By Camilo Smith
By Craig Malisow
By Jeff Balke
By Angelica Leicht
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By Sean Pendergast
By Sean Pendergast
By Jeff Balke
Houston Congressman Bill Archer has a vision. It's of an America in which April is just another month, and April 15 just another day. A land where "form 1040" has no meaning, a country where "Schedule A" is the first page in a vacation itinerary, a nation where "personal deduction" is something you're required to come up with only in a logic class. It's a vision, basically, of a United States that has torn the letters "IRS" from the federal lexicon, and denied the combining of "income" and "tax" into a single phrase.
It's a vision of a U.S.A., that -- taxwise, anyway -- is a lot more like, say, Texas.
Archer has had this vision for close to a decade, but lately it's something that a number of other people have begun paying attention to as well. And for a solid, simple reason -- Archer is now in a position to help his dream become reality.
In November 1994, two days after the Republicans swept to a congressional majority, Archer called an impromptu press conference in the hearing room of the House Ways and Means Committee. As befits the most powerful committee in the U.S. House of Representatives, the room is high-ceilinged and theatrical. Its 39 members sit on a dais framed in a proscenium arch hung with blue drapes. The white walls of the auditorium are decorated with the framed oil portraits of the committee's past chairmen. And on this day, after serving more than two decades as a minority member of Ways and Means, Archer was now its senior Republican, which meant that his portrait was going up on that wall.
Compared to most politicians, Archer is a modest man, but he had an ambitious plan for Ways and Means that he wanted to talk about. He had grown fed up with the U.S. tax code, and he wanted to change it in a way that would not only affect every person and business in the nation, but reorder the global economy. His ambition was so large and, on the face of it, so preposterous that only a few people were prepared to take him seriously: Bill Archer wanted to abolish the income tax.
Though not a big personality on the Hill, Archer had, thanks to the Republican sweep, inherited a big job. As chairman of Ways and Means, he was suddenly in control of every spending bill that would appear on the floor of the House. He had vaulted from being a seldom-heard, if respected, back-bencher to one of the five or six most powerful legislators in Washington.
The implications of being in the majority were slowly sinking in on Archer and his aides that Thursday morning, when, with only two hours' notice of the new chairman's availability, what seemed like the entire Washington press corps filled the Ways and Means hearing room and began firing questions. It was a moment that both Archer and his longtime aide, Don Carlson, still relish.
"They were throwing everything they could to trip him up," Carlson recalls. There were questions on capital gains taxes, health insurance, energy tax breaks, welfare reform and committee reform, issues that Archer had studied closely for 20 years. Speaking easily, Archer lobbed answers back. As the reporters were leaving, Carlson says, he heard one of them mutter, "My God, he knew all the answers."
Maybe so. But what Archer didn't have at that time was the emphatic phrase that he has repeated over and over again in speeches and articles during the last year: that he wants to tear the income tax system out by it roots so it will never grow back. On that November day, he was, instead, almost matter-of-fact when he told reporters that he favored the development of a new tax concept "not as an add-on to the income tax, but as a complete replacement ...."
If successful, Archer's plan to get rid of the income tax would make the Contract with America look like a small-time political sideshow. His goal is to eliminate the income tax in favor of some form of a national consumption tax, most probably a sales tax. And a grassroots movement in support of a national sales tax has been building momentum, with strongholds not only in Houston, but also in California and Georgia. Archer, who prides himself on avoiding the partisan rancor that has characterized other Republican leaders, says he's building support among Democrats for his plan. If he has his way, by the year 2000, when he plans to retire from office, IRS audits, annual corporate lobbying for special tax favors and the 11-million-word income tax code will be gone forever, quaint reminders of the 20th century.
Bill Archer is the most unlikely of revolutionaries. If someone went sifting through the nation's politicians in search of a radical who wanted to restructure the very nature of America, it's unlikely he would even pause when he came across Archer. Mild of appearance, stiff of nature, Archer has never seemed to be the kind of politician who relishes power for its own sake.
A short man with a large square jaw and an athlete's body conditioned by tennis and racquetball, Archer, at 68, looks 15 years younger than he is. He grew up in Riverside Terrace near Brays Bayou, attended Rice and the University of St. Thomas, then went to law school at the University of Texas. He worked for several years in the family feed mill business, sold it, opened a law practice and then entered politics in the Texas Legislature. He has been devotedly married to a former church secretary and is the father of five children. At a time when the Republican leadership can be reasonably castigated for not living up to its self-proclaimed family values, Archer is exactly what his name implies: a straight arrow.
Twelve years ago, he passed up an opportunity to run for the U.S. Senate. It was, according to those close to him, an agonizing decision. Campaign strategists believe he could have easily taken the seat (and Phil Gramm might still be teaching economics at Texas A&M). But while the Senate is a more visible platform, Archer decided, in the end, to stay in the House and work toward chairmanship of the Ways and Means committee.
