Gil Gutknecht

Mr. GUTKNECHT

Mr. GUTKNECHT. Mr. Speaker, if I could just say, we have talked about capital, and we have talked about big business, and we have talked about investors and manufacturing, but I am told that when we talk about small business, it is where we really see the benefits. Because I am told that a small business can pay over $700, if we look at all of their costs of complying with the current Tax Code, to pay $100 in taxes.

Mr. GUTKNECHT. So that cost is over $800 for the Federal Government to raise $100.

Mr. GUTKNECHT. It is almost unbelievable. If we could get Americans to just think about this, because we all pay the taxes. I mean Paul Harvey often says that businesses do not pay taxes; people do. If you could get people to just think about this, that the system we have today is so incredibly inefficient that we all pay a lot more just to collect the revenues that the Federal Government needs. Now, we all agree that the Federal Government, whether it is for national security or domestic security or for roads or for prisons and all of the other things we need, we need some revenue, right?

Mr. GUTKNECHT. And we are not talking about cutting the amount of revenue to the Federal Government; we are talking about creating that revenue in a new and more efficient way.

Mr. GUTKNECHT. This is an idea we think we know about, but we do not really understand. That is, every time we buy a product, embedded in the cost of that product are the cost of taxes. We do not think about that, but it is there nonetheless. If we buy a refrigerator, there is a certain amount of tax that is included in that. And there have been some people who have attempted to quantify how much that tax is. And so if I buy a refrigerator for $500, embedded in the cost of that refrigerator may be 22 percent or more in taxes. More important than that, it is not just the taxes. It is how much that that company had to pay the auditors, the accountants, the lawyers and so forth to keep all of those records. So the cost may well be 30 percent of just taxes. Now, if you take that many out and you put a 22 percent sales tax on that item, the net cost of that refrigerator, instead of being $500 might be $490 or something like that number. Will the gentleman talk a little bit about what the real net cost would be to the average consumer.

Mr. GUTKNECHT. So on April 15, the average American would say what?

Mr. GUTKNECHT. Another nice spring day in Minnesota or Georgia or Iowa. That is an amazing thing because many Americans dread the idea of April 15 coming around. They dread it for a lot of reasons. Not only the amount of money they have to spend, but they worry they might make a mistake in filling out all these forms and they may have not added correctly and they did not do this right or whatever and they did not go back three spaces and they ignored line 1-A or 15-A or 15-B. All of this would go away. The average American would not have to worry about April 15.

Mr. GUTKNECHT. Would not have to keep a receipt, would not have to worry how much they paid the dentist, how much they paid the doctor, how much they gave to their church. All of those things would simply go away. I know a lot of people, and the gentleman mentioned the Realtors and they are worried about this because at the end of the day this would affect whether or not Americans would buy homes and particularly new homes. But the bottom line is, that new home would, probably on a net-net basis be less expensive than it is today.

Mr. GUTKNECHT. And we have got to get people to think beyond the first thing that they see and they say, oh, my gosh, you mean I would have to pay a 23 percent sales tax on everything I buy? Well, stop and think about it. What would happen is at every payday you would get to keep everything you earn.

Mr. GUTKNECHT. And it would be a real number.

Mr. GUTKNECHT. So that average family when they go out to buy a home would be able to buy more home. And when you take away the cost of all the accountants and everything that goes with the IRS system today, that home would actually be less expensive.

Mr. GUTKNECHT. Now, the other argument that we hear sometimes is from people who buy expensive machinery and, frankly, we have a lot of those people in my district. They are called farmers. Every so often they go out and buy a new tractor, and that new tractor today may be $150,000. They say, oh, my gosh. You mean I am going to have to pay a 22 or 23 percent sales tax on a $150,000 tractor? I cannot afford that.

Mr. GUTKNECHT. So in other words, a farmer that goes down to buy another tractor that today is $150,000, embedded in the cost of the tractor is maybe 22 percent tax or 25 percent tax. So in other words, if you take that out of the price of that tractor, they are actually going to buy that tractor for $110,000 and they will pay no tax on it.

Mr. GUTKNECHT. I agree with you. If we can get people to just think in those terms, all of sudden they are going to be say, well, let us have this right now. Why have we waited. Why do we have this unbelievable system that I have to go down to my accountant and I have to worry about this and I have to worry about that. All of the sudden we have a very simple system that is only about how much I really consume. Not how much I spend to produce a product, how much I spend to produce a crop, how much I invest to produce a new job or a new business or a new product or whatever. This is consumption. And if we can get people to talk about consumption taxes, all of the sudden this whole debate becomes very, very simple. And people say, well, this makes perfect sense. We have been joined by my friend from the State of Iowa, and I hope that the gentleman will jump into this debate and talk a little bit about what it means to him and more importantly how it affected his last election and how he became a proponent of this thing.

