I am very disappointed that this country appears to be seriously
considering some form of VAT or national sales tax. The (stated) reasons
for moving to a system like this sound good, but I believe very strongly
that many of them will not be realized.

This country has tried for many, many years to encourage citizens
(particularly lower and middle class) to save more. IRAs, 401k's, Roth
IRAs, SEP IRAs, home mortgage interest deduction (for up to 2 homes and
\$1M in principle), investment expense deduction, lower capital gains
tax rates, lower/no dividend taxes, Education IRAs, 403b's, exclusion of
capital gains on the sale of a primary residence, Coverdell, etc., etc.
are all programs that were supposed to "solve the problem" of low or no
savings among the lower and middle classes. Obviously none of these
programs have fixed the problem. But the supporters of the flat tax,
VAT, etc. would have everyone believe that their plan will permanently
fix the savings problem.

Nothing has changed. Those plans encourage savings through tax breaks
just as every other plan has always done. The most successful savings
encouragement plan the government has created has been the home mortgage
interest deduction (and the government created Fannie Mae/Freddic Mac
organizations). People get an immediate, tangible benefit (a house)
while saving money. That is what it takes in this instant gratification
society to encourage savings -- not tax breaks.

Now, to be fair, the savings rate in the U.S. would probably go up
dramatically. All of the wealthy people in the country will jump on this
opportunity like it is going out of style -- the same way they have will
all of the programs listed above. The stock market will make a quick
leap to account for the new tax free future income and capital gains
expectations. And there will be a rapidly growing new pot of money from
the wealthy looking for investments -- raising the price of real estate
and new business starts in this country. Businesses will not have to
subsidize programs like 401k's, Health Savings Accounts, etc., etc. so
corporate profits will increase. But nothing will have happened to
change what salary employees are willing to work for, so those
additional profits will go back to the investors (tax free, of course).

But all of these beneficial (to the wealthy) effects would be short
term. Market forces and the ability of this country to produce goods and
services that people around the world are willing to pay for will
determine the long term economic success of this country. And with many
people able to live off of the income from existing nest eggs, the
number of people creating goods and services for sale will be reduced.
After all, if I have a large nest egg, I can make money tax free by "day
trading" but would have to pay taxes if I worked a "real" job.

The proponents of these plans also claim that in the long run the tax
base is no smaller because all money is eventually taxed (when it is
spent). While that may be true in theory, I would be willing to bet that
some of the Carnegie, Rockefeller, Kennedy, etc. money still has not
been spent. How long will it take the Bill Gates descendants or the
Warren Buffet descendants or the inheritors of the WalMart fortunes to
spend it all? And those are truly the people who should put off paying
taxes the longest. After all, they are least capable of paying, right?

In fact, the only real positive that I can see to some form of
consumption tax was never even mentioned in the presentations that I
saw. It is the same reason that Florida only has a sales tax and no
income tax. Let the tourists foot part of the bill. I don't have any
idea how many tourists visit this country every year or how much they
spend, but that is one advantage to a consumption system. They would
pick up at least part of the tab.

For the record, I am actually relatively wealthy and I would likely be
one of the ones to benefit greatly from a consumption tax system as we
have always chosen to live below our means. However, in addition to
being idealistic, I have personal concerns about how a consumption
system will eventually affect me. First, it will increase the pace at
which the wealth gap (difference in income/net worth between wealthy and
poor) grows. This will ultimately lead to crime and/or other revolt --
robbery/theft, assault, and/or murder. Second, I worry that the country
is missing out on future potential when the children of the wealthy are
automatically (through better schooling, medical care, opportunities,
safety, etc.) assumed to be the future of the country and the children
of the poor are left to fend for themselves. Every child in the country
from the poorest to the wealthiest should have the same opportunity and
incentive to contribute to the world in the way they best can. Those who
accomplish what is of most value to the country should be rewarded most
regardless of the economic status of the parents, grandparents, etc.

Now I will also admit that it is true that the systems they propose are
simpler than the current system, but just because going to the bathroom
in the woods is simpler than indoor plumbing doesn't mean I want to
demolish all of the bathrooms in my house. I'll deal with the regular
cleaning, the occasional clog, and the rare replacement for the quality
of life that comes with it.