Doing that required developing seniority; Archer, as it happens, comes from a district perfect for that. For a quarter of a century, he's represented the 7th Congressional District, which had earlier sent George Bush to Congress. Stretching west from River Oaks to Katy and to the northern edge of Harris County, the 7th is a Republican fortress. Democrats don't bother to run against Archer, and since he faces little opposition within his own party, he has few re-election worries. That may be one reason why, unlike many of this Republican colleagues, Archer has refused to take money from political action committees or so-called "soft money" that may be contributed in unlimited amounts. He goes beyond broad congressional requirements in reporting his personal finances, distributing a complete financial statement that puts his net worth at $2.2 million, including the value of his stocks, real estate and coin collection, as well as his three cars (two Ford Tauruses and a 1987 Dodge truck).
For most of his career, Archer has been devoted to a single theme: reducing the size and cost of government. And that, he has come to believe, can only be accomplished by shuttering the IRS. Archer has little faith in the idea that the complexities of the income tax can simply be smoothed out, that a reform here, an adjustment there will take care of the problems he sees. His clarifying moment on that score came with the 1986 tax reform act, which was supposed to make income taxes fairer and more simple. It was a bipartisan deal worked out by then-Ways and Means chairman Dan Rostenkowski with President Reagan, but, says Archer, it actually did nothing to truly make taxes fairer or simpler. While it lowered the tax rates on ordinary income for a while, the act restricted the ability of people to establish Individual Retirement Accounts and reduced employer incentives to contribute to defined benefit plans. It also rewrote the rules for real estate partnerships, which Archer contends contributed significantly to the downfall of banks and savings and loans. Archer fought the bill and his own party's president, losing by one vote on the floor of the House. Within a few years, says Archer, every benefit from the bill was wiped out, and a hundred new forms had been added to the tax code.
For a while, Archer toyed with the idea of further reform. But he gradually became committed to the idea that, if he were ever to gain control of the Ways and Means committee, he wouldn't try to reform the income tax, he would rip it out.
He has a huge task before him. He proposes to root out a tax system that has grown so complex that, although nobody completely understands it, most people have an interest in keeping at least some part of it the way it is. A good example of this entropy occurred when Steve Forbes spent $30 million on a presidential campaign based on the flat tax. A flat tax is "flat" because it proposes a single tax rate on everyone, to be calculated on a form the size of a postcard. But that meant, among other things, taking away the home mortgage deduction, and when the real estate industry produced studies that showed home values would decline by 10 percent to 15 percent under a flat tax, the idea lost its appeal to many homeowners.
Archer himself wasn't much of a flat tax fan. While he says it would be an improvement over the present system, he feels it wouldn't go far enough. It would still leave the income tax and the IRS intact. If a national consumption tax were instituted, on the other hand, the IRS could be completely wiped out.
Tax reform at this fundamental level invokes competing theories of justice and economics. One of Archer's favorite themes is that the income tax punishes work and saving, and that it encourages aggressive spending. A tax on consumption, on the other hand, would encourage people to save, creating a huge pool of investment capital that could lower interest rates and spur productivity.
Though abolishing the corporate income tax might seem like a break for big business and a punishment for consumers, Archer insists that businesses don't really pay taxes anyway, they just pass them along to consumers in the form of higher costs of goods and services. Some experts estimate that the corporate income tax adds anywhere from 10 percent to 20 percent to such costs. While a national sales tax might add 15 percent to 20 percent to consumers' purchases, in theory that boost would be offset by companies' reducing the cost of their products as their tax overhead disappears. In addition, instead of having taxes withheld, workers would get all their earnings up front.
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.
In his quest to demolish the income tax, Archer is backed by a grassroots movement that includes such lobbying groups as Citizens for an Alternative Tax System, which grew out of a fight over the tax code. Established in California in 1990, CATS was initially an offshoot of Scientology. California Scientologists had long insisted that their organization was a church, and as such shouldn't have to pay taxes. When the IRS disagreed and pushed for money, some Scientologists took the issue to court. Others decided to take their battle into politics. Though the IRS ended up granting Scientology tax-exempt status in 1993, CATS continued on, broadening from its original base to include a variety of people disgruntled with the tax code for a variety of reasons. If CATS has outgrown its Scientology connections, it hasn't outgrown its fervor for reform. It claims 20,000 members nationally, with its most active chapters in Los Angeles, Atlanta and Houston.
The Houston chapter has grown from a handful of members last year to 350 active members and 2,500 supporters, says its president, Yvonne Schick. At the end of February, a crowd of 200 came to the monthly meeting at the Hess Building on Buffalo Speedway to watch a video about a national retail sales tax and hear economist David Smith discuss the history of the income tax, which he described as "Prohibition's Hangover." Although the U.S. had experimented with the income tax during the Civil War, Smith recounted, it was reviled and repealed, and, in 1893, the Supreme Court declared such taxes unconstitutional. Still, by the turn of the century, Smith said, the progressive/populist movement was pushing prohibition, but there was a catch: as much as 40 percent of the nation's income was based on the excise tax on liquor. Before Prohibition could be passed, an alternative tax system was needed, and so progressives pushed for what, in 1913, was ratified as the 16th Amendment, giving Congress the "power to lay and collect taxes on income." The first income tax was also intended to get at the rich, who were taxed at rates that now seem quaint: 7 percent on income more than $1 million. Those with incomes less than $2,000 were taxed at a rate of 1 percent.
