John Linder

Mr. LINDER

Mr. LINDER. Companies are leaving our shores not because they hate America, not because they are mean-spirited; they are leaving our shores because they are being driven off. They are being driven off by the tax system that embeds so much into the price that they cannot compete in the world market. So some years ago we had a big debate here about people leaving, wanting to leave their citizenship here and move to another nation that had lower tax on the death tax, and half this House thought, well, it is shameful if they do that, let us get their money before they leave, and the people said, fix the Tax Code and they will be here. If we eliminate tax on capital and labor, we will be the world's most attractive tax haven, and the $6 trillion would quickly rush to our shores to be invested in our stocks, our bonds, lower interest rates, create jobs that cost about $100,000 to create one job in this country. But in addition to the $6 trillion in the dollar market that would come, how many tens of trillions would come from foreign countries in our markets because we have the best markets in the world. We have the most productive workers in the world. They would rather build in Michigan to service the car industry in Michigan than to build offshore and have to ship it in. If you get the tax component out of that system, they would be there in a second, and they have said that.

Mr. LINDER. Well, I do not know where the numbers come from. The IRS admits it is $5 trillion. The people who are in the offshore financial centers say it is $6 trillion. But we just did some minor research. We know that the high-tech industry itself in California has about $150 billion offshore. It is too expensive to repatriate. We know that Pfizer has $59 billion offshore. They sell in the French market for francs and in the Japanese market for yen and the German market for marks, and then they convert that into euro dollars and they hold it offshore. All of that money would be back in our markets creating jobs and bidding companies. We do not know how much Japanese money is floating around that would come here, but just imagine what would happen to our stock markets if all the world's investors could invest in our stocks with no tax consequences. We have had two money managers, whose names would be familiar to you, who would say, I do not know what the market would be at as days pass, but in 2 years, it will have doubled. There is no question that we will be the attraction, we will be the attractors of capital, and when you bring capital in, you create jobs. And this country needs job creation.

Mr. LINDER. That is right. So the consumer of that small business not only pays the $100 plus the payroll tax, it also pays the $724.

Mr. LINDER. That is correct. This is hardly an efficient way to raise taxes.

Mr. LINDER. That is correct.

Mr. LINDER. Mr. Speaker, we precisely made the decision in the drafting of this bill not to fight the battle over increasing or decreasing revenues; we would lose votes on that issue alone, not to eliminate all the excise taxes, we would lose 150 votes in this House just on tobacco; not to reform any programs; we wanted to just change one paradigm, collecting revenues on income, to another, collecting revenues on consumption, so that it would be neutral. Let us just admit that the United States consumers would save tons of money if they just were voluntary taxpayers and paid taxes when they chose to pay taxes, and then, later, we will worry about the size of the government. But I want to tell my colleague one thing about the size of government if we pass this. Nobody knows how much we spend here. But if my mother saw every time she bought a loaf of bread how much went to Federal taxes, she would start showing the interest. We right now have a huge bias in favor of more government and more taxes because most of us do not pay the income taxes, but we pay the consumption tax currently embedded in the goods and services that we buy, and that is what we have to convince America of. You are already paying this tax. It is the same tax. But how would you like to pay the same taxes and have the same standard of living, but if you are making $60,000 a year, instead of taking home $3,800 for your house payment and your groceries, you are taking home $5,000? You get everything you earned, nothing taken out. Your net pay and your gross pay are the same.

Mr. LINDER. I want to make it clear that the consumption tax about which we are speaking is not to be treated the same as the State sales tax which is an exclusive tax on top of what you spend. This is included in what you spend. The reason we did it that way, an inclusive tax, is because the tax we are seeking to replace is inclusive of what you earn. If you were going to treat this as a State sales tax on top of what you spent it would be 30 percent. But to compare that with the income tax on top of what you have left to spend, the current income tax is effectively a 56 percent tax rate. Either one, the sales tax is better. If you go to the store and buy that $500 refrigerator, that may include the tax within it, but the price of the refrigerator will have fallen because the embedded cost would no longer be there. It is easier for me to do this on something I looked a lot at because the real estate people talk a lot about this. The real estate people say, how can I sell homes if I do not get to deduct the mortgage interest deduction on a home. I say, if you really think that sells your home, double your interest rate and you will sell twice as many homes. The current embedded cost in the home of the current system is 28 percent. Under our system, it would be 23 percent. The home will be less expensive, the same house. If a person is making $60,000 a year, he is currently bringing home $3,800 a month to make that house payment. He will bring home $5,000 a month under this system. But more importantly because of all the tax complications that come out of the interest rate system, interest rates will decline by 30 percent. So the house is less. The take-home pay is more. The payment is less. We think we will sell lots more houses.

