Taxes

In the late seventies, all of eighties and through the early nineties – about twenty-five years -- I supported a family of five by selling insurance, stocks and bonds. I was led to the financial markets when the problems of my clients caused me to recognize the need for better management and protection of family resources: I was a financial planner before it became fashionable. I was not only a fully licensed insurance salesman but took all the required Federal SEC tests to sell stocks and bonds. I lay out this background so you will understand where I’m coming from.

As I serviced the needs of my clients, I began to look closely at what kept them from building substantial wealth over their working lifetimes. I knew their incomes and pretty much their base expenses but wondered why most of them -- and myself, for that matter -- were not on the way to wealth and a decent retirement.

Most of my clients were average working people. Many were small business people attempting to make their living by following a personal dream to own their own business and do their own thing, in most cases by providing services and products to their neighbors effectively enough to earn an income for their own families. Most of the time their income was in the same middle class range that prevailed in this country at the time. Perhaps some might have been characterized as upper middle class. None were or could be considered in the poor economic levels. Very few clients were wealthy.

My search into what prevented my clients from accumulating wealth revealed that the prime factors fell into two well recognized and common sense areas: The amount they earned and the amount they spent! The amount they earned was affected greatly by taxes, taxes that were increasing significantly during those years. The amount they spent was limited by the amount of taxes extracted from them, reducing what they had left for investing and so-called discretionary spending.

During this period, most annual incomes were rising. But so were taxes and costs associated with growing government intervention. It was during this time when many families decided they had to send mom to work: Two incomes were necessary to keep their heads above water. In far too many cases, the government’s take of ones income coupled with the rising costs of staples (primarily increased because of government pressures and added costs to manufacturers who had to raise THEIR prices to compensate) brought these families to the brink.

I began reading all I could find on the subject of economics, capitalism, government and other forms of social orders around the world. I began to realize that the average person in this country bore a huge economic burden and the bulk of that burden was laid on them by government and the way we are taxed.

In October 1990, four individuals in California were mulling similar concerns. One was a tax attorney, one was an accountant, one a small business owner and the other was a young single man in his twenties just beginning to wrestle with his own economic struggles. They, too, were studying many of the same issues that concerned me. They, too, came to the realization that many of our individual family economic problems resulted from encroachment by government on our incomes through the growth of taxes. After carefully studying the way various societies around the globe taxed themselves and the resulting success or failure (few were as good as that of the US) of economic growth under those various tax systems, these four men formed an organization dedicated to finding a better way to finance government as well as provide significant improvement for all of our citizens -- especially the vital middle class – a middle class that was an essential hallmark of the freedoms left us by our Founding Fathers. They called the new non-profit, volunteer organization “Citizens For an Alternative Tax System” (CATS).

None of the original founders of CATS could be considered wealthy. And neither could I. At best we were making an acceptable living. We owned or were buying a home, had an appropriate automobile, were preparing to send our children to college, and met minimal expenses. But none of us were wildly wealthy. And we all found it difficult to save for retirement.

We knew it would be a struggle, but all of us believed that within the constraints of our national Constitution, the average citizen could make a difference: We resolved to try. We had to seek all our financial support from those who, like us, were convinced something needed to change. That financial support came in very slowly and in erratic amounts from all manner of citizens. Some contributions were as small as one dollar, and the rest were usually $25. Occasionally, we were fortunate enough to receive a $50 or $100 contribution.

In December 1990, I became aware of CATS’ activities and read all the information that I could find at that time. After becoming confident of the purpose and intent of this group of citizens I decided to join the effort. On February 1, 1991 I became affiliated with them as a volunteer and became the director of their efforts in Georgia. All members were volunteers of CATS. None were paid and rare indeed were enough funds to pay for required travel, printing or other basic expenses for the members of the organization. So, it came out of our own pockets. And those expenses were not “tax deductible.”

