A taxing debate.

Ramesh Ponnuru's "The Perils of Tax Reform" (Dec. 13) argues that the administration is wise to ignore calls for bolder tax reform. I vigorously disagree. A May 1997 study completed by Dale Jorgenson, formerly chairman of the economics department at Harvard, concludes that on average 22 percent of what we spend represents the embedded cost of the current system. We are paying the income-tax costs, the payroll-tax costs, and the accountants and attorneys to avoid the tax costs of every one of the business entities that are involved in, say, the making of a loaf of bread.

The tax component in our price system makes our products less competitive in a global economy. Jobs are driven to nations where production is less burdened by a tax component. Our confiscatory tax system also chases capital into offshore financial centers. It is estimated that we currently have about $6 trillion off-shore. If we were to eliminate all taxes on capital and labor we would be the world's largest tax shelter. That money would be in the U.S. and jobs would necessarily follow.

We spend over $200 billion a year filling out IRS paperwork. Business leaders will tell you they spend a similar amount calculating the tax implications of a business decision. One noted economist told me that we lose 18 percent of our economy by making "tax decisions" instead of "economic decisions." That puts us somewhere in the range of $500 billion in costs to send in three times that amount. This is not just inefficient, it is stupid. Getting rid of these costs on the system would put about $5 trillion in the pockets of consumers over the next ten years.

A recent book has made a serious guestimate as to the size of the underground economy. The author claims that three components--pornography, illicit drugs, and illegal labor--constitute a trillion-dollar economy, untaxed. The FairTax plan I propose would not legalize this activity, but would tax the recipients of the money when they spend it.

These listed economic problems will all be dealt with by bold, fundamental tax reform, like the FairTax. None will be dealt with by tinkering with our current system, which is--if you think about it--a flat-tax plan, 92 years later.

Rep. John Linder

Duluth, Ga.

RAMESH PONNURU REPLIES: Rep. Linder does not address the argument I put forward. A national sales tax cannot possibly win congressional approval. If it did, it would be an engine for the growth of government. If he has an example of a country where it has not been such an engine, I would love to hear about it.