Transcript: End of Income Tax?

This is a partial transcript from "Your World with Neil Cavuto," August 3, 2005, that was edited for clarity.

NEIL CAVUTO, HOST: Tired of the government taking away a big chunk of your paycheck every week? Well, what if I told you there is a way you can keep everything, I mean all of it, every single cent? How?

Well, my next two guests are going to tell you how, Republican congressman John Linder of Georgia and radio talk show host Neal — misspells the N-e-a-l — Boortz.

(LAUGHTER)

CAVUTO: All right, the authors of "The FairTax Book" (search).

NEAL BOORTZ, RADIO TALK SHOW HOST: OK, it's on now.

(LAUGHTER)

CAVUTO: Yes, we're starting early, aren't we?

(LAUGHTER)

CAVUTO: Welcome to both of you.

REP. JOHN LINDER, R-GA.: Thank you.

CAVUTO: Congressman, I guess I want to begin with you first, because I think the ideas — and we're going to spell them out — are great here. You work in a body that I don't think will do diddly on it.

LINDER: Actually, we know that Congress will not pass this without pressure from the grassroots. We have 600,000 members of Americans for Fair Taxation, volunteers.

Your viewers can join by just going to www.FairTax.org on the Web and signing up. We think we can get two million people and start to overwhelm Congress. I have been there for 13 years. I have seen the times when the grassroots has moved the Congress. We listen way more often to our constituents than the lobbyists. And the grassroots are going to have to do it.

CAVUTO: But some of them are concerned. Neal, you are saying no income tax period.

BOORTZ: No income tax. Business or personal or payroll or gift tax or estate tax.

CAVUTO: OK. It would be a straight 23 percent sales tax, essentially.

BOORTZ: Inclusive sales tax.

CAVUTO: OK. So, my immediate reaction is, that helps the rich fat- cats. It doesn't help the poor guys.

BOORTZ: Well, just within the last 10 days, the Tax Reform Commission scored the various tax reform plans. And they said that there is only one tax reform plan that completely eliminates the federal tax liability for the poor in this country, completely. And that's the fair tax plan, the book you have in your hands there right now.

CAVUTO: But poor people, presumably, go to the Wal-Marts and the other stores often. They're getting socked with this every time.

LINDER: Let me point out that, currently, 22 percent of what you spent at retail represents the embedded costs of the IRS.

CAVUTO: How do you know that, by the way?

LINDER: A study out of Harvard in 1997. Dale Jorgenson, who is chairman of economics at Harvard. There have been estimates from 15 percent to 30 percent. On average, he says, 22 percent represents paying for the income tax costs, the payroll tax costs and the accountants and attorneys to avoid the tax costs for every business enterprise...

CAVUTO: So, take that out of the equation, everything drops by that amount?

LINDER: Twenty-two percent. You replace it by 23 percent tax, a frank, transparent tax embedded in the cost at retail, and everybody gets to takes their whole check home. And the average income earner gets a 50 percent increase in take-home pay.

CAVUTO: All right. Now, the real estate folks hate you, because they say it is going to cause a real estate crash.

BOORTZ: No, no, they hate us because they don't understand the plan yet, OK? First of all, as for the home mortgage deduction...

CAVUTO: You don't have it in your plan.

BOORTZ: Well, it doesn't mean anything if you don't owe income tax. I mean, give me a $5 million home mortgage and all the deduction that goes with it, if I don't owe income tax, it's worthless to me. It's like walking in a grocery store where they are giving away free bread and you start complaining because you have a 20 percent off coupon in your pocket. I mean, how much sense does that make?

CAVUTO: But what would happen if real estate across the country started dropping 20 to 30 percent?

LINDER: Let me give you a shot at this. Today, 25 percent of the cost of a new home represents the embedded costs of the IRS. Under ours, it's 23 percent. Today, if you are making $60,000 a year, you are bringing home $3,800 a month to make your house payment, your car payment and buy your groceries. Under ours, you are bringing home $5,000 a month. And interest rates decline by 30 percent. So, the payment is going to be less. Housing is going to be fine.