From that, Smith told the CATS crowd, has evolved a system of taxation that violates five other amendments to the Constitution, among them the right to a trial by jury, prohibitions against excessive fines and limitations on search and seizure. (As it happens, this is not an argument the Supreme Court has so far supported.) Still, rhetoric aside, almost everyone has heard a tax horror story. Archer likes to point out that each year, 40 million Americans suffer some sort of inquiry into their tax returns. A straight tax on consumption, he insists, would simply end all the uncertainty.
While big business has yet to weigh in on his tax proposals, Archer has lined up some important help from a few hometown boys who made good. One of them is Jack Trotter, a wealthy investor who went to the University of Texas with Archer, and whose father was Archer's father's accountant. A CPA and a lawyer, Trotter has acquired a reputation both as a dealmaker and investment adviser, and his touch is said to be golden. He became very good at creating deals that protected investors from tax liabilities, but grew increasingly disgusted with tax laws that allowed him to pay less tax than his secretary. Eventually, he became obsessed with replacing the income tax with a sales tax.
In 1992, Trotter was put in touch with Steven Hayes, the founder of CATS, and Trotter began to realize that there might be grassroots support for his dream. He enlisted several friends and created the National Tax Research Committee to raise research funds to study the issue. Among the members are developer Howard Horne of Cushman and Wakefield and Jack Valenti, a prominent Democrat and CEO of the Motion Picture Association of America. According to its president, a retired investment adviser named James Reichert, the NTRC plans to raise a million dollars for academic research on the economic implications of a national sales tax. Some of that grant money will go to economists at the Baker Institute at Rice University, where Trotter serves on the Board of Governors. In addition, Trotter's longtime friend and associate Leo Linbeck Jr., chairman of Linbeck Construction Corporation, is leading fundraising for a lobbying and advocacy campaign on behalf of a national sales tax.
Archer has also received support in principle from what some might consider an improbable corner. Well-known liberal Democrat Barney Frank of Massachusetts has weighed in as favoring a consumption tax, saying he's convinced such a levy can be designed to exempt the poorest Americans from paying an unfair share. The costs of making the transition to a different form of taxation are likely to be tremendous, Frank says, "but I like it in terms of excluding savings from taxes and building foreign investment and exports."
But leading a tax revolution isn't going to be simple. One reason the income tax code is so complex is that it's been repeatedly amended to appeal to different constituencies. When push comes to shove, some people may find that they like the IRS more than they thought. After all, businesses get to write off health care, depreciation and debt; home and family values are supported by home mortgage and childcare deductions; and certain charities depend on tax breaks as much as they do good will to solicit contributions. Indeed, a few years back, when the IRS proposed reducing a tax write-off people could take for giving works of art to museums, curators nationwide went into a panic. If the rich got no benefit other than a bronze plaque for turning over their art, then they might just keep it, the complaint went. It's easy to see similar wells of concern rising up when people consider just what else might disappear with the IRS. Taxation is more than simply a way to raise money; it's also a way to encourage particular activities. Want industries to stop polluting? You can threaten them with the stick of fines, or the carrot of tax breaks for cleaning up their act. "These are ideals that are embedded in our tax code," says a Democratic Ways and Means staff member, who predicts plenty of opposition once Archer settles on a definitive plan.
Knowing he'll need bipartisan support, Archer has taken care not to endorse a specific plan while he works both sides of the aisle. And it will take a while for the true dimensions of his proposed tax revolution to become clear. The references to how the U.S. conducted business in the 19th century sound good, but the America of today is considerably different from the nation that existed 100 years ago. And there's also the niggling problem of uncertainty: at the moment, no developed nation in the world depends on a sales tax instead of an income tax. The heady rush that comes from taking such an economic leap might end up disappearing once people discover exactly what's on the other side.
Still, nobody ever said revolutions were easy, or without risk. And it's hard to ignore the fact that Archer has come a long way from that 1994 press conference when he introduced himself as the new chair of Ways and Means. At that meeting with the media, one reporter asked Archer if he were even sure if he were going to be the new chairman. Newt Gingrich was said to be changing all the rules about committee appointments. Maybe Gingrich would want someone more conservative, the reporter asked.
More conservative than Bill Archer? The man who had been lobbying for a balanced budget amendment since 1971? The man who had defied Ronald Reagan's tax reform and urged George Bush not to raise taxes? "Surely you're jesting," Archer replied.
That afternoon, two reporters cornered Gingrich in his office across the street from Ways and Means. Who was Bill Archer, they asked, and was he serious? Replacing the income tax was one thing that hadn't appeared on the Republicans' Contract. "Newt just chuckled," Archer says. " 'You see,' he told the reporters, 'that only shows there is someone around here even more radical than me.'