NFIB Leads Effort on Tax Reform

Jack Faris, head of the National Federation of Independent Business, wants to junk the nation’s tax code, all 7 million confusing words of it, and start over.

Toward that end, Faris chose highly symbolic Independence, Mo., from which to launch a petition drive in September. He seeks signatures from 1 million Americans for his effort to abolish the Internal Revenue Service tax code by Dec. 31, 2000.

“If we don’t lead the charge, who is going to lead it?” Faris said on a recent swing through Los Angeles to promote the campaign.

Faris argues that setting an expiration deadline would force Congress to rewrite the code quickly. He suggests Congress use as a model the nation’s first income tax code, from 1913, which consisted of a one-page form, 14 pages of tax law and a top tax rate of 7%.

“We are asking Congress to write two new tax codes: a sales tax and a flat or fair income tax with few or no deductions and very few rates,” Faris said.

The NFIB, which has one of the biggest budgets ($84 million in 1998) of any small-business advocacy group in Washington, has set aside $1.2 million to finance the petition drive. An Internet site with information on the campaign has been set up at https://www.not4irs.org

In October, Faris threw a Washington news conference at which Senate Majority Leader Trent Lott (R-Miss.), House Speaker Newt Gingrich (R-Ga.) and others in Congress made a show of signing the NFIB tax petition.

If all of it smacks of tilting at windmills with Faris as Don Quixote, it’s because simplifying the tax code is probably the modern-day version of the impossible dream.

A simplified tax code would put more than 25,000 lobbyists out of work. They labor daily on Capitol Hill to ensure that tax breaks continue for corporations, industries and trade groups. Millions of tax attorneys and accountants who earn livings decoding jumbled tax regulations would scream at the possible loss of their jobs. And small-business advocates themselves are not in agreement over which taxes should be left in place.

Some oppose a national sales tax, arguing that retailers would suffer from higher prices. Others insist such a tax would be a relief from complicated value-added taxes that are imposed throughout the production process and are, in effect, hidden taxes. Those who have worked for years to get improved home-office and medical deductions for small businesses might be reluctant to dump all their hard work for a simpler tax code.

Most of the small-business organizations in Washington endorse the NFIB’s campaign in theory but are not joining the effort to gather signatures. It could be that with the folksy, personable Faris--who showers listeners with down-home metaphors such as “amending the current tax code is like dressing a pig in silk”--the campaign seems more like a membership drive. Some see it as a way for the NFIB to bolster the influence of the 650,000-member organization, already a force on Capitol Hill.

Indeed, some congressional insiders say throwing a bomb and shouting, “Scrap the tax code!” is easy to do. The real work is in building a consensus to figure out what the new tax code should contain.

Tax reform is a hot issue. Some stabs at reform were made this year, but the real effort is expected to start when Congress reconvenes Jan. 27. The impetus is the horror stories of IRS abuse revealed during recent congressional hearings.

For Ernest Howard, who heads the Hollywood-Beverly Hills arm of the 12,000-member Los Angeles chapter of the California Society of CPAs, the horror stories were nothing new.

“Basically, I help the kind of people you saw testifying before Congress,” said Howard, a certified public accountant and owner of a Playa del Rey accounting firm.

Small businesses are targeted for audits, Howard said, because IRS officers with limited training are intimidated by expert tax attorneys that large corporations command. But small-business owners--who are busy with daily operations, typically have less tax documentation and can’t afford high-priced tax help--are easy pickings.

For example, a Venice health trainer who ran a business from her home--grossing $30,000 a year and netting as little as $10,000--was relentlessly audited for three weeks by an IRS employee here who finally succeeded in getting her to pay $1,000 in back taxes.

She probably was singled out for the audit, Howard said, because the IRS zeros in on returns with income lower than the neighborhood average. That means that if you’re self-employed, you have a much higher chance of being audited, Howard said, especially if you live in areas such as Encino, Venice and Santa Monica.

With tax law there often are no right answers, Howard added. Congress will pass a law, give a mandate to the Treasury Department to interpret it and in many cases, regulations are not written. Businesses then are at the mercy of IRS officers or must interpret complex court cases.

“Something enormously simpler than what we have now is desperately needed,” Howard said.

A simple tax code could also spur economic growth, Faris says. Under the current tax paperwork burden, small businesses spend about $724 in tax-advice costs for every $100 paid in taxes, a total of $28.6 billion spent nationally to pay only $3.9 billion in income tax.

Although CPAs like Howard earn their living from tax advice, change would benefit them, too, and he doubts tax professionals would oppose the NFIB’s drive for IRS simplification.

Said Howard: “If we had a powerful growth economy, it wouldn’t be hard to get going and do financial statements, business planning, management advice and other things to help small business succeed and grow.”

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Vicki Torres can be reached at (213) 237-6553 or by e-mail at vicki.torres@latimes.com