Simpler tax plan proposes sweeping changes

Kansas City Star (MO) (KRT) via NewsEdge Corporation :

Oct. 29--Olathe economist Bill Helming realized a decades-long dream this week when a simpler tax plan he's been working on for 20 years was introduced in Congress.

U.S. Sens. Jim DeMint and Lindsey Graham, both South Carolina Republicans, on Wednesday formally introduced Senate Bill 1921, informally known as the 8.5 percent Tax Reform Plan.

The plan essentially calls for scrapping nearly all personal and corporate taxes on income, savings and investments. Those would be replaced with an 8.5 percent national sales tax on consumer purchases and an 8.5 percent transfer tax that business owners would pay on the difference between their enterprise's sales and purchases from other businesses.

The proposed changes are sweeping, proponents say.

Individual taxpayers would receive at least a 15 percent raise in each paycheck because no federal taxes other than payments into the Social Security system would be withheld. Income-tax returns and filing requirements would be scrapped because most tax collections would simply be recorded on sales slips.

Taxpayers living below the poverty line would get tax rebates, currently about $1,641 for a family of four, delivered through the Social Security system. Internal Revenue Service operations would shrink from processing about 130 million individual returns now to dealing with fewer than 20 million business returns after the changes, DeMint said.

The plan is one of dozens proposed for reforming all or part of the complex U.S. tax code that currently are before Congress or making the rounds of think tanks, economic research organizations, advocacy groups and others who study tax matters.

Helming has been honing the plan since 1984, sharing and shaping it with economists, business owners and others in countless meetings and presentations across the United States and in testimony before Congress.

His goal, he said, "has been to take the lead in crafting a tax reform plan that will result in all wage earners, families and business owners being substantially better off" than is possible under current tax rules. DeMint had been trying to develop a similar plan for about three years when he and Helming met earlier this year, said Matt Hoskins, the senator's chief of staff.

When the two compared notes, "90 percent of what they had was virtually the same," Hoskins said.

Helming acknowledged that the plan faces competition from the other plans as well as proposals that the Presidential Advisory Panel on Federal Tax Reform is expected to formally deliver to the White House before Nov. 1. Helming's plan also could draw the ire of the tax preparation industry, whose business would potentially be devastated.

But the economist, Senators DeMint and Graham, and tax-policy analysts who have helped critique the plan during its evolution over the past two decades say its simplicity, low tax rates and perceived fairness to consumers and businesses make it an attractive alternative to many of the other proposals.

Helming outlined an earlier version of his plan with then-Texas Gov. George W. Bush and his staff in 1998, shortly before Bush formally began his 2000 campaign for the presidency.

Based on the plan's reception then, "I am 100 percent certain that if this plan passed Congress and it got to his desk for signature, he'd sign it," Helming said. "I am absolutely confident of that."

Helming and analysts who have vetted the plan say it spreads a lower tax rate over a wider swath of the United States' economy.

In round numbers, U.S. taxpayers currently have about $10.2 trillion in personal income that is potentially taxable, researchers at The Tax Foundation in Washington, D.C., recently calculated.

But no one is taxed on that full amount. Tax credits, home mortgage and other deductions and exemptions take 28 percent of that money out of the calculations right away. Untaxed transfers and employee benefits -- workplace perks that aren't taxed -- move an additional 16.5 percent off the radar. People with incomes too low to tax, or who cheat, take 15 percent out of the pot.

The consumption tax proposed by Helming and the senators puts all the current subtractions back into the tax base, along with similar tax deductions, exemptions and exclusions that businesses use, and widens the taxable base to 77 percent of the nation's economic output from 52 percent currently, Helming said. "Families with incomes between $40,000 and $125,000 probably wouldn't see a big difference in their taxes," Helming said.

But those who chose to save or invest money could see a big increase in their wealth, because those activities wouldn't be taxed under the new plan, he said. "It would be a huge jump-start for our economy and would shift the power of taxation to individuals far more than is possible under any other system," he said.

<>