"When the Federal Reserve Act was passed, the people of these United States did not perceive that a world banking system was being set up here. A super-state controlled by international bankers and industrialists...acting together to enslave the world...Every effort has been made by the Fed to conceal its powers but the truth is--the Fed has usurped the government." ~ Louis McFadden
Interview with the National Taxpayers Union
The National Taxpayers Union is one of the most important activist agencies in our nation because it represents the citizenry in its fight against the government leviathan. Their work is critical because the rest of us simply do not have the time to do it. Founded in 1969, the association is, in their own words, a 'non-partisan, public interest advocacy organization dedicated to lower taxes, less wasteful spending, and the principles of rational and limited government.' What could be a nobler goal?
The subject of our interview is Mr. Peter Sepp, Vice President for Communications, and he is an avid proponent of decreased taxation. Mr. Sepp was kind enough to share his time and does a fine of job of enlightening while he advocates.
One of the best things about this interview is that it showcases that the people with progressive ideas nowadays are not labeled as "progressives." The NTU's idea of the "fair tax" sounds counter-intuitive when one first hears it but it would be an infinitesimal improvement over the status quo and Mr. Sepp's organization provides charts which illustrate the amounts that would be rebated to the taxpayer each month from such a scheme. As a warning, when Mr. Sepp mentions the specifics of the 20 billion dollars of pork in the last appropriations bill you might need a fluffy chair and a well-trained masseuse to help maintain your equilibrium. Although he makes a great many strong points, his analysis of the individual state's income tax resulting in taxpayer flight is something that we should fax to all 50 of this nations governors in an attempt to get them to come out of their comas and stop taxing their citizens.
BC: Mr. Sepp, you are the Vice President for Communications of the National Taxpayers Union (NTU), and for this reason I'd like to ask you right away a general question about government. Do you think it is legitimate for governments to tax private citizens in any capacity? Further, on an economic note, does all taxation harm the economy?
PS: A wise man once said, "There will always be death and taxes; however, death doesn't get worse every year." Our mission at NTU is to slow and then reverse this trend of worsening tax burdens, to the maximum extent possible. Nonetheless, we recognize that some level of taxation is necessary. Our Constitution, even under its strictest interpretation, empowers Congress to levy taxes for certain enumerated functions of the federal government (such as defense, coining money, overseeing patents, etc.). In 1999, we conducted a brief study that found Congress could reduce federal expenditures by 73 percent, simply by following the original Constitution's "enumerated powers" restriction. At lower levels, citizens regard some functions of state and local government (police, fire, etc.) as legitimate reasons for taxation. Yet, in these changing times, public perceptions of "legitimate" services need not translate into tax-supported bureaucracies. Some local communities, for example, contract with private firms to provide fire protection service for their residents. High-Occupancy Toll (HOT) roads, which would be privately-built and -maintained, are poised to become a very real alternative to the government's preferred solution of collecting more gas taxes to build roads. The whole school choice movement is based on the notion that access to education shouldn't automatically mean public schools funded by property taxes. Even on the federal level, we are seeing interesting alternatives to conventional "tax and spend" responses to public needs. Shortly after the September 11 attacks, I came across a fascinating article from some folks at the Independent Institute, who argued that Congress's historical power to "grant letters of marque and reprisal" could allow it to employ modern-day privateers to help hunt down terrorists at much less cost to taxpayers. Congressman Ron Paul introduced legislation in the last Congress that would have made this process easier. As for the question of taxation harming the economy, we have to compare gross and net effects. In the strictest sense, all taxes take money from the private sector, in turn giving that sector fewer resources to expand and create opportunities. However, there are certainly some offsetting benefits that limited government can provide the private sector if tax levels are kept low enough. For example, a government-run patent system theoretically provides a foundation for intellectual property that gives entrepreneurs the chance to secure the fruits of their ingenuity. The amount of taxes we pay to support this system is relatively small, for example, compared to the productivity and health gains from America's pharmaceuticals (which enjoy stronger patent protections here than most other nations provide). Goodness knows, the Patent and Trademark Office isn't always efficient (they're spending $1.3 billion to lease a new headquarters for 20 years), but this is why we have a reputation for being consistently tough. Even when the government is partaking in a legitimately activity, it isn't necessarily doing so in the most fiscally responsible manner.
