LUGAR PROPOSES NEW TAX SYSTEM

Republican presidential hopeful Dick Lugartoday proposed eliminating federal income, capital gains and inheritance taxes and replacing them with a 17 percent national sales tax. The Indiana senator saidstates would collect the money, creating a simpler tax system by eliminating the IRS. Such a system would be regressive, however, since lower-income people spend more of their income in cash transactions. TIME Washington correspondent John Dickerson adds that another problem with the proposal is that retailers could find ways to avert the tax and there would be no national authority to catch them. Lugar contends much of the sales tax would be offset by price reductions because retailers would no longer have to pay corporate income taxes. The senator said there would be exemptions -- possibly for food, medicine and home purchases -- to protect low-income residents from loosing too much income to sales taxes.