Archer's Way

Don't like the IRS? Neither does Bill Archer. And now the mild-mannered Houston congressman is pushing a radical plan to shut it down.

One significant benefit of a consumption tax, says Archer, would come in the balance of trade. By removing the cost of taxes from production, American companies could lower the cost of their exports and become more competitive overseas. Archer claims that the death of the IRS would result in the U.S.' becoming a "sponge" for overseas investment. Already, he says, Japanese companies have told him they would build factories here and even move their corporate headquarters to America if a consumption tax replaced the income tax.

In addition, say consumption tax boosters, a national sales tax would be fairer. The poor could be given a rebate, either directly or through a reduction in their social security taxes, and the rich, who spend more than one and a half times in consumption than the average person, would pay more. If the sales tax were figured properly, the government could be assured of receiving the same amount of revenue, but, because the rate would be plainly stated on every sales receipt, it would also have a difficult time raising taxes.

Further, says Archer and his supporters, a sales tax would be far cheaper to operate than an income tax, which costs something like $8 billion a year for the IRS alone. All but five states already collect sales tax, most retailers are used to collecting it and they could be given a small percentage to cover any additional costs they have of collecting it.

Of course, there would be attempts at evasion, but sales tax proponents point out that the underground economy already costs the federal government something like $200 billion a year in uncollected taxes. Archer likes to point out that under his plan, every time a dope dealer bought a car or a yacht or a tin of caviar, he would be paying taxes he now avoids.

It's a heady vision: a tax that would boost savings, change the balance of trade, lower interest rates, revitalize the American economy, eliminate a hated bureaucracy and make the rich pay more than they do now. The operative question, of course, is whether it's a vision of reality, or simply a mirage that could lure the country toward disaster.

At the moment, there aren't a lot of people arguing the mirage side of the question. Indeed, there are few signs that Archer is being taken seriously: no cover stories in the New York Times Magazine or Atlantic Monthly, no skeptical edicts from the White House. As a Democratic staffer from Ways and Means puts it, citing the late Republican strategist Lee Atwater, "Why get in a fight you're already winning?"

"A national consumption tax is headed nowhere," declares Robert Shapiro, an economist with the Democrats' Progressive Policy Institute. "There isn't an economist in the country who thinks it makes a bit of sense."

Nevertheless, at the end of March, Archer managed to find economists from Harvard, Columbia and Berkeley who were willing to testify at a Ways and Means hearing about the economic advantages of changing the tax code. And Republican Representatives Dan Schaefer of Colorado and Billy Tauzin of Louisiana have introduced a national retail sales tax bill that would replace the income tax with a 15 percent tax on all retail goods and services. Archer has scheduled hearings on tax reform that, unless the Democrats regain control of the House this fall, are likely to produce a bill that will reach the House floor next year.

While arguments for and against a consumption tax are likely to be complex, the central motivation for establishing it -- eliminating the Internal Revenue Service -- isn't. Few Americans need much persuading that the IRS can be highhanded, inefficient and overbearing. Citizens may grudgingly agree with the need to fund the government, but they aren't particularly enthusiastic about the people given the duty of collecting those funds. And the image of the IRS hasn't been helped by rules and regulations that, in tax disputes, assume the taxpayer to be guilty until proven innocent, allow for no jury trials and can result in draconian jail terms. If it promises to wipe out the country's second largest bureaucracy, most people are likely to be more than willing to consider a drastic tax revision.

Almost any of Archer's speeches in favor of a consumption tax opens with the premise that the income tax has grown impossibly complex and a drag on the economy. For example, Archer last year had Mobil Oil officials bring their corporate income tax filing to a committee hearing. The filing cost, Mobil said, $10 million a year to prepare, and creates a stack of paper six feet high. The 2,800-page tax code has grown so complex that many large corporations simply cede office space to IRS officials who work year-round with corporate accountants to get the taxes done.

"The cost of compliance with this code," Archer says, "with all the consulting, litigation and IRS costs, is $300 billion a year, and that's money that could be spent productively instead of playing ring-around-the-rosy with the tax code."

The income tax is not much simpler for individuals. Archer invited the editors of Money magazine to Washington to explain their annual experiment with the tax code. Each year since 1992, the magazine has given 50 professional tax preparers financial data for a family of four. Each year, the preparers have calculated 50 different amounts owed. Archer, who prides himself on being one of the few members of Congress to do his own taxes, thinks this is madness, and must stop.

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