And on top of that, two-thirds of America does not deduct. They use the standard deduction. They're not taking advantage of it anyway.

CAVUTO: That was interesting. I didn't know that. In other words, they take the standard deduction.

LINDER: Sure.

BOORTZ: Yes.

And you take the embedded taxes out of the price of a new home, that's gone, average about 25 percent. You add back the inclusive 23 percent sales tax, the new home doesn't cost any more then than it does now. The one thing that changes is, people have more money to pay for a down payment, more money to pay for the home. They get lower interest rates.

The home-building industry will learn that this is a great plan for them, but their lobbyists in Washington will say it's a bad plan.

CAVUTO: That's a very good point. But what is it going to do, you know, we all go through recessions, right?

LINDER: Sure.

CAVUTO: If people slow down in their spending the government is not going to get its money.

LINDER: If we had been on this plan since George Bush was elected president, we would have increased revenues in 17 of the last 18 quarters, instead of the 14 and 22 percent declines per quarter.

CAVUTO: Yes, but what if we had a '70s bear market situation or a '70s recession?

LINDER: Even in the '70s, consumption went up. The only decline in consumption from 1929 to last year was a three-year period of time in the '30s. Consumption is a much more steady predictor of economic activity than is income, which has high...

CAVUTO: But government bases its spending plans on predictable revenues. Your plan won't give us predictable revenue, will it?

LINDER: Yes, it does.

CAVUTO: Really?

LINDER: It is much more steady predictor, because consumption has gone up in every year, where income has gone up and down. We would have had a much more steady increase in revenues under a consumption plan than under the current plan.

CAVUTO: Steve Forbes was here not too long ago pushing the flat tax.

LINDER: Right.

CAVUTO: I think a 17 percent straight income tax across the board.

LINDER: Right.

CAVUTO: What do you think of that?

BOORTZ: Well, I would prefer it to what we have now, but you still have payroll taxes. You still have to report your income to the Internal Revenue Service. And the tax we have right now, Neil, is a flat tax, 1986, tax reform, two tax rates, 15 percent, 28 percent. So, it was a two-tiered flat tax, been amended 9,000 times since 1986. And you see what we have today.

CAVUTO: So, you suspect his would be amended?

BOORTZ: Well — oh, sure.

CAVUTO: Well, what is to say that yours would not be amended?

BOORTZ: We repeal the tax code.

CAVUTO: Yes, but you can start hiking the 23 percent, right?

LINDER: But it's going to have to be a hike on everyone.

CAVUTO: I know that. But it starts at 23 percent.

LINDER: Sure.

CAVUTO: Everything in government starts at something.

(LAUGHTER)

LINDER: The last two tax increases we've had, in 1990 and 1993, were promised to only impact the top 2 percent of income earners. And the other 98 percent said, go get them; it's not going to affect me.

The next tax increase under our tax is going to have to be so compelling a need that my mother-in-law will have to pay for it.

CAVUTO: Wow.

BOORTZ: You can't single out the evil, hated rich for tax increases under the fair tax. You have to make it across the board.

CAVUTO: But the evil rich can afford more than the poorer folks. Right?

BOORTZ: But the poor folks are exempt. They don't pay because they get...

CAVUTO: Yes. I got you.

LINDER: Let me make one point.

CAVUTO: Real quick.

LINDER: The person to suffer under this is going to be the wealthy. This is a tax on accumulated wealth. It's never been taxed before.

BOORTZ: It's going to nail you, Neil.

CAVUTO: It is going to nail you.

(LAUGHTER)

CAVUTO: Talk about the congressman. I don't know. He's doomed no matter what.

(LAUGHTER)

CAVUTO: But, guys, thank you very much.

Congressman Linder, Neal Boortz. It's getting a lot of buzz, "The FairTax Book." It's rocketing up the top of Amazon, right?

BOORTZ: Oh, yes, nonfiction, number one on Amazon.com.

CAVUTO: Man, oh, man. You are on fire. All right, guys, I wish you well with this.

BOORTZ: Thanks, Neil.

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