The organization had very minimal access to funds. In those days, when you raised the possibility of replacing the income tax with something that might do more for individuals than it does for government, you were laughed at. (In one memorable incident in Atlanta, several of us were actually spat upon by a fellow who owed his livelihood to government.) In fact many were afraid to become involved because they feared the IRS, even though they agreed with the idea. No one believed it could happen. That opinion prevails today among a large segment of the citizenry. In time, our efforts spread the message of change and we gradually gained citizen support for what more and more Americans NOW believe could be a fairer and simpler tax system.

We studied the Vat Tax, The Flat Tax, Combined Flat and Sales Tax, A business tax, Transaction Tax, Land Tax and the straight sales tax. We found promise in the national sales tax and chose to promote that solution. To support our logic on this method of financing government we needed an economic study to find if it would work and provide approximately the same revenue as the present system. The group believed that a huge part of the problem was uncontrolled congressional spending. We knew at that time that the task of reducing spending was “a bridge too far” so we settled on taking the first step knowing full well that when a more efficient tax system was installed, controlling spending would be the next job. At the time, by the way, the total Debt was $3,233,313,451,777.25. The “reported” number is now at $8.5 Trillion Dollars. See National Debt Clock at:
http://www.toptips.com/debtclock.html

We persuaded John Qualls, Economist at Washington University St. Louis, Missouri, to produce an economic study to assess the success or failure of replacing the income tax with a national retail sales tax. The study cost $25,000 but due to the generosity of John Qualls, CATS was able to pay him over time with no additional interest charges. It took us approximately five years to pay the entire $25,000. The study was made public through the University and it did, in fact, predict that a change in the tax system would result in substantial economic growth and could be revenue neutral. With that information, CATS moved to promote the idea of a national retail sales tax.

All during the early nineties, CATS was growing in membership. The members attended Town Hall meetings and challenged their Representatives to replace the income tax system. Flyers were designed and handed out at political events, sporting events and festivals. Letters to the editors began appearing in various newspapers. Many members wrote letters to their Congressmen demanding tax reform. The concept of a different type tax system more favorable to the citizens was gaining acceptance.

In 1994, Congressman Newt Gingrich -- armed with the Contract for America -- led the Republican Party to its biggest congressional victory since before the Great Depression. The Contract With America listed 10 separate legislative actions to be accomplished and promised that in the first 100 days there would be an up or down vote on these issues. The Republicans kept their promise and actually passed eight of the 10 promises. The first was a major tax cut. The Tax Reform supporters were greatly encouraged that success would be ours. Tax Reform was gaining steam.

Congressman Dick Armey submitted the first legislation to replace the present system. His bill H. R. 4585, Freedom and Fairness Restoration Act, was introduced June 16, 1994 with 16 cosponsors. The Armey plan for tax simplification was completely revenue neutral and bore a tax rate in the range of 19 to 20 percent. Establishing a rate of 17 percent, therefore, constituted a tax cut. The loss of revenue was to be paid for by capping government spending, including so-called entitlements. The 17 percent rate was to be phased in, starting at 20 percent and falling to 17 percent after three years. Thus the deficit would not rise under the Armey plan. Armey claimed that the Income Tax form could be a post card.

In early 1995, Speaker Gingrich and Senate Majority Leader Bob Dole appointed former Congressman and Cabinet member Jack Kemp to chair a commission on tax reform. The commission held open public meetings in various sections of the country. Due to Kemp’s relationship with Armey, the Committee had a bias for his Flat Tax and limited the debate somewhat. Those of us promoting the National Retail Sales Tax could not be heard. But the Committee did raise considerable media interest.

For the 1996 Presidential Election, Steve Forbes launched his campaign with the Flat Tax as his prime issue. He spent over $30 million dollars of his own money on the campaign promoting the Flat Tax. The result was that many people felt that was the way to go for tax reform.

