Americans for Fair Taxation

has spent over $18 million over the past five years on market and economic

research to determine what is the fairest and most efficient way to raise

the necessary funds to replace the current revenues raised by the tax

on incomes. One research project, completed at Harvard, argues that, on

average, 22 percent of what you pay for at retail is the imbedded cost

of the current code. That is to say if you spend $1 at the store, 22 cents

is the tax component of your purchase.

This should not have been surprising.

I have owned several businesses and never did I discover a secret drawer

in which money piled up for me to pay my income tax, the corporate portion

of my employees' payroll taxes or my accountants and attorneys to avoid

the tax. All of that came out of price, along with all of the costs the

businesses incurred.

Ultimately, the only taxpayers

in the world are consumers who consume the product and all of the costs

imbedded therein. By abolishing the IRS we eliminate the tax component

of our price system. Competition will drive those costs out of the system

and we replace them with a 23 percent transparent tax imbedded in the

retail price, but you get to take home your entire gross pay.

How will this impact our economy?

Imagine selling goods and services into the global economy 22 percent

cheaper while making the same profit. Imagine foreign products meeting

our shores and being taxed the same as domestic production at retail.

Imagine all of the world's investors in our equity markets because there

are no tax consequences. What would happen to interest rates if American

companies could repatriate all of their profits that are stranded overseas

because the tax burden to bring them home is 35 percent?

The passage of the FairTax

would efficiently tax the underground economy and make every American

a voluntary taxpayer. They would pay in taxes in the amount they choose

when they choose by how they spend.

The Armey bill is also under

serious consideration. It would eliminate all deductions and levy a flat

tax on income. The most recent proposal required a 17-percent tax levy.

In 1986, we eliminated most deductions and drastically lowered the tax

rates to only two levels, the top level being 28 percent. We have amended

that reform more than 6,000 times since then.

The tax increases of 1990 and

1993 brought us back to five tax levels and a 39.6 percent top rate. Both

increases were sold to the American people with the promise that the increases

would only fall on the top 1 percent of income earners. Then we used the

complexity of the code to redefine income. This was possible because we

still had the code in place and knew who made what income.

The Armey proposal, which also

leaves in place a corporate income tax and the payroll tax, would leave

the IRS in place. That guarantees three things: 1) The tax rate can easily

be increased in subsequent years. (Only on the top 1 percent of the taxpayers,

of course.) 2) Seventy-five percent of our citizens, who pay a larger

payroll tax than income tax, will not benefit. 3) The tax component of

our price system (i.e. the 22-percent embedded cost) will remain.

Last, and very important, the

Armey flat tax presumes that we can achieve a huge cut in spending. After

watching Congress struggle with the president's proposal to limit spending

increases in this year's budget to 4 percent, I think a major cut is unlikely.

The third proposal is the Tauzin

bill, which would eliminate personal and corporate income taxes and place

in their stead a 15 percent sales tax. It also eliminates many excise

taxes. The failings are exactly the same as the Armey bill with the added

political hazard associated with passing a measure that would eliminate

what some members of Congress consider appropriate "sin" taxes.

We would lose many votes on the floor of the House on the proposal to

reduce excise taxes on tobacco alone.

In addition, the FairTax is

the only proposal that deals with the largest challenge we face over the

next few decades. In 30 years, we will increase the numbers of Americans

collecting Social Security and Medicare by 100 percent, while increasing

the number of workers paying those benefits by only 17 percent. Under

both the Armey and Tauzin proposals, irrespective of the president's proposal

to allow some private investment of retirement funds, the payroll tax

must be increased or the benefits decreased in order to compensate for

this funding shortfall.

Under the FairTax, the money

for those retirement programs will be collected from the overall size

of the economy, which economists tell us will double in size in slightly

over a dozen years well before a doubling in revenues is necessary. Also,

the FairTax will increase the number of payers into the system. Currently,

about 120 million workers pay into the retirement system. Under the FairTax,

every citizen as well as 51 million foreign visitors who spent $108 billion

in our country last year will contribute.

We have a unique opportunity

to change the world for our children and grandchildren. We can use this

moment to eliminate a tax system that never should have become so burdensome,

complicated and corrosive. We can save our retirement system for future

generations. And we can provide the ultimate privilege for free citizens

in a free society the privilege of anonymity.

Never again would any agency

of government know how much money we make, how we make it or how we spend

or invest it. That alone is enough to pass the FairTax!

Rep. John Linder (R-GA)

[Rep. Linder represents

Georgia's 11th District, a band of counties stretching from Gwinnett to

Athens and the South Carolina line.]