DeMint pushes national sales tax

Simplication would lessen burden, he tells conference

By Ellyn Ferguson WASHINGTON BUREAU WASHINGTON -- Many South Carolina taxpayers staring at a fast approaching filing deadline have cursed the federal tax code as they waded through forms and regulations. But imagine this: The end of the Internal Revenue Service as we know it and a system where individuals file no tax returns and companies pay just a business tax. South Carolina Sen. Jim DeMint says taxpayers would get that kind of simplicity under his national sales tax bill. People would pay an 8.5 percent national sales tax on new goods and services while businesses would pay an 8.5 percent business transfer tax instead of a corporate income tax. "Americans would no longer be taxed for making a living, saving, investing or dying," said DeMint, R-Greenville. "The only thing that stays the same is the payroll tax." DeMint found a receptive audience to his idea at a recent panel discussion sponsored by the Cato Institute, a libertarian policy research center. "I think Sen. DeMint's plan would do fantastic things for U.S. competitiveness," Cato tax policy director Chris Edwards said. "I think it would be a more efficient tax system." Edwards and others on the panel believe the current federal tax system discourages saving by individuals and investment by businesses. DeMint's bill would abolish taxes on revenues generated by U.S. companies' overseas operations. So far, Sen. Lindsey Graham, R-Seneca, is the only cosponsor of the bill filed Oct. 26. It has attracted attention from conservative tax policy experts who believe nothing short of a massive overhaul of the federal tax system will work. They like the tax systems of nine former Soviet bloc nations, where there are single tax rates and few deductions, and Ireland's overall tax burden, the lowest of all European Union members. The tax systems have made those nations attractive to business investment, the experts said. While DeMint had his fans at the Cato event, some panelists found merit in the President's Advisory Panel on Tax Reform report released Nov. 1. The report rejected a national sales tax or flat tax and calls for ending tax cuts and reducing deductions for home mortgage interest and employer-provided health insurance.

Democrats criticized the recommendations, saying they would raise taxes for lower-income workers. Some conservatives, including DeMint, call the recommendations weak. "This is not thinking into the future," DeMint told the Cato audience. Advocates of large-scale change hope the report and the debate over it pushes Congress to action. But with the 2006 midterm elections approaching, it's unlikely lawmakers will take significant action on DeMint's proposal or other proposed overhauls of the federal tax code. However, DeMint's proposal is stirring some interest beyond the Beltway. Robert Baldwin, president-elect of the South Carolina Association of Certified Public Accountants, said DeMint's and Graham's proposal sounds like it might have possibilities. The association has taken no position on the bill, which was introduced Wednesday. "It's a rather interesting plan," he said, adding he'd have to study the DeMint-Graham plan more closely. Baldwin said he shares his clients' frustration over the federal tax code. "Everybody thinks accountants like the complexity," Baldwin said. "We're fatigued by it." DeMint built his 2004 Senate campaign around a 23 percent national sales tax. But his opponent, Inez Tenenbaum, successfully attacked it as raising people's daily living costs before her campaign floundered over the question of whether gays should be allowed to teach in public schools. DeMint said his new proposal is workable and would provide protections for the poor who pay little in federal taxes but spend more of their income on items likely to be subject to sales taxes. The federal government would continue to collect payroll taxes for Social Security and Medicare, DeMint said. However, taxpayers would get a percentage of those taxes returned to them in the form of rebates to help with paying the sales tax.