Posted: Jun 23, 2005 By: Robert Cramer

Subject: National Sales Tax

Comment: The President's Advisory Panel on Federal Tax Reform June 23, 2005
1440 New York Avenue NW
Suite 2100
Washington, DC 20220


Ladies and Gentlemen,
Please review this proposal to replace the present graduated income tax Code, Title 26 with a National Sales Tax to be collected by the Alcohol, Tobacco and Firearms Bureau under Title 27 in the same manner that Federal Sales Taxes are collected today. I realize that the President has given you a mandate to retain part of our present system of taxation, but this will not fix the problem. Part of the problem is that for years, the tax on wages has been under challenge on constitutional grounds.
However, Corporate income tax is defined as the difference between sales and cost of goods
sold. This does not clearly define itself as a direct tax on wages. It is much closer to a excise tax that falls within the taxable methods defined in the Articles of our country’s Constitution. But, Corporate Income Tax does have a detrimental affect on business expansion that must be considered. Therefore, as a part of this proposal, I would like to suggest that, in compliance with your mandate to include part of the existing tax system, you retain only the corporate income tax, and at that, for only as long as it takes to prove the stability of your new tax system. Any proposal along this line that you make should therefore also contain a recommendation for a phase out period.


Some of my proposals may on the surface seem controversial, so first, let me say that I am not
a member to the We the People Foundation that wants it’s Petition addressed by this Panel. However, I did sign their petition and I did file my own Petition for Redress of Grievances against the IRS in 1996. It, like the petition before the court today should have been reviewed and addressed, but was also tabled by Congress instead. I say this in advance because I don’t expect this Panel or the President to address the Petition due to the fact that it is presently before the Federal District Court in Washington DC. This invokes the Separation of Powers Doctrine.
That being said, while preparing its proposals, I would like the Panel to address several questions regarding the approach to writing new law such as this Panel is going to have to eventually put forth.
1.) Should the Congress propose new law without taking into consideration its Constitutional Law consequences?
I don’t think so. I have taken note of the fact that this Panel is currently considering either a Flat Tax on wages or some kind of a Consumption Tax or National Sales Tax, or a combination of both. Both a Consumption Tax and a National Sales Tax are classified as Excise Taxes which are permitted under the Articles of the Constitution. Excise Taxes are now collected under Title 27 by the Bureau of Alcohol, tobacco and Firearms just like Gasoline Tax and Luxury Taxes are collected now. However, the “Flat Tax” would come under Title 26, the IRS Code in that it is still a tax on one’s labor which is specifically forbidden by our the taxation sections of the Articles of our Country’s Constitution. It would no doubt bring on a very serious legal challenge in our courts. When the 16th Amendment was challenged, the Supreme Court ruled that the government could collect tax on one’s labor, but only under the guidelines of VOLUNTARY COMPLIANCE! This raises additional questions:
2.) Is it possible to forcibly collect a “Flat Tax”? If it is not to be forcibly collected, how do you expect to collect it at all?
3.) Wouldn’t a forcibly collected “Flat Tax” end up in the courts much like the Petition for Redress of Grievances case that is presently under way regarding the Graduated Income Tax that we have now?
4. What happens to the IRS and Title 26 if the Supreme Court would rule against the IRS in the We the People case?
I respectfully ask this Panel to take these questions under serious consideration when preparing its final proposals.
Description of Proposal
THE TAX BASE - A National Sales Tax is the fairest form of a Consumption tax. Dr. Melton
Friedman explained this in detail at this Panel’s San Francisco meeting.
EXEMPTIONS, DEDUCTIONS, CREDITS AND EXCLUSIONS - There is no need in that there would be no Income Tax.
TAX RATE - There should be only one tax rate across the board. However food, medicine, and the sale of an individual’s primary home should be exempt. So should rent on housing in that tax on the collection of rent for housing would be passed on to the renter in the form of higher rent. The National Sales tax should include a tax on the sale of stocks and bonds stocks and bonds with the
exception of NEW ISSUE in that the size of this market would allow for an over all rather low tax rate.
In the mid 90's, when Congressman Archer headed the Ways and Means Committee, his Sub-Committee on IRS Oversight was seriously considering a National Sales Tax to replace our present Graduated Income Tax. At that time, I had several discussions with members of that sub-committee in which I suggested that include a tax on the sale of stocks and bonds. That committee had already considered this kind of sales tax and had concluded that it would provide an unjustified competitive advantage to overseas Stock Brokerage firms to the determent of our country’s Stock Brokerage industry which happens to be one of the largest markets in our country. That committee had concluded that major buyers such as Mutual Funds would simply avoid the tax by dealing through overseas brokerage firms.
I have given serious thought to this problem and have concluded that in the long run, due to the greed factor, it would be self correcting. Economic theory is based upon the concept of equilibrium. A sales tax in the US would place the would markets in a state of imbalance. Overseas governments would no doubt soon try to capitalize on this by initiate their own sales taxes on American company stocks and bonds thus increasing their own tax base. We might also expect the greed factor to overcome overseas stock brokers in that they could enjoy a windfall profit by simply increasing their fees and commission schedules. These factors in their own right would, from the point of view of major American buyers and sellers reduce the competitive advantage of overseas transactions.
However, there is no need to wait for this self correcting mechanism to kick in. The Articles of the United States Constitution provide the solution to the short term problem in that they already allow for the collection of Duty on imports and exports. Many shares of American stocks and bonds are already held overseas in foreign inventories. We would therefore need a new duty tax on both imports and exports of American stock certificates that would be designed to equalize the markets. This might also call for some minor changes in Security and Exchange Commission rules and regulations in that the ownership of stock certificates should not be permitted to be transferred overseas without the actual export of the underlying certificate themselves. These certificate are the product in that they represent the ownership of an intangible product. The imposition of a duty on the transfer of these certificates would balance the world market for our corporate securities.

