Proposal 3: This proposal begins with making the 2001 income tax rate cuts permanent and cutting spending to balance the budget. Other “first term” goals are repealing the Clinton and Bush I tax hikes of the nineties and implementing a 20% alternative maximum tax. The proposal also includes longer term reform proposals—an optional flat tax with no specified rate or personal exemption (a possible first term goal) and an even longer term proposal to end the personal income tax and have a national sales tax.

by Bill Woolsey

Posted May 27, 2005

The Proposed Plank

Issues: An important concern of most Americans is the increase in the size and expense of government, especially the federal government. One major way that this impacts the family budgets of most Americans is a growing tax burden. According to the Tax Foundation, in 1900 the average American worker worked 21 days out of the year to finance government. Today, the average American worker works 101 days.

Only after April 11th, did Americans finish paying the cost of big government and were able to start working to support themselves and their families.

This almost five-fold increase in the burden of government has required tax hikes, especially in the personal income tax. There was no personal income tax in 1900 and the top rate when it was first levied in 1913 was 7%. By 1960, some families were paying up to 93% on some of their income.

While deductions and exemptions have allowed at least some Americans to reduce their tax payments, these provisions of the tax code have distorted patterns of investment and employment in the U.S. economy, reducing economic activity and pre-tax income for all Americans. The burdens of record keeping and calculating taxes have become vast, amounting to a 20% “surcharge” on the amount of Federal income tax collected.

Nearly all Americans believe excessively high rates of taxation are unjust, with substantial majorities of all income, ethnic, and political groups agreeing that no one should be forced to pay more than 20% of their income in taxes. Fortunately, some progress has been made. Democrat President John F. Kennedy initiated tax changes that reduced the top marginal tax rate to 70%. Republican President Ronald Reagan made further progress. By the end of his second term, the top tax rate had been reduced to 28%. Unfortunately, President George H. Bush broke his commitment to oppose tax increases, and raised the top tax rate to 31%. President Clinton further raised the top tax rate to nearly 40%. While part of that lost ground has been regained by the current Republican administration, government taxing and spending remains out of control. Worse, the reduction of the top tax rate to 35% is only temporary, and slated for repeal. With huge federal deficits and a ballooning national debt, American families are facing the reversal of recent tax reductions and further tax hikes.

Principles: Libertarians are committed to reducing the size and expense of government in order to reduce the burden of taxes on the budgets of American families. We have a vision of a prosperous and vibrant America, where each family is free to work, save and invest, using the fruits of their efforts to achieve the goals they choose. Americans should be free to spend and share their income as they see fit, and not be forced to follow the dictates of politicians and bureaucrats.

Immediate Solutions:

Immediately make the tax rate reductions of 2001 permanent.
Immediately cut government spending to balance the budget.
Repeal the tax hikes imposed by the Clinton and first Bush administrations.
Allow for a 20% alternative maximum tax.
Institute fundamental tax reform by giving each taxpayer a choice of continuing to use the existing complicated tax code or else switching to a simple flat tax with a single rate and a generous personal exemption.

Long Term Goals:

Commit to reducing the size and expense of the federal government, so that in combination with a growing economy, reductions in the flat tax rate will make that option feasible for more and more American families.
Repeal the personal income tax and the 16th Amendment when the decreased expense of the federal government and a growing economy make the needed rate for a general excise (a national sales tax) low enough to not be a serious burden on any American family.

Benefits: American families shouldn’t be forced to face a tax hike in these uncertain economic times, so the 2001 tax rate reductions should be made permanent. These rate reductions are only partial reversals to the tax hikes imposed by the Clinton and first Bush administrations. Government was too big and taxes were too high when George Bush Sr. promised “no new taxes.” It is time to repeal the Clinton and Bush tax hikes and return the top tax rate to the 28% achieved by President Ronald Reagan.

However, cuts in tax rates are an illusion unless combined with a reduction in government spending. Cutting taxes without cutting government spending leads to budget deficits. Sooner or later, higher taxes are needed to cover the expense. It is time to “bite the bullet” and force government to live within its means—and reverse its habit of making American families pay for its out of control spending by raising their taxes.

Marginal tax rates of 93%, 70%, 40%, or even 28% are obscenely high. Of course, deductions and exemptions have helped reduce those burdens for many families. Still, not everyone is able to find tax shelters. Since the vast majority of Americans agree that no one should pay more than 20% of their income to the Federal government, simple justice demands an alternative maximum tax of 20%. If any taxpayer determines that his or her tax burden is greater than 20%, they can simply pay 20% of their gross income.

Lower tax rates benefit Americans in two ways. Directly, their family budgets are increased, providing them more options to enjoy or share their income. They can improve their homes, their health, or their children’s education. They can support their churches and other charities in a more substantial way. However, there is a second benefit to lower taxes. By improving the incentive to work, save, and invest, lower tax rates, when combined with fiscally responsible reductions in government spending to avoid deficits, results in an increase in economic activity and growing incomes for all Americans.

