Thursday, April 16, 1998 | 10:48 a.m.
Abolishing the IRS code is kind of like deposing Iraqi leader Saddam Hussein -- what if the replacement is even worse?
As many an American procrastinator rushed to the post office to meet Wednesday's federal income tax filing deadline, the day gave occasion to ponder what life would be like without the IRS.
Sure the current system is complicated, at times even onerous. But what elements of it to keep and what to toss out is debatable.
For Bob Schoser of the Las Vegas Chapter of Create an Alternative Tax System, the answer is simple: scrap income-based taxes altogether and establish a national retail sales tax similar to that in place in most states, including Nevada.
Such a plan would be more fair, Schoser said, in that individuals pay taxes, but not businesses because businesses pass on the cost to the consumer. The national sales tax would also eliminate having to file a report to the government on what one earns.
"This bill will bring privacy back to the American people," Schoser said during a midday forum at the Las Vegas Chamber of Commerce on tax alternatives.
But Nevada State Treasurer Bob Seale said that concept poses problems, such as how to transition from an income-based tax to a sales tax. Also, a sales tax could create an "underground economy" of goods sold in such a manner to avoid this tax.
Schoser countered there is already an underground economy and while those people in it can avoid income taxes, they couldn't avoid paying a retail sales tax if they wanted to buy something.
Seale said a national sales tax could also simply shift the bureaucratic burden of tax collection from the federal government to the states. Moreover, it could increase prices if a 15-percent national sales tax were tacked on to an existing state income tax.
Again, Schoser countered that eliminating the income tax would reduce prices because the cost of income taxes is built into retail goods. He said that for a $1 loaf of bread, 30 cents was hidden income tax costs.
Another less drastic alternative would be the flat tax, a version of the income tax that taxes income the same regardless of annual earnings and sharply reduces the number of deductions and loopholes. This plan is being considered in Congress under the sponsorship of Rep. Dick Armey, R-Texas, and Sen. Richard Shelby, D-Ala.
It would have a flat 20-percent tax on wages, salaries and pensions and would phase into a 17-percent tax over three years for individuals. Business could deduct purchases for the first year and would be taxed at the 17-percent rate on gross income thereafter. Simple, but it may not produce the revenue needed to operate the government.
Some studies have shown it would take a 24-percent flat tax rate to equal the revenue of the current system, said Kent Green of the Clark, Green and Associated law firm.
"That (the flat tax) alone is not going to solve our problems. We need to be able to control spending as well," Green said.
The flat tax would abolish popular measures like deductions for charitable giving and housing mortgages. Patricia Brown of Patricia Brown and Associates added many alimony packages would have to be renegotiated because alimony would no longer be deductible.
Seale noted the flat tax would mean the often unpopular IRS would still exists. "We'll still have to deal with those people," he said.
Abolishing the IRS is a goal of the National Federation of Independent Business, whose Las Vegas petition drive calling on Congress and the president to eliminate the agency by 2001 was rained out Wednesday. Still, the goal remains intact, said Keith Lynam.
He said the NFIB didn't favor any particular alternative, just replacing the current IRS code with a system that is simple and fair.
"I think there's a lot of different opinions and views on what to do once you change the system," Lynam said. "We are simply saying replace the IRS code with something more fair."
Lynam said the NFIB favored a system guided by seven principles: lower rates; encouragement of work and savings; fairness; not burdensome; neutral with no social engineering; no hidden taxes; and stable so that no new complexities are easily added.
Pete Sepp of the Alexandria, Va.-based National Taxpayers Union said by phone Wednesday the national organization likes both the flat tax and the sales tax, but leans towards the sales tax. He dismissed arguments the alternatives may not produce the revenue the federal government currently uses.
"My feeling is that would probably be less likely in the current budget surplus environment," Sepp said. "I get the feeling that as the economy grows, that argument falls short."
The federal government operates on a $1.4 trillion budget, Brown noted. Costs are likely to increase, though, after the turn of the century as a swell of aging Baby Boomers become eligible for Social Security and Medicare.
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