Bill proposed to abolish income tax

One member of Congress has decided that the nation needs to get rid of the federal income tax, and his latest plan to do so would replace the lost revenue with a 20 percent to 23 percent flat sales tax.

"I've come to the conclusion that you really can't fix income tax," said Rep. Gil Gutknecht, R-Minn.

He said that suggestions for altering income tax law have been bubbling for about six or seven years, and that he has yet to be satisfied.

Gutknecht said the congressional budget office constantly is looking for another method of taxation.

His bill is co-sponsored by at least 50 other representatives, and they know it as the National Consumption Tax. He calls it the "Fair Tax."

One of the most prominent stipulations of this bill is that it would do away with the Internal Revenue Service, theoretically cutting federal costs and simplifying the government.

He said that for every $5 trillion made, businesses pay $2 trillion in records. But he said the sales tax would eliminate these expenses.

This would create more competition, which Gutknecht said would drive costs out of products while making the market 18 to 30 percent more competitive.

"Competition is what keeps prices down, not the government," he said. "That's a huge advantage."

Gutknecht's proposal has received mixed reviews.

"It would probably be quite similar to what Europe already has," said Patrick Conway, a UNC economics professor.

He said many areas in Europe tax goods and services without a separate income tax. "There is no evidence ... that would say that this is a market improvement."

Conway added that while the government likely would receive the same amount of revenue as it does now, there is at least one problem.

"The people who save wouldn't have to pay the tax," he said.

Conway said those who would benefit from getting rid of the income tax likely would be in the high income brackets.

Boone Turchi, a UNC economics professor, said the plan probably would impose a rather unfair tax.

"My view is that this tax is very regressive," he said. "Low income folks tend to spend most of the income they receive."

But Gutknecht said this problem can be resolved. He used the example of buying beer, saying the price of beer is higher because of record-keeping expenses.

"You would be amazed at how much income tax is already embedded in that beer," he said. "Students will appreciate it."

Gutknecht said another benefit of the plan would be the limit it places on the government's ability to keep tabs on individual spending.

"(There's) something quite intrusive about the federal government knowing those things," he said.

But the main benefit of the plan, Gutnecht insisted, is that it would improve the market.

"It would fuel the American economy to be the economy of the 21st century."

Contact the State & National Editor at stntdesk@unc.edu.