and deductions;
       Whereas the national sales tax would achieve simplicity by 
     eliminating recordkeeping for most taxpayers and greatly 
     reducing the number of collection points;
       Whereas the national sales tax would be the least intrusive 
     tax system because most taxpayers would not be required to 
     file returns or face audits from the Internal Revenue 
     Service;
       Whereas the national sales tax is border adjustable and 
     would place exporting by Americans on a level playing field 
     with the foreign competitors of the United States;
       Whereas a national sales tax is a transparent tax system 
     that would raise Americans' awareness of the cost of the 
     Federal Government; and
       Whereas a national sales tax would best achieve the goals 
     of an effective tax system: Now, therefore, be it
       Resolved, That it is the sense of the Senate that--
       (1) the income tax system, both personal and corporate, the 
     estate and gift tax, and the accompanying capital gains tax 
     be replaced with a broad-based, single-rate national sales 
     tax on goods and services;
       (2) the national sales tax rate be set at a level that 
     raises an equivalent level of revenue as the income taxes 
     replaced;
       (3) the Federal Government work with the States to develop 
     a State-based system to administer the national sales tax and 
     that States be adequately compensated for such 
     administration; and
       (4) the Congress and States work together in an effort to 
     repeal the sixteenth amendment of the United States 
     Constitution.

  Mr. LUGAR. Mr. President, I am pleased to submit a Senate resolution 
expressing the sense of the Senate that the income tax system be 
abolished and replaced with a broad-based consumption tax on goods and 
services.
  I supported IRS reform legislation passed last Congress and will 
continue to work within the confines of our tax system to improve it. 
However, the fundamental flaws of the income tax system remain. I 
strongly believe that Congress should abolish the income tax system in 
its entirety and begin anew.

[[Page 1042]]

  The problems of the income tax are well documented. By taxing savings 
and investment at least twice, the income tax has become the biggest 
impediment to economic growth in the country. Each year it costs 
Americans more than 5 billion hours of time to comply with it. The 
system is unfair and riddled with loopholes. It favors foreign imports 
and discourages American exports. As witnesses testified before 
Congress last year, the IRS regularly violates the privacy rights of 
individuals while enforcing the income tax. And finally, the system 
doesn't work. By its own admission, the Internal Revenue Service fails 
to collect from nearly 10 million taxpayers, with an estimated $127 
billion in uncollected taxes annually. Anything this broken should be 
ended decisively.
  One can evaluate a tax system using many criteria. It must be: (1) 
simple, (2) the least intrusive, (3) fair, (4) transparent, (5) border 
adjustable, and (6) friendly to savings and investment. I have studied 
tax reform proposals with these six factors in mind. Many are better 
than the current income tax. But if we are going to overhaul our tax 
system, we should choose the one that meets these criteria. I have 
concluded that a national sales tax is the best alternative.
  An effective tax system should be simple. Under a national sales tax, 
the burden of complying with the income tax code would be lifted. There 
would be no records to keep or audits to fear. According to the Tax 
Foundation, businesses and individuals spend more than $225 billion to 
comply with the Tax Code. Under a national sales tax, compliance costs 
would drop by 90 percent. More than 100 million individuals who 
currently file taxes would be dropped from the tax rolls. With a 
national sales tax, the money individuals earned would be their own. 
Its your decision to save it, invest it, or give it to your children. 
It is only when you buy something that you are taxed.
  The national sales tax is the least intrusive of the tax proposals. 
The IRS would be substantially dismantled. The IRS would no longer look 
over the shoulders of every taxpayer. Americans would not waste time 
and effort worrying about recordkeeping, deductions, or exemptions that 
are part of the current Tax Code.
  The national sales tax is the fairest alternative. Everyone pays the 
tax including criminals, illegal aliens, and others who currently avoid 
taxation. Wealthy Americans with lavish spending habits would pay 
substantial amounts of taxes under the national sales tax. Individuals 
who save and invest their money will pay less. Gone are the loopholes 
and deductions that provide advantages to those with the resources to 
shelter their income.
  The national sales tax would also tax the underground economy. When 
criminals consume the proceeds of their activities, they will pay a 
tax. Foreign tourists and illegal aliens will pay the tax. Tax systems 
that rely on income reporting will never collect any of this potential 
revenue.
  Of course, the fairness test must likewise consider those with 
limited means to pay taxes. Like the income tax system, a national 
sales tax can and should be constructed to lessen the tax burden on 
those individuals with the least ability to pay. One strategy for 
addressing this problem would exempt a threshold level of goods and 
services consumed by each American from the federal sales tax. Another 
strategy is to exempt items such as housing, food or medicine. I am 
committed to designing a tax system that does not fall 
disproportionately on the less fortunate.
  The national sales tax is the most transparent. A federal tax that is 
evident to everyone would bolster efforts in Congress to achieve 
prudence in federal spending. There should be no hidden corporate taxes 
that are passed on to consumers or withholding mechanisms that mask the 
amount we pay in taxes. Harvard economist Dale Jorgenson estimates that 
the corporate income tax and its compliance costs increase the cost of 
goods by 20 to 25 percent. The national sales tax would bring all these 
hidden costs into the sunshine. Every year the public and Congress 
should openly debate the tax rate necessary for the federal government 
to meet its obligations. If average Americans are paying that rate 
every day, they will make certain that Congress spends public funds 
wisely.
  American exports would also benefit from the enactment of a national 
sales tax. We must adopt a tax system that encourages exports. Most of 
our trading partners have tax systems that are border adjustable. They 
are able to strip out their tax when exporting their goods. In 
comparison, the income tax is not border adjustable. American goods 
that are sent overseas are taxed twice--once by the income tax and once 
when they reach their destination. In comparison, the national sales 
tax would not be levied on exports. It would place our exports on a 
level playing field with those of our trading partners.
  But the last and most imperative reason for replacing the income tax 
with a national sales tax is that it would energize our economy by 
encouraging savings. The bottom line is that as a nation, we do not 
save enough. Savings are vital because they are the source of all 
investment and productivity gains--savings supply the capital for 
buying a new machine, developing a new product or service, or employing 
an extra worker.
  The Japanese save at a rate nine times greater than Americans, and 
the Germans save five times as much as we do. Today, many believe that 
Americans inherently consume beyond their means and cannot save enough 
for the future. Few realize that before World War II, before the income 
tax system developed into its present form, Americans saved a larger 
portion of their earnings than the Japanese.
  A national sales tax would reverse this trend by directly taxing 
consumption and leaving savings and investment untaxed. Economists 
agree that a broad-based consumption tax would increase our savings 
rate substantially. Economist Laurence Kotlikoff of Boston University 
estimates that our savings rate would more than triple in the first 
year. Economist Dale Jorgenson of Harvard University has concluded that 
the United States would have experienced one trillion dollars in 
additional economic growth if it had adopted a consumption tax like the 
national sales tax in 1986 instead of the current system.
  As I have outlined here today, I believe the national sales tax is 
the best tax system to replace the income tax. If we enact a tax system 
that encourages investment and savings, billions of dollars of 
investment will flow into our country. This makes sense--America has 
the most stable political system, the best infrastructure, a highly 
educated workforce and the largest consumer market in the world. Our 
economic growth and prosperity would be unsurpassed. I am committed to 
bringing this message of hope to all Americans, and I look forward to 
working with my colleagues on advancing this important endeavor.

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