President Bush\'s call for Social Security reform seems to be in
trouble. It is in trouble because everyone is asking the wrong question:
how shall we pay for the proposed reform? To be more accurate, they are
asking a question out of order. They have got the cart before the horse,
and that does not work.

The opposition propaganda machine has stirred up fears that the
President is messing with the \"trust fund.\" But, the notion that there
is a Social Security \"trust fund\" is both an illusion and a
politician\'s scam. There is NO trust fund. This needs to be made very
clear to the American voter; so far NO ONE has had the courage to do
this\-- not the media, not the pols.

The illusion of a \"trust fund\" \-- and all the pols who voted for
legislation containing that term have been partakers in a scam that is
fundamentally dishonest\-- is a con designed to facilitate the legal
confiscation of earnings in a redistributionist scheme in which some
people get more back than was taken from them and some get less, but
hardly anyone gets as much as they might have got from a good
certificate of deposit. It has nothing to do with \"trust,\" and
everything to do with creating a self sustaining slush fund which pols
can use to buy votes from special interest contributors or voter blocks
while maintaining the illusion of a \"retirement system.\" The system
was in need of reform the minute it was implemented.

To talk about social security reform before settling tax reform is to
put the cart before the horse. But carts do not pull horses. The
President made a serious strategic mistake in trying to isolate social
security reform from the fundamentally flawed and fraudulent system of
which it is only one part. In order for Social Security Reform to
succeed, it must be coupled with Tax reform. The horse of tax reform
will then pull the cart of

Social Security reform.

And why? Everyone is asking: how will we pay for the cost of the
desirable social security reforms? By raising taxes? By crook ( e.g.
raising rates or taxes) or by hook( covertly or overtly lowering
benefits)? By borrowing and increasing the nation\'s debt? This is what
EVERYONE is discussing. It is the wrong question. This faux-focus is a
product of the decoupling of social security from the total system of
soft socialism enacted by the new deal on the basis of an emergency and
perpetuated as a permanent political

promised land.

The only sound way to pay for this transition cost of a reformed system
is by raising productivity . And how? Certainly no tinkering with the
tax code as has been proposed, retaining the covert social engineering
scams of deductions for this and credits for them, is likely to generate
the kind of productivity needed to float and support such reforms as the
President is proposing for social security. The only sound way to
generate the needed productivity is by repealing the anti-productivity
taxes on incomes and success, and the 16th amendment to the Constitution
that gave them legitimacy and replacing them with a tax on consumption
or transactions, a tax of choice, not compulsion.

These reforms would unleash such a fount of productivity as to make
reform of the rest of an antiquated system, including social security,
possiblible

WITHOUT cutting benefits or raising taxes.

Friday\'s Front Page of the New York Times carried something of a

surprise.

\<[[http://www.nytimes.com/2005/03/04/politics/04tax.html?th]{.underline}](http://www.nytimes.com/2005/03/04/politics/04tax.html?th)\>

[[http://www.nytimes.com/2005/03/04/politics/04tax.html?th]{.underline}](http://www.nytimes.com/2005/03/04/politics/04tax.html?th)
Here\'s the lead,

by Edmund L. Andrews

WASHINGTON, March 3 - Alan Greenspan, the Federal Reserve chairman,

cautiously endorsed a shift in the nation\'s tax system on

Thursday from one that primarily taxes what people earn to one that
taxes what they spend.

Remarkable! A ways down, comes this quote from testimony given by
Greenspan before the President\'s Advisory Panel on Tax Reform:

\"Many economists believe that a consumption tax would be best from the

perspective of promoting economic growth - particularly

if one were designing a system from scratch - because a consumption tax
is

likely to favor saving and capital formation,\" Mr. Greenspan

said.

Greenspan was speaking to one of the stated goals for tax reform, as
given

to the President\'s Advisory Panel. They are to suggest

reforms that will.

\"promote long-run economic growth and job creation, and better
encourage

work effort, saving, and investment, so as to strengthen the

competitiveness of the United States in the global marketplace.\"

And he was right, many economists do believe that, \"a consumption tax
would

be best from the perspective of promoting economic growth \" Dr. Tom

Sowell speaks for many of them,
\<[[http://www.townhall.com/columnists/thomassowell/ts20041125.shtml]{.underline}](http://www.townhall.com/columnists/thomassowell/ts20041125.shtml)\>

[[http://www.townhall.com/columnists/thomassowell/ts20041125.shtml]{.underline}](http://www.townhall.com/columnists/thomassowell/ts20041125.shtml)

We could stop taxing productivity and start taxing consumption. After

all, productivity is what makes a society more prosperous. Someone who

is adding to the total wealth of this country is not depriving you of

anything. But someone who is consuming the nation\'s wealth, without

contributing anything to it, is. Yet our tax system penalizes those who
are

producing wealth in order to subsidize those who are only consuming it.