BC: What is your organization's solution to the current empire of tax in the United States? I notice that you have your own polling apparatus as a part of the NTU. What do the people most often support when asked questions about taxation?
To most citizens, the burden of filing taxes is becoming almost as unbearable as the burden of paying taxes. So, in addition to a low rate, I think Americans seek a system that is fair, visible, less intrusive, and above all, simple. Several systems could fit that description, but the two proposals I've seen with the greatest support are the flat-rate income tax (no deductions except for per-person standard exemption) and a national retail sales tax (no deductions except for a universal rebate that exempts all purchases up to a poverty-line income). Either concept is workable, although the one proposal gaining the most support right now is the so-called "FairTax," which would replace all income, death, investment, and personal payroll taxes with a 23 percent sales tax at the retail level, with a rebate. The rate seems high, until people add up the burdens the new tax would replace. Over time, that percentage could come down as the economy, freed from deadweight losses on productivity, grows to the point where the same revenues could be generated at a lower rate. Fair Tax legislation has been introduced in the House by Rep. John Linder (H.R. 25).
BC: There are so many organizations that deal with wasteful state expenditure, like the Family Taxpayers Network and Americans for Tax Reform. What makes the National Taxpayers Union unique? What's your best argument as to why people should give support to you over the others?
PS: To our knowledge, NTU was the very first nationwide, non-partisan, citizen-based taxpayer organization to be founded in the U.S. (in 1969). We have a track record of success not only at the federal level (rate reductions, gradual IRS reform, defeat of numerous pork-barrel projects), but also the state and local level (involved in dozens of successful tax limit campaigns coast-to-coast). With three decades of experience, we know not only how to win tactical battles that provide help to taxpayers in the short term, we're also laying the groundwork with other allies to win the strategic battles that will permanently limit government in the long term. Granted, we have a long way to go, but things would be much worse in this country without citizen groups like NTU, and yes, our colleague groups like ATR and FTN. Our non-partisanship is the key to this success. Our 15-year effort to give taxpayers more due process when dealing with the IRS is finally paying off, in part because we helped to convince ACLU-types in Congress that obsessing about conspiracies within the CIA ignored the very real damage that the tax agency was doing to ordinary citizens.
BC: Would you say that one of the biggest obstacles to tax reform is that some citizens persist in maintaining the canard that taxes are charity? My old roommate from college the other day told me "hey, I make a lot of money. I can afford my taxes." I was like "what does that have to do with anything if the taxes are not helping anybody?" I even heard, during the rebate discussions of 2001, Susan Estrich say on FOX that she would not accept her government check. I know you're a diplomatic guy, but does liberal guilt have anything to do with the ludicrous insistence that taxes are good for the soul?
PS: It's interesting that you mention Fox in this question, because it brings to mind a poll that Fox and USA Today took in late January of this year. The poll asked, "What is the maximum percentage of a person's income that should go to taxes -- that's ALL taxes, state, federal, and local?" More than half of those responding thought the burden should not exceed 20 percent, and three-quarters thought the burden should be 30 percent or less. The fact that actual combined tax burdens can reach 40-50 percent tells me that many citizens just don't stop to think about all of the taxes they pay. I don't believe people are ignorant or misinformed, they're just too busy to consider all of the ways big government tries to get into their wallets. That kind of public education is part of our job, and the word is spreading. Our research affiliate recently identified close to $700 billion in these "hidden" taxes that most people overlook. In short, aside from a few liberal elite with a guilt complex, I think most citizens view taxes less as a charity than as a necessary evil. And the more wasteful government gets, the more "evil" and less "necessary" those taxes become!
