Rep. John Linder, R-Ga.

This is a partial transcript from Your World with Neil Cavuto, July 24, 2003, that was edited for clarity. Click here for complete access to all of Neil Cavuto's CEO interviews.

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NEIL CAVUTO, HOST: While the president talks tax cuts, my next guest says let's get rid of the tax code altogether. His plan would abolish income taxes and the IRS for good.

Joining us now with the details, Republican Rep. John Linder (search) of Georgia.

Congressman, thank you for coming.


CAVUTO: Everyone says it's a great idea, Congressman, but no way is it ever going to happen. What do you say?

LINDER: I think it's going to happen. We're starting to realize that we're spending more in just compliance costs than we're actually saving, and, last year, American corporations spent over 100 billion dollars more complying with this complicated code than they actually sent in. We have a study that says for the average small business to collect, comply, and remit $100 to the Federal Treasury (search), it costs them $724. This is just crazy.

CAVUTO: So what would you do, Congressman, different to our tax cut?

LINDER: I'd eliminate all taxes on income, including the payroll tax, which is the most crushing tax, particularly on young working America, and replace it with a national point of sale retail sales tax.

One of the studies we found in the $22 million we spent on economic and market research was done by Dale Jorgenson of Harvard that says, right now, 22 percent of the retail cost is the embedded cost for the current system, which is to say 22 percent of everything you purchase at retail, you're paying businesses' taxes, their payroll taxes, and their compliance costs.

If we were to abolish the IRS (search), get rid of all tax on income, and replace that with a 23 percent embedded cost, your cost of living would go up about one percent, but everybody would get to keep their whole check and everybody would be a voluntary taxpayer.

And then to untax necessities, essentials, we use the government definition of poverty-level spending, which is defined as that spending necessary for a given sized household to pay for its essentials. We would give every household, rich or poor, a check at the beginning of every month to totally rebate the tax consequences of spending up to the poverty line.

CAVUTO: But there...

LINDER: Right now...

CAVUTO: But, Congressman, here's what I worry about. I think a lot of your ideas are pretty sound, but they invite new complications for old ones. For example, even handing this up-front rebate for essentials, I can see that being a bureaucratic nightmare. In the meantime, the government...

LINDER: There would be nothing more...

CAVUTO: ... doing without money. What do you say?

LINDER: There would be nothing more or less than a computer action, an electronic transfer at the beginning of every month. The states would do the collecting for us, and you'd sign up with your state, depending on how many people are in the household and their Social Security numbers, and that would determine how much you got at the beginning of every month.

CAVUTO: But, Congressman, we're going to give the rap against you. That is this unfairly hits the lower- and middle-income folks because they're the ones more inclined to go to the store and purchase some things, make impulse purchases on things way beyond needy things...

LINDER: Those people are...

CAVUTO: ... and they're going to share the onerous part of this. What do you say?

LINDER: Well, first of all, we're not going to define what is essentials and what is a necessity. We're going to say that you can spend up to the poverty line with no tax consequences whatever. Right now, people spending at or below the poverty line are losing 22 percent of the purchasing power to the current system.

CAVUTO: Now let's talk about what the fallout would be on retailers, and the reason why they would come out against this sort of tax. They feel it would adversely affect them, and people, when times are tight, would be less inclined to buy things and therein dries up opportunities for them and, for that matter, the government.

LINDER: Actually, the consumption in the economy is a much more steady predictor of economic activity than is the income economy.

Right now, our collections are down for a third year in a row because people aren't earning, and many people are laid off, and yet we would have had increased collections for nine of the last 10 quarters because the overall economy grew.

If you take a study from 1945 to 1995, you'll see that the consumption economy went up every year just slightly, and the biggest downturn ever in that period of time was a three percent decline. We're now facing 20 percent to 25 percent declines in revenues because of the income economy.

CAVUTO: Has anyone, Congressman, said that you're on to something good here?

LINDER: Oh, lots of people do.

CAVUTO: How many?


LINDER: ... people get it — 435,000 members of Americans for Fair Taxation. I believe, in January, the Farm Bureau with five million families will endorse it officially... I've talked to Vice President Cheney, Secretary Evans...

CAVUTO: So maybe you're on to something, Congressman. We'll see what happens.

LINDER: It's time to get rid of this broken system and turn everybody into a voluntary taxpayer.

CAVUTO: All right. Congressman John Linder of Georgia.

LINDER: Thank you, Neil.

CAVUTO: Thank you, sir. Appreciate it very much.

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