So too does Professor Walter Williams,
[[http://www.townhall.com/columnists/walterwilliams/ww20041222.shtml]{.underline}](http://www.townhall.com/columnists/walterwilliams/ww20041222.shtml)

\<[[http://www.townhall.com/columnists/walterwilliams/ww20041222.shtml]{.underline}](http://www.townhall.com/columnists/walterwilliams/ww20041222.shtml)\>

Abolition of the IRS and the income tax code it enforces, replaced by a
national sales, would create greater economic incentives, enhance
personal privacy, and lower tax compliance cost by an estimated 90
percent.

Andrews also points out in his Times piece that,

The Economic Report of the President, published last month, argued that

consumption taxes could increase personal savings by as much as 43

percent in the first year and ultimately lead to higher output and
higher wages.

\"By removing the tax on the return to savings and investment, a

consumption tax would increase savings and investment,\" the report

contended. \"With a larger stock of capital, workers would be more
productive and output and wages would rise.\"

But, as I suggested above, there is another advantage. The tax system is
part of a larger antiquated system that includes the social security
program. Current efforts to reform the latter detached from reform of
the tax system are stymied by debate over whose ox shall get gored and
in what way\" shall we raise rates or lower benefits. The savings in
enforcement and compliance costs from abolition of the incomes, payroll
death and other anti-growth taxes, and the revenue generated by the
additional productivity arising from switching to a tax on consumption,
a tax of choice instead of compulsion, would make reform of the rest of
an antiquated system, including social security, possiblible WITHOUT
cutting benefits or raising

taxes.

Although he seems himself to favor the so called \"flat tax,\" Bruce
Bartlett, senior fellow for the
\<[[http://www.ncpa.org/]{.underline}](http://www.ncpa.org/)\> National
Center for Policy Analysis. admits
\<[[http://www.townhall.com/columnists/brucebartlett/bb20050112.shtml]{.underline}](http://www.townhall.com/columnists/brucebartlett/bb20050112.shtml)\>

,[[http://www.townhall.com/columnists/brucebartlett/bb20050112.shtml]{.underline}](http://www.townhall.com/columnists/brucebartlett/bb20050112.shtml)
, that it is \"a consumption-based tax system, which most economists now
support.\"

Even more significant than the support of economists, the consumption or
transaction tax has the support of the voters, who have endorsed it when
ever a politician has had the courage to propose such tax reform. vide
Bob Novak\'s list of successful encounters. (
\<[[http://www.townhall.com/columnists/robertnovak/rn20041111.shtml]{.underline}](http://www.townhall.com/columnists/robertnovak/rn20041111.shtml)\>

[[http://www.townhall.com/columnists/robertnovak/rn20041111.shtml]{.underline}](http://www.townhall.com/columnists/robertnovak/rn20041111.shtml)
)

Another goal set for tax reform, is that it should,

\* Simplify Federal tax laws to reduce the costs and administrative

burdens of compliance with such laws.

Simplify? Certainly there is no contest here. The tax reform that is
simplification par excellence is the substitution for the current tax
system of a consumption tax.

Not only does the so-called flat tax continue the confiscatory
withholding system \-- something that per se would undoubtedly horrify
most of the writers of the Constitution.\-- but it still requires
individuals to track expenses and file forms, it still requires
businesses, and this is especially costly and onerous to small
businesses, to record expenses and to provide contingencies and expenses
for audits. The forms may be simpler than the current system of many
thousands of pages of regulations, too complex for even the IRS to keep
track of; that is to say very little indeed

\*

\*

Unlike the flat tax, the consumption tax is inherently simple: it
eliminates filing for individuals and for businesses, except for the
sales

tax \-- with a system already in place for state taxes in many places .

\*

The consumption tax is not only the simplest tax, it is also the most
efficient and the least expensive tax. It eliminates the IRS, an onerous
and fundamentally un-American agency ( prosecutor-judge-jury all in one
), thus also the operating cost of that agency\-- more than \$10 billion
to operate in 2002. Finally it eliminates the compliance costs to
taxpayers of more than \$200 billion a year.

Even proponents of the flat tax, as John Fund points out in his Wall
Street

Journal piece,
[[http://www.opinionjournal.com/diary/?id=110006352]{.underline}](http://www.opinionjournal.com/diary/?id=110006352)

\<[[http://www.opinionjournal.com/diary/?id=110006352]{.underline}](http://www.opinionjournal.com/diary/?id=110006352)\>
admit that there is

really no chance that a \"flat tax\" once enacted would remain flat.

