My Plan to End the Income Tax

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My vision for America is of a typical American family thatactually enjoys better job prospects and more real income. The paychecksare bigger, savings are greater, and hopes for the future abound.

I strongly favor adopting a federal budget plan that offers aclear and reasonable path to balancing the federal budget in the nextseveral years. The younger members of our families will havediminished hopes each year if we continually pile up more nationaldebt and obligate more and more of our annual national budget tosimply paying interest on an ever-increasing mountain of debt.

Equally important, I favor abolishing the federal income taxand all of the Internal Revenue Service apparatus that has grown tocollect and enforce the income tax. Specifically, I propose toabolish immediately and completely the federal individual and corporatetax, capital gains taxes, gift taxes, and inheritance taxes allat the same time. And with them all of the tax loopholes thathave been created for special interests.

I would replace the money obtained from those taxes with moneyfrom a national retail sales tax collected in the same way thatstate sales taxes are now collected in 45 states. I propose thatthe states be responsible for collection so that the federal IRSapparatus can be dismantled promptly.

That means, for every American, that the money you earn isyours. You may save it or you may spend it, but the paycheck is biggerwithout the automatic income withholding deduction. You need not accountfor it, report it, or hide it. If you spend it, you will pay anational retail sales tax.

You regain your privacy. You are no longer guilty until youprove your innocence to the IRS. You regain the freedom of your timeand labor. More than 5 billion hours are now spent by American individualsand businesses trying to comply with the federal income taxrequirements each year. That is close to all the work for oneyear by all people in all jobs in the state of Indiana.

You stop worrying about whether the family farm or store willhave to be sold to pay estate taxes because there won't be gift orestate taxes anymore.

This will not be a tax increase. Various economists estimatethat to raise the same funds that now come from the income tax, a 17percent retail sales tax is required. And it is important to notethat without the income tax, prices for almost all products willgo down before the sales tax is applied.

With savings and investments no longer taxed, Americans willenjoy a capital formation boom. There will be increased productivity,higher paying jobs, and new investment from around the world attracted bya policy of no income taxes.

American exports will surge because our prices will be downsharply. An American car or bulldozer will be priced without federaltaxes built into the price. We will be much more stronglycompetitive abroad and create hundreds of thousands of new productionjobs.

On the other hand, a foreign product sold in the United Statesat retail will be taxed at the national and state sales tax leveljust like an American product.

As president, I will work with and support the efforts ofmembers of the House and Senate to produce legislation implementinga national retail sales tax. Many have already indicated theirsupport and have spoken out.

The legislation must recognize the necessity that a certainnumber of dollars of purchases per person be tax-free each year, andthat certain categories of purchases such as food and medicine beexempt from the sales tax. The problems of low-income citizensmust be met simply and clearly.

As much as $100 billion to $150 billion in income taxes is notcollected each year. The retail sales tax can be much more efficient.Collection problems must be met in the legislation and properincentives offered to those involved in collection at the grassroots.

The bottom line is new liberty for Americans and dynamic newgrowth in our job and income prospects.

Our current economic framework simply does not offer that hopefor the future to average Americans. Currently, the Federal ReserveBoard is striving to hold real economic growth down to 2.5percent annually by raising short- term interest rates. Thatgrowth rate is simply too small to meet the hopes and dreams ofmost Americans. It is too small to meet our competition abroad.In due course, the interest rate hikes will lead to declininggrowth and higher unemployment long before middle-Americans havea feeling of confidence about the future.

The federal income tax system taxes savings, investments, andhopes for the future. It is too complex, too intrusive, and it pricesour exports too high.

Presidential campaigns offer an opportunity for the Americanpeople to make a change in course. Candidates must offer strongand bold programs that give the people solid choices for thebetter. I advocate the total end of federal income taxes. I advocatea national retail sales tax as the best alternative to obtain thefunds to run the government in a direct and easily observedmanner subject to constant scrutiny by the people and theirelected representatives.

We should achieve that goal in 1997 and be prepared to save,invest, and grow for many years to come.

Sen. Richard Lugar

Sen. Richard Lugar (R-Ind.), a candidate for the Republican presidential nomination, delivered these remarks in the Cato Institute's F. A. Hayek auditorium on April 5, 1995.