BC: In person you told me that your organization contributed to the Citizens Against Government Waste Pig Book. I read the 2001 edition. I think that this work stands for itself as very powerful indict of government. Have you ever actually met anyone who took the time to read it who continued disputing the merits of a smaller government? Can you tell the readers one really appalling taxation horror story indicative of how our funds are being mismanaged?
PS: We do work with our friends at CAGW quite closely, and given the size of the federal budget, there's more than enough work to go around for all of us. Although we've collaborated with CAGW in trying to stop some of the projects highlighted in the Pig Book, and NTU's own research has found some of this pork independently, the credit belongs to CAGW for putting together this great (or maybe frightening is a better word) publication. Just one really appalling story? How can I possibly limit myself? Looking at the current fiscal year alone, the Omnibus Appropriations Bill contained nearly $20 billion in pork-barrel spending, ranging from $800,000 to the Grammy Foundation to $202,500 for the National Peanut Festival. Still, I think worst symbolic example this year is Congress's penchant for spending on itself. In the midst of a recession, and a budget deficit lawmakers are constantly carping about, Congress accepted its third salary hike in as many years (pay is now $154,700), set aside $158,000 for the Senate's recently-created office of the "President Pro Tem Emeritus," requested $519,000 for chandeliers, crystal globes, and tile replacement in the Capitol, renovated the Senate's fitness center with jacuzzis, steam rooms, and mosaic tiling, and sought $108,000 for kitchen improvements to Senate office buildings. Now, the money isn't a huge amount, but I can't think of a better (worse?) illustration of all that's wrong with Washington.
BC: Have you ever seen a tax that you liked? Is there a type of tax that you believe is the least destructive?
PS: In my opinion, taxes aren't something to be liked so much as tolerated (but only in small doses). Still, all dosage levels being equal, some taxes are indeed worse than others. Recently, Ohio University Professor Richard Vedder, who serves on our board, analyzed this question and determined that income taxes are the most economically destructive, followed by property taxes and consumption taxes. Historical evidence continues to bear this proposition out -- for example, during the 1990s more than 2.8 million Americans fled high-income-tax states for those states with no income taxes. All that money, productivity, and talent went with them to the tax havens.
BC: I saw on your website a piece concerning the states, and it argued that the federal government must reject any state budget bailouts. As someone who works in politics full-time, what are the reasons that it is so difficult for all branches of government to cut spending? This seems to be a chronic and perverse disorder around the world.
PS: Much of the problem has to do with special interest incentives. Consider that voter turnout in Congressional elections is often very low. In a contest with 40 percent turnout, a Member of Congress really just has to win slightly more than 1 in 5 of all eligible voters. When we consider the number of government workers and their relatives, government contractors and their employees, and recipients of government benefit checks or subsidies, it's not that difficult to see how candidates often put together winning coalitions of voters who take tax dollars rather than make them. Consider too that a given individual beneficiary of a government program usually has more at stake financially than an individual taxpayer. For example, the handful of Alaskan seafood producers could each receive thousands of dollars from the $20 million in subsidies that they netted from the 2003 Omnibus Spending Bill, but the giveaway only "cost" each of the nation's 120 million taxpayers less than 17 cents apiece. Even though all of these programs throughout the government add up to a huge overall burden on the typical taxpayer, on a case-by-case basis, the takers have more motivation to fight for the money than the givers. This is a dynamic that groups like NTU seek to change -- we provide the "other" voice against those who are always clamoring to government to do more, and spend more. We speak up for the taxpaying Americans who are too busy trying to provide for their own families to question the everyday expenditures. We don't always win, but with persistence and pluck, we do make a difference.
BC: Like the American Conservative Union, you release a report card on members of congress. For 2002, I noticed that my representative, Jan Schakowsky, got a 23% F and one of my senators, Dick Durbin, got a 9% F. Historically, who have been some of the most profligate spenders in Congress?
