Push to nationalize sales tax

Gilroy
– It’s that time of year again.
Millions of people are pulling out their hair as they brave
their annual tax filing alone. Accountants’ offices are piling high
with tax forms and W-2s from those who don’t want the
headaches.
Gilroy – It’s that time of year again.

Millions of people are pulling out their hair as they brave their annual tax filing alone. Accountants’ offices are piling high with tax forms and W-2s from those who don’t want the headaches. And advocates of tax reform are again calling on legislators to change the current system – a Byzantine series of levies against income – to a more simplified version such as a national sales tax.

Amidst a myriad of proposals to overhaul the federal income-tax system, the national sales tax proposal received special attention this month as Alan Greenspan, chairman of the Federal Reserve, touted the idea as a possible boon to the economy.

“The theme is a common one around this time of year,” said Paul Vanni, a local certified public accountant. “I think they’re serious in the sense that it gives them a good standing to discuss these things. Most people would tend to favor a sales tax.”

The prospect of eliminating paperwork and accountant’s fees and instead paying an over-the-counter sales tax sounded good to some locals, but they were skeptical of how the government would structure the system.

“That would be nice, definitely,” Gilroy native Brian Bayouga said as he left Starbucks. “I’m getting screwed this year.”

Bayouga, whose salary spiked in 2004 because of bonuses, investments and other income earned through his sales finance job, said he owes the government $40,000.

“Easier is always better, ” he said of the national sales tax. “Obviously people want to be benefited, but you know the government is always trying to get the little guy.”

Advocates claim that a national sales tax would eliminate the billions of dollars spent annually on the income-tax system while freeing capital from redundant taxes – a boost to investment, economic growth, and jobs. Members of congress in Washington seldom voice loud opposition to such change, but do little to actually enact it.

“It’s going to be tough for a lot of congress people to pass a repeal of the income tax system,” Vanni predicted, “because a lot of their constituents have their tax preferences built into the current tax system. It’s a way for our current congress people and senators to garner votes by passing things through the tax system.”

City Administrator Jay Baksa also doubted the viability of a switch to a national sales tax, given the reliance of California and other states on sales tax for their own budgets.

At 8.25 percent, Gilroyans and other Santa Clara County residents pay some of the highest sales tax rates in California, which in turn are among the highest in the country. Of the $42 billion in revenues the state collected in fiscal year 2003-2004, $35.7 billion came from sales tax, according to the state Board of Equalization.

“Because the federal government had not been in the sales tax business, that’s why all the states and local governments are in the sales tax business,” Baksa said. “The state of California is very heavily reliant on the sales tax. You add another percent to a structure in California that already is high, you’re going to put [such] states at real competitive disadvantages, unless you loosen the other taxes – property tax, income tax, things of that nature.”

“I don’t think there’s the political will to do it,” he added. “This thing is easy to say but incredibly difficult to implement.”

But Tom Wright, executive director of the nonprofit FairTax.org, disagreed.

“The inside Washington guys have said there is no political will,” Wright said. “Once they went outside the Beltway, every person … said ‘Do it now. You have the political will.’ The American public outside of the Beltway is entirely fed up and wants this done now. The problem is inside the beltway with lobbyists and special interests.”

Wright’s group has lobbied federal lawmakers for a decade to overhaul the current income-tax system and the Internal Revenue Service, which requires $10 billion annually to operate, according to Wright. He said conservative estimates place private sector spending on the tax industry at $250 billion each year.

“That’s about 3 percent of the country’s Gross Domestic Product – more than we’ve spent in Iraq – for all of us to comply with the current payroll tax,” he said. “That’s what we call sand in the gearbox of the economy.”

His group’s proposal would eliminate corporate, income, and payroll taxes, and replace them with a progressive national retail tax. The system would exempt all citizens up to the poverty level, while targeting luxury items for higher sales taxes.

“We de-tax the poor, we tax the wealthy by their lifestyle, and we more effectively tax their accumulated wealth,” Wright said. “What else could a good California liberal ask for?”

While the plan sounds good at face value, accountant Paul Vanni remained skeptical.

“A lot of things aren’t addressed through the sales tax system – mortgage interest and property taxes and education incentives,” he said. “Those things are built into the income tax code. Thus that becomes part of the motivation for people to purchase homes and set money aside for their children’s education. Those are social goals that are engineered into the current tax system and something that, from what I see, the sales tax system hasn’t addressed.”

The national sales tax proposal is one of many ideas under discussion for overhauling the income-tax system. Other major proposals include the value added tax, or VAT, which would impose taxes on goods at various stages of production; a flat tax on all income; or a combination of a sales tax and income tax – the variation endorsed by Greenspan.

“The conversation has been there for many years, but a concrete plan hasn’t come to Congress yet,” said Nicole Philbin, spokeswoman for Congressman Richard Pombo (R-Tracy). “When it does, Congressman Pombo is interested in looking at it. But for now he isn’t wedded to anything except changes that would encourage economic growth. We’re talking ideas right now, which is great.”

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