\*

Former House majority leader Dick Armey, a pioneer in promoting the

flat tax, privately admits that Congress is unlikely to

abolish tax deductions for mortgage interest and charitable
contributions,

but there is lots of room for President Bush\'s tax reform

commission to propose a dramatic flattening of the income tax

code.

\*

We are also told that reform should,

\* Share the burdens and benefits of the Federal tax structure in an

appropriately progressive manner while recognizing the importance of
homeownership and charity in American society,

\*

\"Share the burdens\'? The burden in the current system, as well as in
the so called \"flat tax\" is unfairly borne by honest people who are
law abiding in their transactions.

Whole segments of the economy go untaxed in these systems an underground
economic activity that currently evades taxation by going unreported and
uncollected. Barrons
\<[[http://online.barrons.com/article/SB110445261525213540.html]{.underline}](http://online.barrons.com/article/SB110445261525213540.html)\>

[[http://online.barrons.com/article/SB110445261525213540.html]{.underline}](http://online.barrons.com/article/SB110445261525213540.html)
reports that

this underground economy in the US is \"about \$970 billion, or nearly
9% of the real economy. It should soon pass \$1 trillion.\"

Only a consumption tax can capture a fair tax from this underground
economy. Taxes lost under the current system, but that would be captured
under a consumption tax could virtually wipe out the federal budget
deficit.

\"In an appropriately progressive manner\"

Appropriate progressivity of the burden is maintained in a consumption
tax by exempting the necessities of life such as food and medicine. A
consumption tax that eliminates such necessities is, in fact, inherently

progressive: those who have the most money normally engage in the
largest consumption and the most expensive transactions and would
therefore pay most of the tax.

\" While recognizing the importance of homeownership and charity in
American society.\"

Homeownership and charity are important values, but should the tax

collection system be used to promote them?

So if the consumption tax has so many advantages, why is there so much

resistance to it? Although both experts and voters favor it , the

politicians and special interests have colluded to prevent the enactment
of this promise. And why?

Professor Williams points the reason from the stand point of the pols:

The two most powerful congressional committees are the House Ways and

Means Committee and the Senate Finance Committee. Both

dispense tax favors to different Americans that come at the expense of
other

Americans. With a sales or flat tax, their Santa Claus roles, not to

mention campaign contributions, would be diminished. On top of that,
they\'d

have restricted opportunities for social engineering through fiddling

around with the tax code.

Andrews points the reason from the standpoint of the special interests:

James A. Baker III, who was treasury secretary when President Ronald

Reagan pushed through a tax overhaul in 1986, warned the panel of the

political minefields.

Mr. Baker noted that the Reagan administration originally proposed a

sharp limit on the mortgage-interest deduction to reduce tax rates

as much as possible.

But that provoked a storm of protest from the real estate, construction

and home-finance industries. Only by capitulating, Mr. Baker said,

was it possible to pass a bill that sharply lowered tax rates and
eliminated scores of special tax breaks.

There is something fundamentally dishonest in using a revenue system for
promotion of such objectives.

\*

Reform lite, which is what is assumed by all the public buzz, is
certainly a capitulation to special interests and political expediency.
But, it is also a scam that perpetuates the core of a new deal
redistributionist tax system by a slightly differently skewed system of
social engineering.

Deductions for mortgage and charity and credits for children are
fundamentally dishonest \-- giving back a bit of the money, confiscated
by the government for programs and policies that are, in the first
place, not

the legitimate provenance of the federal government. Such politically

appealing scams would be unnecessary if the money were not confiscated
in

the first place. In addition, they provide a justification for
maintaining

the whole corrupt system that seeks to buy or reward voters and
contributors for continuing or putting a party or politician in power
\-- it is per se corrupt and no amount of attempted justification of a
corrupt system by remitting part of the corruption for good ends such as
homeownership or marriage and family stability can justify the
continuation of the corruption. If it is desired to make homeownership
easier or to promote family stability, surely there is enough ingenuity
in the private sector to satisfy this desire. It should not become the
raison d\'etre for maintaining an anti-productivity tax system which has
become the main stay and enabler of the total antiquated system,
including the disfunctional scam of Social

Security.

\*

At some point we need to ask: why should the tax code discriminate in
favor of home buyers as opposed to renters? We need to ask: why is it
the business of government, whether I spend my money on a collection of
books or give it to charity? We need to ask: why are these matters the
business of government and what they have to do with a system of revenue
raising? We need to ask: why do \"conservatives\" think such matters are
a proper concern of a national government? We need to ask: what part of
the Constitution mandates such a use of a revenue system for social
engineering?

There is no question as to the best method of reform; the only question
is

will the President and the Congress have the courage to enact it? Will

they dare to put the people ahead of the special interests and political
expediency?