A Washington DC Law firm well known for writing tax legislation for various members of congress was contacted by CATS’ Executive team and persuaded to help write appropriate tax legislation pro-bono. CATS members began canvassing Congressmen and their Legislative aides for help with the drafting of the legislation. Dan Schaefer (CO-6-R) agreed to submit a bill if appropriate legislation were written. The call was put out and several tax staffers agreed to meet and help write the legislation. Over a period of several months, many days were spent on this effort The law firm, CATS’ Executive members, Legislative Aides, and sometimes different interested Congressmen met with this unofficial committee on a regular basis. Every line in the proposed legislation was evaluated as to how it might be predicted to produce the required revenue neutrality to fund the existing national budget. Each line was examined for its conformity with the Constitution. And finally, the impact on citizen freedom was evaluated. After many sessions and long hours, the legislation was considered ready to submit to Congress.

On March 6, 1996 the very first bill ever to replace the income tax system was introduced by Rep. Dan Schaefer (Co-6-R) with Rep. Sonny Bono (CA-44-R), Rep. Ralph Hall (TX-4-R), Rep. John Linder (GA-4-R), Rep. W. J. (Billy) Tauzin (LA-3-D), Rep. Dick Chrysler (MI-8-R), Rep. Joel Hefley (CO-5-R), Bob Stump (AZ-3-R). Tauzin later switched parties and became a Republican. He also later became the point man for the concept of the national retail sales tax.

The introduction of the legislation, H. R. 3039 National Retail Sales Tax of 1996, caused considerable stir among the national media. At their own expense, over three hundred and fifty CATS members traveled to Washington on the day the legislation was dropped into the hopper. They came from states as far away as California, Texas, Georgia, Florida, Ohio, Main, and Massachusetts. There was much excitement within the ranks.

In a January, 1997 press conference to promote H. R. 3039, Ways and Means Chairman Bill Archer stated “I want to tear the IRS out by the roots and toss it on the side of the road.” That statement became the battle cry in those years. Senator William Roth (DE-R) called for a three day Senate Hearing into the practices and procedures of the IRS. The hearings took place September 23, 24 and 25 and were covered by national TV, C-Span, talk radio and published reports in most newspapers in the country. IRS Agents (behind screens to protect them from the inevitable reprisals by their superiors at the IRS) testified at the Hearing. Citizens testified to the terrifying way IRS Agents stormed into their businesses, homes, child day care centers and, yes, churches, with guns drawn, to demand any and all financial records (whether they existed or not) and generally raised havoc, intimidating families and employees. The testifying IRS Agents confirmed these activities.

The Three Day Hearings resulted in a book, “The Power To Destroy,” authored by Senator William Roth and William Nixon. The book described the hearings in detail and was quite popular reading. The Senator promised legislation to install an Oversight Committee to control an increasingly out of control IRS. That is a common ploy by those in power to placate the masses as no government “Oversight Committee” has effectively overseen anything let alone led to substantive change. In the Army, we called it “eye wash.” That legislation was introduced by Senator Grassley on July 8, 1998. Here is what the Senator said on the floor of the Senate when he introduced the bill.

Floor Statement of Senator Chuck Grassley, of Iowa
H.R. 2676, the IRS Restructuring Conference Report
Wednesday, July 8, 1998

Mr. President, today is a very proud day for me, for the United States Senate, and for Washington. Today we declare a victory: a victory for American taxpayers and for Congress. We have done something very good here. This is government serving the people at its finest. It is for causes such as this that I came to Washington; that I have devoted my life to public service.

Let me explain why we did this. Let me give an example to explain why we found it necessary to pass a bill that comprehensively restructures and reforms the Internal Revenue Service. One Christmas day, five or so years ago, as I sat around the Christmas tree opening presents with my family, the telephone rang. On such a glorious day of good cheer and hope I answered my telephone in high spirits. The woman on the other end of the line, a constituent, was in tears. Her husband was critically ill, the IRS was coming after them for everything they owned, and they owned very little, and she had no idea what to do. She had nowhere to turn. So on Christmas Day, that day of hope to us, she picked up the phone and called me. She called someone she had never met.