Mr. LINDER. Another nice spring day.

Mr. LINDER. They would not have to keep a receipt.

Mr. LINDER. That is correct.

Mr. LINDER. I can tell the gentleman how much that would be.

Mr. LINDER. The average income earner pays a 28 percent withholding tax and 7.65 percent, their share of the payroll tax. Their increase in take-home pay would be about 55 percent the next day.

Mr. LINDER. That is correct.

Mr. LINDER. Let us remind them that no business inputs are taxed. No tractor will be taxed. No barn will be taxed. Anything used in the business is tax free. No seeds will be taxed. I tell the farmers if you buy a tractor to work your land, there is no tax on it. If you buy a hat to wear on your head, there is. Personal consumption. No business inputs are taxed whatsoever, so farmers are universally in favor of this because it also gets rid of the death tax for them which is a huge issue. We said on the floor yesterday that agriculture would go to bills. The important thing is for us to continue to repeat to farmers and other people who buy equipment that, number one, there is no tax on it, but, number two, the cost of the equipment will go down 20 to 25 percent. So you will buy the same tractor for far less money, and there will be no tax on it whatsoever. Now, one farmer did raise an interesting question for me. If the value of my equipment declines, how can I borrow as much on it? I said, well, things change all the time in the farm business, but you can buy the new one a whole lot less expensive.

Mr. LINDER. That is correct.

Mr. LINDER. Who, by the way, did a lot of the studies for our bill

Mr. LINDER. The illegal labor.

Mr. LINDER. I do.

Mr. LINDER. It is over a trillion dollars right there in the underground economy. Just three portions of it in a recent book published by an economy, pornography, illicit drugs and illegal labor constitute a trillion dollar economy. When I speak to groups, I always ask if there is a banker in the room. If a banker raises his or her hand, I say everybody follow her to her bank on Friday afternoon at 4 o'clock in the afternoon you will see it. And they always just smile and grin because the contractor is coming out paying off subs in cash. It happens outside of every bank in America that does retail banking. It is huge. We do not want to find new places to tax. We think everybody ought to be paying fairly. Government's principal role ought to be neutral, not pick winners and losers. That is why we tax services, as well as goods. We tax Internet sales, as well as catalog sales, as well as local sales. We do not believe that the guy down the street who builds a building, hires their kids, goes to a church, votes at our elections should be put at a 7 percent disadvantage same as a dot-com. So we say this bill is drafted with the first principle, that government's role is neutral, not picking winners and losers.

Mr. LINDER. My daughter at 35, she is now 37, called me and she said what in the world is AMT. She has got four little boys and the deductions and a fairly decent income gets them into the AMT. When it was set in 1969, it captured 90,000 taxpayers. In 6 years, it will capture 35 million.

Mr. LINDER. Mr. Speaker, the folks on the other side of the aisle will worry about people getting too rich and who is going to benefit from this and how you are going to hurt the poor. Let us just deal with that for a second. We are going to totally untax the poor. Today, people who are living at or below the poverty level are losing 22 percent of the purchasing power for the current system, and we are going to tax accumulated wealth. For that couple that paid taxes all the money they earned over the years, paid capital gains and then sold the business, paying taxes on the interest they are earning today, we are going to tax them one more time and they spend it. To those people I say, you are already paying this, but what do you think about the freedom that the gentleman from Iowa just talked about, to do what you want with that money and not have to deal with that? We are going to make people pay taxes when they choose to pay it by how they choose to live, and everybody's free to do that. The gentleman had another point on trade that I would like him to expand what the rest of the world would do, because we talked about this a couple of years ago.

Mr. LINDER. I respond to it that people do not put money under the mattress anymore. Wealthy people spend more than poor people. They will pay a higher share of the total cost of government; but to the extent that they do not spend that money, they are going to put into banks or into businesses and create jobs. If they accumulate a great deal of wealth, I can tell you what they are going to do with that, too. They are going to do what every great wealthy family has done in the history of this country. They are going to give it away. Another question raises charitable contributions. People do not give money away because they can deduct it. They give money away when they have more to give away. The more they have to give away, they more they give away. The great fortunes that have been given away in the history of this country were given away before the Tax Code was ever in place. So they accumulate fortunes. They will invest it. They will create jobs, grow companies, and then give it away.

Mr. LINDER. I would say they can create jobs with it because people borrow it.

Mr. LINDER. Which creates more revenues to the Federal Government.

Mr. LINDER. It has always been the case.