DISTRIBUTION OF THE TAX BURDEN - This tax burden would fall, for the most part, on the wealthy just as our progressive graduated Income Tax does today in that the bulk of low income purchase power would be spent on tax free food, housing, and medicine.
PROVISIONS FOR RELIEF FOR LOW-INCOME INDIVIDUALS - There would be no need as long as food, housing, and medicine remain exempt from the sales tax in that these are the primary expenses for low-income individuals.
TREATMENT OF CHARITABLE GIVING - Gifts don’t generate revenue. They can be ignored. However, there should be other non-tax consideration given as to how to encourage charitable contributions in that churches and other charitable groups should take over much of what is done today with welfare. Welfare is degrading. Furthermore, paying any tax that is used for welfare discourages more conventional charitable giving in that it is viewed as a substantial part of ones income that already goes for the needy.
TREATMENT OF HOME OWNERSHIP - The sale of one’s primary home should be exempt from sales tax in that it would be passed on to the buyer in the form of a higher sales price. More people will be able to afford to own their own home if the price is not padded with a National Sales Tax.
COLLECTION METHOD - This tax could and should be collected just as the National Gasoline Tax is collected today by The Bureau of Alcohol, Tobacco, and Firearms under Title 27. There should be no need for IRS involvement or interference. There would also be no need for the Federal Tax Court who’s only purpose is to rule on cased involving INCOME TAX. Thus our government could save all of the money that is now allocated to fund both the IRS and the Federal Tax Court while relieving the fear that most of our people now feel regarding our present taxation system. Furthermore, the writing of such a new tax code might prove to be not much more lengthily than this letter to your panel.
TREATMENT OF BUSINESSES - Businesses should be subject to the National Sales Tax just as individuals with the exception of products that go into production of end use products and of the sale of their own new issue stock or bonds which could be controlled at the Brokerage Firm level. It would have a dramatic affect on the speed with which new offerings could be completed, thus encouraging business expansion and GNP growth and personal prosperity. Businesses are presently allowed sales tax exemptions for goods to be used in production process. To do otherwise would be to charge taxes on taxes.
Impact of Proposal Relative to Current System
Simplicity (Including Transparency and Stability) - Our current graduated income tax system should be abandoned altogether! That could probably be accomplished with perhaps only one or two new paragraphs added to Title 26 designed to eliminate that Title along with a short addition to Title 27. Everyone can understand paying a fixed tax rate on purchases. It is transparent. It would also encourage consumer demand by leaving more money in the average buyer’s pocket, not to mention savings which is also good for the economy. Savings end up left in the banks. Banks in turn loan it out to other buyers who would have to pay the sales tax on their purchases. Thus, it is reasonable to expect an expansion of business and thus a real stability in this new tax system. As the economy expands, you could possibly anticipate, over time, enough increase in revenue to justify a reduction in the tax rate. Therefore, it would be wise to put something in the new tax law that would prevent Congress from spending any extra revenue without the consent of the people.
Fairness - I believe that, if a National Sales Tax replaces our present tax system all together in a manner described herein, those that are struggling now financially to barely get by would soon realize the satisfaction of being able to find better jobs and to create more personal wealth in the process. Also, the wealthy would still bear the bulk of the tax burden in that they are the main consumers of that which would be taxed. But at the same time, investment would be encouraged by this system creating even more prosperity for everyone.
Economic Growth and Competitiveness - I can’t think of a better way to create economic growth and National competitiveness.
Compliance and Administration Costs - No compliance problem and very little cost. Furthermore, the cost of funding the IRS and the Federal Tax Court would be eliminated along with the personal cost of calculating ones taxes. We should find a drop in the demand for tax accountants, but even here, we would probably absorb these people back into their own industry as business increases its demand for financial and managerial accountants who basically work at the numbers to increase business profits and efficiency. Tax accounts are a waste of a valuable labor resource.
CONCLUSION
We need a new system of taxation which can properly fund our government’s needs in keeping with the people’s wishes that everyone can understand. That system appears to be a National Sales Tax.

Thank you for reviewing my thoughts on the subject.
Respectfully,


Robert J. Cramer






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