That legislation was passed and signed into law by Bill Clinton. The Legislation called for the President to appoint the Oversight Committee members, which requirement he chose to ignore for well over a year. Under pressure, Clinton finally selected the members of the Committee. As expected, the Committee was populated mainly with people who feed off the CURRENT tax system. Needless to say, they had NO interest in derailing their very personal, very lucrative gravy train and it continues on down the tracks. For those who care to look, the Committee can still be seen partying in the opulent taxpayer financed dining car as it roars by on its way into the dustbin of history. Given that these folks really enjoy the excellent food and drink available at those “meetings,” it’s a good bet that they will continue to hold them, emerge to mumble a few easily ignored suggestions and return home to await the call for the next session. Some “Oversight Committee.” The Roth Hearings did result in a few IRS Agents being fired but little substantive change has resulted.

A notice concerning their last reported meeting can be found at http://www.ustreas.gov/irsob/meetings/1-29-02/

By this time, CATS was gaining members in virtually every state. It was decided to produce a professional infomercial/documentary to be shown on TV and provide VHF copies for distribution around the country. As a project funding tool, CATS produced a twenty-minute VHS tape describing the Infomercial project. It was entitled “$1000 is All We Ask!.“ We produced 1000 copies and distributed them -- with an appropriate letter -- to small business, professional people and some individual supporters. Our goal was $75,000 -- the cost estimate to produce the VHS plus funds to run it on Cable TV. The response was strong, and we raised the necessary funds in about 6 months. The result was a great presentation titled “Revitalizing America: Bringing Back Jobs, Economic Growth & US Competiveness.”

We negotiated with a cable network to run the thirty-minute presentation at 7:00 PM on 12 stations across the country. That evening the documentation was available in over 62,000 homes. The total cost for the Cable TV time was a little over $11,000 -- all financed out of contributions by our then nearly 10,000 members. At their own expense, many members made copies and passed them along to their friends and associates.

The VHS program was such a success that the Republican leadership suggested that a national debate be held to engage all citizens in the issue. This resulted in what became known as the “Armey/Tauzin Debates.” Debates were held in Atlanta, GA, Chicago, OH, Philadelphia, PA, Boston, MA, Miami, FL, Tampa, Fl, Houston, TX, Mobile, AL, Berkley, CA, and other cities. Congressman Dick Armey argued for his Flat Tax and Congressman Billy Tauzin supported the National Retail Sales Tax. The first event was held in Atlanta, GA and drew an overflow crowd of 3,500 to the Cobb Convention Center. The Fire Marshals closed the doors thirty minutes before the debate began and we later learned that over 2500 were turned away at the door. That evening was our finest hour.

The actual debate between Armey and Tauzin lasted well over two hours with audience Q&A. The enthusiasm was high and the crowd was demanding the National Sales Tax over the Flat Tax. Although they should NOT have been, the Republican leadership in attendance – heavily supporting the Flat Tax – APPEARED shocked and surprised. In a humorous sidebar, a very highly placed Republican and one of Mr. Armey’s staffers were standing in the back of the room during the Q&A. After one question, the staffer was overheard to whisper to the Republican VIP “That was a stupid question,” to which the VIP responded sarcastically “If it’s such a stupid question, why are we getting our butts kicked?”

Large and informed crowds attended each subsequent event. I drove to each event and participated by manning a table selling CATS literature, T-shirts, ball caps and other products promoting the NRST. The host organization was Citizen’s for a Sound Economy (CSE), a group well financed by Congressman Dick Armey’s PAC. I was fascinated that at these events CSE was trying to GIVE AWAY their T-shirts, ball caps and other products to those attending. We were CHARGING for our National Retail Sales Tax (NRST) items -- the only way a self-funded organization could provide them – and were SELLING OUT at each event. The public could not get enough of the idea of getting rid of the IRS.

After the first four events, we met with Speaker Newt Gingrich. He stated that we had won the intellectual debate but needed now to win the political battle. The truth be known, Newt Gingrich wanted to keep the issue for his prospective presidential run. As we all know, however, Newt resigned from Congress under fire and, sadly, the succeeding Republican leadership did not promote the NRST. The leadership still favored the Flat Tax.

