Q & A / NEAL BOORTZ, Radio host and author: FairTax 'a second American revolution'

Author: Bob Dart

Published: August 14, 2005

Taxes may be as inevitable as death, but they don't have to kill you. A new book suggests that we kill taxes instead --- or at least drive a stake into the Internal Revenue Service.

In "The FairTax Book," Neal Boortz and Rep. John Linder (R-Ga.) propose that Americans abolish both the income tax and the IRS and replace them with a 23 percent national sales tax. The book, which will hit No. 1 on The New York Times best seller list next Sunday, is clearly finding a following among tax-weary Americans.

In sum, the tax would apply to the sale of any new item at retail and also to service providers who don't currently charge sales tax --- doctors and lawyers, for example. It would tax sales over the Internet and through catalogs. But it would eliminate all taxes related to income, including Social Security and Medicare taxes, estate taxes and capital-gains taxes.

The federal government would no longer withhold money from anyone's pay. You'd get everything you earn and pay taxes only on what you buy. (The book posits that states would follow Washington and abolish their income taxes, too.) You would no longer keep records or fill out forms or have to prove what you've earned or what you've paid. April 15 would just be another day on the calendar.

The Journal-Constitution e-mailed Boortz a set of questions about the Fair Tax as the radio host traveled through Florida last week on a book-promotion tour. Here are his responses:

Q. You observe in the second chapter that many taxpayers don't really know how much they pay in taxes or even how much money they actually make. Doesn't that represent an obstacle to reform? If people know that little about something that so directly affects them, will they be concerned about a solution?

A. Yes, and I don't think that this is at all accidental. One of the beauties of the current tax system, from a politician's point of view, is that people don't really know what they earn or pay in taxes. This was the true purpose behind withholding. This is why unions like dues checkoff systems so much. The FairTax will never be enacted unless the people educate themselves on tax matters and demand change. Thus the book.

Q. Your take on corporate taxes is interesting --- that there's really no such thing. Could you elaborate?

A. All taxes are taxes on wealth. All wealth is held by individuals. All corporate or business wealth rests in the owners or shareholders. Therefore ... when the ball rolls to the bottom of the hill, all taxes are paid by individuals ... though they are sometimes collected by businesses and corporations to be passed on to the government.

Q. You'd be hard-pressed to find taxpayers who want to save the IRS. But there's a difference between how people feel about the tax system and their willingness to change it. How do you respond to the person who says of the FairTax Act, "Great idea. It'll never happen."? What's the location of this pie? In the sky or on the table?

A. It's a bold idea. The FairTax would be a second American revolution. It excites the imagination of the American people, and if they get behind it and push, it can happen. It is not pie in the sky. This is a workable plan, a plan that can be great for the American people and American business.

We need people who are asking how to do it, not offering reasons why we can't do it. The Berlin Wall fell. The Soviet Union is no more. Roseanne lost weight. We can do this.

Q. Along that same line: By taxing services as well as goods, wouldn't you find strong opposition from two powerful lobbies --- doctors and lawyers? They would be formidable opponents, no?

A. That's not what Congressman Linder and I are seeing on the tour. These doctors and lawyers are paying taxes now. There is a tax component in the cost of the goods and services they provide to their clients. That component disappears and is replaced by the FairTax. This means that the price of their services remains about the same. They have no ax to grind --- unless, that is, they are lawyers who make their living gaming and manipulating the current tax system for the benefit of their clients.

Q. Critics point out that the FairTax puts all the responsibility of tax reporting on retailers, who may or may not provide accurate sales reports. That sounds like a reasonable objection. How do you respond to it?

A. These retailers are making those reports right now in about 44 states. There will always be questions as to the accuracy of those reports, either at the state level or the federal level. The FairTax does not mean that we can abandon enforcement. We will have to enforce this or any other tax reform plan.

Q. The book says that the 23 percent retail-sales tax would be revenue-neutral; that is, it would bring in just as much money to the government as the taxes it would be replacing. Some critics contend that a rate of 23 percent wouldn't be enough. William Gale at the Brookings Institution, for example, says the rate would have to be at least 31 percent. A quote: "If the tax rate were set at 23 percent . . . the revenue loss would exceed $7 trillion over the next decade relative to current law." Who's right?

A. Over $22 million was spent on researching the FairTax. Esteemed economists, such as the chairman of the economics department at Harvard, played a role. After extensive research the 23 percent revenue-neutral rate was arrived at.

Various critics have suggested that the tax rate would have to be higher. They usually base these estimates on the idea that some consumer items will be exempted from the tax, thereby meaning that the tax will have to be raised on other items. For the FairTax, as written in HR 25, the 23 percent rate would be revenue neutral. If you start changing the plan, you start changing the rate. (HR 25 refers to House Resolution 25, the Fair Tax Act of 2005, sponsored by Linder. The bill essentially would legislate the ideas advanced in Boortz's and Linder's book.)

Q. Sales taxes typically are "regressive"; in effect the less you earn, the higher your tax rate. (As opposed to the "progressive" income tax, whereby the more you earn, the higher your tax rate.) The FairTax proposal anticipates that with what you're calling a "prebate." Would you explain?

A. The FairTax was designed so that nobody has to pay that sales tax on the basic necessities of life. So, every head of household in the country receives a "prebate" at the beginning of every month equal to the amount that he would be expected to spend that month providing his family with the basic necessities of life. This figure is determined by the Commerce Department poverty level statistics. The prebate could be in the form of a check, a credit to an electronic benefits card or credit card . . . any number of ways.

Q. One could foresee the prebate operation turning into a gigantic bureaucracy in its own right.

A. There would have to be some level of bureaucracy, but it would be nothing compared with the present day IRS. Thankfully.