Mr. GUTKNECHT. Mr. Speaker, if the gentleman would yield, I want to thank both of my colleagues, and particularly the gentleman from Iowa (Mr. King) because he has really been an educator for me. I want to come back to an issue that we have not talked about yet because I think it deserves to be talked about, and we hear about it from our friends on the left. That is called the alternative minimum tax, and frankly, it is interesting because it was created back in 1969 to make certain that everybody paid some taxes, right, and we created all these loopholes for the ``wealthy.'' All of the sudden they discovered that some of these people were actually taking advantage of these programs so that they paid very little or no taxes. They created this whole second tax system, the alternative minimum tax, that says even if you qualify under all the rules, you play by the rules as some people say, you wind up paying no tax, but you have to recalculate your taxes. Now, all of the sudden, we are talking about millions of Americans who are finding out, well, listen, I did the right thing, I followed the forms, I played by the rules, I did everything right, but now the IRS says, oh, oh, oh, wait a minute, you have to recalculate your taxes; and under the AMT, you owe another $3,000 or $5,000 or $10,000 or in some cases literally hundreds of thousands of dollars in taxes. Let me give you an example. One of my constituents is a wonderful person, and he had made some incredibly lucky or smart investments, depending on your perspective and had become relatively, well, some people would say a very wealthy, man. He wanted to give his alma mater $1 million. He could afford to do that. So what he did is he sold some stock, and he gave his college a $1 million donation. That is a wonderful thing to do, right? Well, the IRS came back the next year and said you have got to recalculate your taxes; and for being a generous benefactor of his college, under AMT, the IRS said you owe us another $340,000 in taxes. Now that was bad tax planning, and he did not spend enough time with his auditors and his CPAs and lawyers and so forth, but that is one example, but it happens every day.

Mr. GUTKNECHT. Mr. Speaker, 35 million Americans, and this is the point I want to make. Anybody who has ever been bit by the AMT will never forget this. One of the most beautiful things about what you are talking about, and I want to thank both of you, is that under your plan they never have to worry again about having to recalculate their taxes after they have already paid what they think is their fair share.

Mr. GUTKNECHT. There is a connecting point there that I want to expand upon, and that is, once we do this, they will have no choice because all of the sudden the rest of the world will turn to America and say, look, if we can invest there and not be taxed, we are going to invest even more of our resources in the United States. All of the sudden, Europe, the former Soviet Union, Iraq, anywhere else in the world, they are going to have to adopt tax policies similar to ours, where we say to people, you can earn as much as you want, you can invest as much as you want, you can risk as much as you want. We are only going to tax you on your consumption. Now I want to come back, though, to a question that sometimes our liberal friends say, and the gentleman from Georgia (Mr. Linder) sort of touched on this a few minutes ago, and that is, wait a second, poor people spend more of their disposable income on things that they need, and therefore, they will have to pay a lot more taxes than somebody who makes $1 million a year and only has to spend 100,000 of it on the things that they want or need just to live and so forth. How do you respond to that?

Mr. GUTKNECHT. So there are only four things that people can do with their money if you think about it. They can either spend it, they can save it, they can pay taxes, or they can give it away. Those are the only four things they can do.

Mr. GUTKNECHT. Exactly, and when they save it and invest it, it creates more jobs, more economic opportunity for the people at the lower end of the spectrum. Right?

Mr. GUTKNECHT. Bingo.

Mr. GUTKNECHT. But some of our friends think that we have to have these people pay lots of taxes because that is a good thing. What we are sort of saying is, well, we have to pay a certain amount of taxes, but at the end of the day if they pay more in taxes, it means they have less to invest or give away.

Mr. GUTKNECHT. Bingo.

Mr. GUTKNECHT. Mr. Speaker, of all the things that people can do with their money, the least efficient thing in terms of growing the economy is to give it to the Federal Government because we know that the Federal Government will spend it less efficiently than they will, and that is a philosophical debate; and I understand that. At the end of the day, we can create a system that is just as fair or fairer than the system we have today because when people think about it, you think about the average poor person. Everything that they buy has embedded in it anywhere from 22 to 30 percent taxes. So they are paying the taxes. Businesses do not pay them. And in some respects even wealthy people do not pay the taxes. It is the poor people who pay them.

Mr. GUTKNECHT. So if I buy a $100,000 automobile, I pay a lot more taxes than if I buy a $20,000 automobile. That is the way the whole system works. Mr. Speaker, we have to do a better job of explaining this to everybody. Because I think, in the end, and I want to thank both my colleagues, particularly the gentleman from Iowa (Mr. King), because he has been helpful to me in beginning to understand. Let me close for my part of this with two very important points made by one of my favorite people from the United Kingdom, Winston Churchill observed this about the American people: First of all, he said Americans always do the right thing, once we have exhausted every other possibility. And I think we have really reached a point, when you look at the Tax Code, that we have exhausted every other possibility. And it really is time for us to do the right thing. The other thing that he said is that the difference between someone who is convinced of something--no, I am going to forget the story. Have you got the story?

Mr. GUTKNECHT. A fan. Yes, that is it. The difference between a fan and a fanatic is that a fanatic cannot change their mind and will not change the subject. I have almost become a fanatic on this issue because this is something that, if you think it through, begins to change the entire paradigm. As the gentleman from Iowa said, it not only changes the way we see government but it changes the way we react to government. In the end, it says to Suzie and Johnny when they go in to buy something at the store, wait a second, every time I buy something, it is 22 cents or 23 cents, or whatever the number is. And all of a sudden they begin to see government as a real cost to them.