The Armey/Tauzin debates were so successful that the Republicans needed to do something to thwart the progress the NRST was making with the population. Congressman Steve Largent (OK-1-R) and 153 cosponsors introduced H. R. 3097 to terminate the Internal Revenue Code of 1986. It was understood by the Republicans that they were free to sign onto the bill because “…it would never pass.” Congress simply was not going to pass a bill that terminated the tax code without having also passed replacement tax legislation. This same bill was introduced in the next sessions of congress as well. At present it has been introduced by Senator Johnny Isakson as S 2122, “To terminate the Internal Revenue Code of 1986, and for other purposes anticipating 2008 as a new date for a tax system to replace the income tax system presently in place. Again it is understood in the Senate that the bill will not pass, in fact it will not even be brought up for a vote.”

By June, 1998, three of the CATS member volunteers working full time at the CATS national office parted ways with the balance of the Executive team. There were differences of opinion as to how to proceed. Those three -- and I was one -- moved to Springfield, VA and established a new organization – the National Retail Sales Tax Alliance -- and continued working to replace the income tax system with a better, more efficient, fairer, simpler tax system.

By 1999, a third organization was formed in Houston, Texas to promote the tax replacement issue. They were well financed by some wealthy Texas contractors, businessmen and political supporters. Rather than support the efforts of CATS or NRSTA, they chose to present their own variation of the National Retail Sales Tax They invested funds in several focus studies and decided that a name such as the Fair Tax would be a good one to brand. They went to the same attorneys who had written the legislation for the Tauzin bill and contracted with them to redraw the legislation with a slightly different view. The result was the Fair Tax.

Congressman John Linder, who had been a cosponsor on the Schaefer bill and later the Tauzin bill agreed to sponsor the Fair Tax bill. On July,14, 1999 Congressman John Linder and 7 cosponsors introduced H. R. 2525. It was submitted again in the following session with the new bill number H. R. 25, The Fair Tax Act of 2005 and remains today in the Ways and Means Committee. The bill currently has 58 cosponsors.

Neal Boortz, nationally syndicated radio talk show host, collaborated with Congressman John Linder to author the book, “The Fair Tax Book: Saying Goodbye to the Income Tax and the IRS.” It was released in August 2005 to much media interest. Neal Boortz constantly promoted the book and held well attended book-signing events around the country. Promoted by National Retail Sales Tax Alliance, the first such event was held in Atlanta. A special BBQ luncheon drew over 600 to and another 1500 attended the rally. Over 1500 books were sold that day. The book was number one on the New York Times non-fiction book list for three weeks and remained on the list for several additional weeks. So far, there have been three printings of the book totaling over 300,000 copies, very large for a non-fiction book. Certainly, the public is still interested in replacing the income tax, and they want it done now.

As we approach the November 2006 General Elections the issue of replacing the income tax has risen in several different races. The Republican Leadership has downplayed the legislation, preferring to run on other issues at this time. What more will it take? How does the electorate persuade the elected representatives to pass this legislation and make history? It will take the voters deciding to actually change their voting habits and vote some representatives out of office if they do not pledge to pass the Fair Tax. The question is not if the Elected will do the right thing. The question is will the voters band together to vote for the right representatives. It remains to be seen.

Frequently, we see polls taken that ask the public about their desire to have the Fair Tax replace the income tax. Invariably the percentage in favor ranges between 65% and as high as 70% favorable. It is time now for the voters to band together and vote. A good time to do so would be the 2006 General Election.

America is facing increasing competition in the global market from China, India and other developing countries. Given that the current income tax system puts us at a significant disadvantage in world markets, one major change America MUST make is to replace the income tax with a system that does not penalize us. We must also persuade those we send to Washington to reduce our debt and control future spending. Earmarks must be eliminated or at least reined if future generations are to have any chance to experience the American Dream we have watched begin to fade during our lifetimes. Congress must be reformed in the way it presently works and changed to benefit the citizens and not the rent-seeking special interest groups who feed off government. These changes must be made for America to avoid being way down the list of economically successful societies. It is up to We The People to do the right thing.