\-\-\-\--Original Message\-\-\-\--

From: Pete Malone
\[[[mailto:pmalone@ameritech.net]{.underline}](mailto:pmalone@ameritech.net)\]

Sent: Friday, March 18, 2005 11:08 PM

To: Tax Reform Panel

Subject: Real Tax Reform

When it is said there is no ground swell for tax reform, it must be
lobbyists & people inside the Beltway speaking, because out here in the

hinterlands, the idea is extremely popular. In tax surveys, it typically

garners at least 60% of the votes, whereas the second-place contender
seldom

gets more than about 20%. Leaving things as they are gets single-digit

support.

By tax reform, I mean something that replaces the loathsome IRS & Income

Tax: a simple, obvious, single-rate, revenue-neutral tax on consumption,

i.e., the Fair Tax, H.B.25. The key is to recognize that taxing anything

discourages its use & exploitation. We tax tobacco & alcohol, & it is

counterproductive to tax income, for just that reason.

The Fair Tax will broaden the tax base by a third, making taxpayers out
of

\"tax cheats,\" criminals, illegal aliens, etc. It will eliminate the 6

billion man-hours & more than \$725 billion (for tax consultants) we now

spend unproductively to complete our tax returns. It will also eliminate

the tax code & the IRS, as we know them. The IRS will be reduced to

auditing collections of the National Retail Sales Tax by the States.

Only H.B.25 gives the worker his pay intact, growing his paycheck by
\"half,\" enabling him to spend (or invest - savings will be made with
untaxed funds & will grow untaxed, so there will be less incentive to
spend & more incentive

to save) as he wishes. The resultant increased sales & investment will

cause increased industrial activity, production & employment.

Since the NRST will not apply to exports, but will apply to imports,
domestic products will be much more competitive in world markets,
production lines & jobs will flow back to this country, our balance of
payments will be

reversed, & the U.S. will become a haven for investment. Other countries

will have to follow suit & the whole world will become more productive.

The increased pace of economic activity & improved efficiency of our
economy will cause more rapid growth, with the result that revenue will
rise more

rapidly. The Fair Tax is the best means available to disconnect the

funding of Social Security from the number of people employed, thus
making

it more actuarially sound & ensuring its solvency. The more rapid growth

of the economy should permit making payments on the National Debt.

If anyone tells you the Fair Tax is not \"progressive,\" you might point
out that today a person earning the minimum wage pays almost 26% of his
income

in federal taxes built into the products he buys. Nothing is withheld
from

his pay, but he still pays at 26% of his income to Uncle Sam! People who

earn more, pay at higher rates!

Under the Fair Tax, there will be a monthly \"prebate\" check to
compensate each family in advance for the amount of tax they will pay on
necessities. As a result, those earning almost \$19,000 per year will
pay no federal tax

at all. That person at the minimum wage will not only receive almost
\$3000

in \"prebate\" payments but, to the extent that he can buy used
(untaxed) goods - clothes, furniture, etc. - he can come out even
farther ahead.

Only people spending more than \$250,000 per year will pay at the
maximum

rate. And all this can be done without adding additional machinery or

bureaucracy. Almost all states already collect sales taxes. Cash

registers are readily reprogrammed to charge different percentages of
sales taxes levied by a variety of government entities, e.g., municipal,
county,

port authority, State, etc. Adding another component will be relatively

simple & inexpensive, compared to any of the other tax proposals. At the

end of the day, the machines give the totals collected for each tax
category.

Because \"everyone\" faces the Income Tax, although it cannot be
complied with or administered consistently or fairly, the result is a
general apprehension

& fear of the government. That is typified in jokes such as, \"I\'m from

the IRS & I\'m here to help.\" By being fair, obvious & understandable,
the

Fair Tax will restore confidence in government & reduce cynicism &

animosity. Each taxpayer will decide on his own, as he makes his daily

purchases, how much tax he is willing to pay. The amount he will pay
won\'t

be decided by some stranger who \"doesn\'t have a clue\" about his
situation. Please don\'t underestimate the value of t he voluntary
aspect of the Fair Tax.

Having the cost of the federal government displayed to every consumer on
a

daily basis will mitigate in favor of less profligate spending. It
won\'t

be possible to \"play games\" with the tax rate, without it being
immediately

noticed by the public. Since the repeal of the 16th Amendment is a

companion to H.B.25, it will make returning to an Income Tax virtually

impossible. (The bills have to be separate, because there are different

voting requirements for them.)

No other tax reform proposal on the horizon has all these benefits. The

flat tax (a singe rate under the present system) has most of the
problems we have today, including the horrendously complicated tax code,
difficulty in administration, ease of avoidance, federal taxes built
into our products &

thus encouraging imports & inhibiting exports, etc. The flat tax is no

solution. It would only be the \"umpteenth\" change in the Income Tax
rate

schedule. The Income Tax IN PRINCIPLE is the problem, not its rate

schedule.

A value added tax (VAT) is a tax on each step in bringing a product to

market, whether it is a manufactured product or a farm crop. The

\"compliance costs\" - calculating & negotiating what constitutes a step
& the increase in value for each step, & the attendant accounting,
record keeping,

etc. - are terrific. A VAT drives every part of the economy to do things

in fewer steps, which tends to be less efficient. (Greater
specialization

\- more steps - tends to be more efficient.) The overall collection

efficiency is worse than with the Income Tax. Also, a VAT is another

invisible, deceitful tax that can be quietly changed. And, of course,
the

total amount of all those VAT increments, plus all those \"compliance
costs,\"

are passed on to the consumer. A VAT is no solution either.

The only solution to all the vexing revenue problems on the horizon is
the

Fair Tax, as exemplified in H.B.25, the Fair Tax Act. It can make this

country fiscally solvent & responsible again, if it is handled right. It

will be the most positive thing that has happened to this country in 75

years. Please make sure your recommendation is that the integrity of

H.B.25 is maintained. The country will thank you for it.

Peter G. Malone

704 Viewpointe Dr.

St. Charles, IL 60174

630-584-4548