Rather than only complain and criticize, I feel it is only right that I
offer at least some ideas for how to "make it right." I would keep an
income-based system. Rather than try to reduce the number of tax
brackets, I would increase them. (The couple who bring home \$319,101
should not have the same marginal rate as the CEO, movie star, or sports
star who makes \$47M.) I would add tax brackets somewhere near the
\$500k, \$1M, and \$10M income points in today's dollars (indexed, of
course). I don't see anything wrong with taxing up to 50% or more of
income over \$10M/year[^1]. The tax rate is higher, but I doubt many
would turn down being in that position.

Second, I would drastically reduce the number of deductions, eliminate
all credits, and make it extremely difficult to introduce or modify
targeted deductions. The "standard" method of changing the revenue side
of the IRS should be in the tax table. The deductions left would be
essentially government subsidies toward a "middle class" lifestyle. Home
mortgage interest deductions, for example, would be limited to only a
primary residence and principle up to the "conforming" mortgage limit
(currently \$359,650). Tax-advantaged retirement savings would be
limited to an amount that, if maximized every year from age 20 to 65 (or
retirement age) and if earning conservative interest (say 5%-8%), would
provide a median individual income in today's dollars for a length of
time that would cover at least 95% of people (roughly 90-95 years old
today)[^2]. I would probably get rid of all deductions for medical costs
-- a difficult decision -- but this country spends far too much on
unnecessary medical care and drugs and trying to regulate what is
wasteful and what is not would be impractical. I would get rid of state,
local, and other tax deductions (except keep the property tax deduction
on homes up to the tax on the value tied to the deduction described
above.) The only benefit to these tax deductions is to ensure that no
one is ever taxed (through federal, state, and local combined) more than
100%. That is currently not a problem anywhere in the U.S. Unless a
problem like that develops, I wouldn't make it a deduction -- it just
winds up being a federal subsidy of inefficient states. All other
deductions I can think of would be eliminated.

Everyone would be eligible for the deductions -- even the wealthy. The
progressive tax rates can even be increased to will ensure that the
wealthy still pay plenty in taxes. This would eliminate
phase-in/phase-out calculations and regulations and remind everyone that
we all have an equal right to a reasonable lifestyle.

I would tax earned and unearned income equally (avoiding the problem of
people trying to manipulate income into different types[^3]).

I want the thank the President and the advisory panel for the knowledge
that I personally gained from this process. (I -- like most people in
America -- never realized that the marginal tax rate was once 93% in
this country.) I also don't envy your position. Any change to the tax
code will result is some people paying proportionally more than they
used to. That will anger them regardless of the "greater good" and you
will likely take the brunt of that anger. I know the wealthy tend to
have the loudest voice in matters of money -- including proposed tax
changes, and I hope and trust that the committee will take everyone into
account with the proposed changes. This country needs everyone across
all classes working together to remain as privileged as it currently is
in the world.

Sincerely,

Mark Sadowski

Concerned citizen

[^1]: While most employees are paid based on what the lowest pay is that
    someone would accept who can accomplish the work, the highest paid
    people are specifically sought out and there is generally no one
    else who is considered capable of performing at the same level. With
    that monopolistic position, they can and do command as much money as
    an organization/company can afford. Organizations/companies have
    gotten so large that they can now afford to pay far more than what
    once was considered reasonable. After all, with a multi-billion
    dollar company what is \$50M to get exactly the person you want in
    charge.

[^2]: Today's IRA does not allow saving enough to meet this need, while
    programs like the 401k allow the wealthy (corporate executives
    anyway) to squirrel away more than \$40k per year tax-deferred -
    \$13k in voluntary personal contributions plus up to \$27k in
    company contributions. There is nothing to keep someone founders of
    a successful dot.com, for example, from using that for their whole
    life. \$40k/year for 40 years in an investment that makes an average
    of 5% interest per year more than inflation would net almost \$5M in
    today's dollars -- nearly \$400k/year in today's dollars for 20
    years of retirement -- all government subsidized.

[^3]: Like creating a sham investment company that pays a salary to the
    only employee who happens to also be the only client or like paying
    CEOs entirely in stocks and stock options with no salary.