Reversing the out-of-control government spending and taxation of the last fifteen years is not enough. American families deserve fundamental tax reform. They should not have to take their chances with a complicated tax system where mistakes equal fines and penalties. The best option for reform in the near future is to give each American taxpayer the option of a simple, flat tax. A flat tax would have a single tax rate and a personal exemption. There would be no other deductions or exemptions. Because it would be easy to calculate, taxpayers would save the cost of keeping records and hiring accountants or lawyers to help calculate and avoid taxes. As economic productivity, rather than tax avoidance, begins to direct investment and employment, economic activity will be enhanced and incomes increased for all Americans.

But won’t some Americans be forced to pay higher taxes if they lose exemptions and deductions? What about those American families who pay no more than a 15% or 10% tax rate? Unfortunately, even with heroic efforts to cut government spending, the flat rate tax that can be offered in the immediate future is likely to be too high—between 15% and 20%. Fortunately, by making a switch to a flat tax optional for each taxpayer, no American will be forced to pay higher taxes.

As improved technology, education, saving and investment raise the incomes of the American people and if they share the Libertarian commitment to continue to reduce the size and expense of the Federal government, the flat tax rate can be reduced over time, making that option feasible for more and more Americans. Hong Kong has long had an optional flat tax, but it is so low and simple, nearly everyone there uses it. Washington D.C. should at the very least provide as much freedom to Americans as the Communist Chinese provide to the people of Hong Kong.

Many Americans and most Libertarians share the goal of getting rid of the I.R.S., the personal income tax, and the 16th Zmendment. Unfortunately, a general excise tax (national sales tax) needed for current levels of government spending would be approximately 30%. Even combined with the repeal of payroll and income taxes, the result would be very burdensome for many taxpayers. However, a long term commitment to a growing economy and reduced government spending will reduce the needed tax rate, making a return to the original Constitutional model possible. A single, general excise would make the expense of the federal government apparent with every purchase made. The burden of calculating and collecting the tax would be limited. With a low tax rate, the burden on family budgets would be low, and a strong incentive to work and innovate would enhance economic prosperity. By taxing income only when it is consumed, saving and investment would be further enhanced, leading to more economic activity and higher incomes for all Americans.

Author’s Comments

It is important that the Libertarian Party platform speak to the issues of the day. In particular, the Democrats are calling for the sunset of the income tax rate cuts of 2001 in order to finance more spending and reduce the budget deficit. Republicans are calling to make the income tax rate cuts permanent. They are promising to change their ways, control the growth of spending, and gradually reduce the deficit.

Many libertarians who typically support Republicans do so because they prefer the Republican position on tax issues The Libertarian Party (and its candidates) should show their support for a position that these Republican-leaning libertarians will consider their own.

It is important that the proposals made by the LP platform be credible to the general public. Repealing a recently imposed policy is always credible. While the Bush I tax hikes are now nearly 15 years old and the Clinton tax hikes nearly as old, it isn’t ancient history quite yet. I believe that returning to the top tax rate of the late Reagan era (28%) and reversing both Clinton’s tax hikes and Bush I’s betrayal of the “no new tax” pledge have some potential rhetorical strength with libertarian voters who generally lean Republican because of tax concerns. Hammering home the notion that Republicans can’t be trusted on taxes and Democrats are worse is valuable.

While the budget deficit and national debt should have its own plank, Libertarians must identify out-of-control spending with out-of-control taxes. Perot was able to obtain great results in 1992 by playing on America’s fears of the deficit.

As for long term reform, the flat tax proposal has the advantage that if it is implemented as an option, it can be introduced at a high rate without raising anyone’s taxes. If it would raise your taxes, you don’t adopt the option. The concern about raising some people’s taxes is a concern that middle class voters might well have. It is also very much a concern of radical libertarian ideologues currently voting on the LP platform. Raising anyone’s taxes is an initiation of force.

The problem with the national sales tax is that it cannot be implemented as an option. And that means that some people’s taxes would be increased. Proposals like the “Fair tax” which aim to raise current levels of government revenue require a very high sales tax rate. If the size and scope of government is greatly reduced, then a national sales tax can be imposed at a low rate. Again, any proposal for a national sales tax will result in great difficulty within the LP because some people’s taxes will rise, but the lower the rate, the less the problem.

The proposal to “rebate” part of the national sales tax by sending out a welfare check to everyone through the social security system is never going to make it as a proposal by the LP. It is probably not even a good idea. But it is only a serious problem if one proposes implementing a sales tax system in the near future with very high tax rates.

While the platform really should focus solely on proposals that can be implemented in the near future, nearly two decades of “abolish the IRS now” rhetoric by the LP makes it tough to go cold turkey. So, the long term goal of getting to an excise tax only needs to be in the platform as a long term goal.

One final note. The LP platform has traditionally been a set of positions on all sorts of issues. Major party platforms are instead written as articles describing what the Presidential candidate wants to do.

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