PS: Because our rating uses every roll call vote affecting federal spending, taxes, debt, and regulation, the "usual liberal suspects" aren't always the lowest scorers. We are measuring the net impact of their votes on the overall size of government. This means that Democrats like Russ Feingold (who often support reductions in military spending to boost social spending) don't fare as poorly as Democrats like Hillary Clinton and Martin Frost (who try to be all things to all people). This is likewise true of low-scoring Republicans. During the 1970s and 1980s, when there were more fiscally-conservative Democrats like William Proxmire and more fiscally-liberal Republicans like Charles Mathias, differences in party averages on our rating tended to be less pronounced. Today, however, with so much polarization between the two parties, Republicans have generally been scoring twice as well as Democrats. Still, it's interesting that the average score on our rating for a Republican House Member last year was 58 percent -- meaning that in the self-styled party of fiscal restraint, the typical lawmaker barely voted for taxpayers more than half the time. I'd say there's a lot of room for improvement there.
BC: The NTU produces an "outrage of the month." In your opinion what has been the greatest government boondoggle ever?
PS: So many choices, so little time! I'll give you TEN of the worst off the top of my head, from the most general to the most specific: Lyndon Johnson's "Great Society" -- Several trillion dollars spent on housing, welfare, and education programs that have, by some measurements, actually worsened the problems they intended to fix. The U.S. Department of Energy -- Essentially a clearinghouse for corporate-welfare energy research grants, under an agency the National Research Council calls "one of the most inefficient organizations in the federal government." The 2002 Farm Bill -- Effectively undoing the modest 1996 reforms of the "Freedom to Farm Act," this $200 billion measure restores Soviet-style agricultural policy in America. International Space Station -- After its price tag soared past $100 billion, Congress scaled back the project to include the worst of all possible worlds: an orbiting platform whose value even the scientific community questions, which will nonetheless cost taxpayers tens of billions to build and maintain over its lifespan. Amtrak -- Created in 1970, the national passenger railroad was expected to become self-sufficient within 3 years. Since then, Amtrak has received $44 billion in continuous federal subsidies. Benefits of Doubt -- The General Accounting Office found more than $20 billion in improper payments made in one fiscal year under the government's major benefit programs (like SSI and Food Stamps). And some people think the Feds can effectively run a new prescription drug plan? National Helium Reserve -- Created in the 1930s to stockpile the gas in case of an outbreak of blimp warfare, the government-sponsored enterprise wasn't put on the path to privatization until the mid-1990s. National Tea Tasters Board -- This commission, concerned only with tasting tea for quality (not inspecting for safety) got hundreds of thousands in taxpayer subsidies before the industry was shamed into taking over the operation entirely in the mid-1990s. Earthquake-Proof Outhouse -- A two-toilet affair with 29-inch walls in Pennsylvania's Delaware Water Gap National Recreation Area that cost taxpayers a minimum of $333,000. Dirty Jokes -- The National Science Foundation paid $227,000 to study humor, which involved gauging the reactions of test subjects to off-color jokes. The agency also paid $220,000 to determine why women smiled more than men. I could go on, but I'm sure your website does have space limits.
BC: Lastly, what types of things do you recommend that average people like myself and the readers do to combat the excesses of taxation?
PS: The "easy" recommendation I make is to join 350,000 of your fellow taxpayers in our growing organization. But just as important, I recommend that people become more informed -- check out the ratings, studies, and other publications of groups like mine to pass along the truth about hidden taxes, elected officials' broken promises, and government's missteps. Then, I recommend that people get the tools they need to make changes in their own communities first. We offer a brochure, "Standing Together," to help people form local groups that interact with us. Also, our National Taxpayers Conference provides training for citizen activists. The next conference is coming up in two weeks, and people can register online. Finally, people should not be intimidated by the ins and outs of fiscal policy or by the "pundits." SPEAK OUT -- If you pay taxes, you automatically qualify as an "expert" in public finance!
BC: Thank you for your time, Mr. Sepp.