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UnFairTax

[ 23 ] November 30, 2007 |

Although I agree that the biggest beneficiary of the Huckabee surge is Rudy Giuliani, it now can’t be considered entirely impossible that Huckabee will get the nomination. Given this, it seems worth pointing out that his national sales tax scheme is completely insane. Beaudrot is especially good on the bait-and-switch that the plan represents:

Frustration with the complicated nature of the tax code is a reason to simplify the tax code, not to enact some crazy regressive tax scheme that would have the side effect of creating a massive informal market in untaxed goods. You could have an income tax that computed your tax liability based on a seventh degree polynomial that you could fill out on a post card, so long as the only input is “How much money did you make last year?”. Instead, our tax code asks you how much you made from working, which is treated differently from money earned from interest and dividends, which is treated differently from capital gains. And then we start asking how much you gave to charity, how much you spent on health care, how many kids you have, whether any of them are in college or require child care, whether you bought a hybrid car, etc. ad nauseum. In addition, all these nickel-and-dime deductions and credits end up forcing the government to increase its overall tax rate on the income that is taxable. It makes you have a lot of sympathy for the “broad base, low rates” position that used to be the mainstream position in the Republican party.

Right. As was true with Forbes as well, the trick is to conflate complex with progressive, when in fact the two are logically independent. You can greatly simplify the tax code without making it more regressive. And what’s really sad is that this crackpot plan won’t keep the Hair Club For Growth and other Republican business interests from trying to destroy his candidacy anyway. (Although I can’t wait for Huckabee’s next pandering ad with “celebrity” endorsement: “Hey, I’m Giuseppe Franco. I’m not putting my name on the line for a crank sales tax plan that doesn’t work!“)

Comments (23)

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  1. Mike says:

    Right. As was true with Forbes as well, the trick is to conflate complex with progressive, when in fact the two are logically independent.
    Thank you. I’ve been saying for years that this is the fundamental dishonesty of the flat tax, and this is the first time I’ve seen anyone mention it in print (or pixels.)

  2. McKingford says:

    By far the thickest book I had to buy for law school was the Canada Income Tax Act, which was about 5 inches thick – even though it had onion skin pages…In all, I think it was 1400 pages. I’m sure in the 13 years since it has grown much bigger.
    Instructive to your point is that of those 1400 pages, only 1 (!) was necessary to depict the calculation of basic income in Canada’s highly progressive (ha – not) tax code. Everything else dealt with what is or isn’t income, tax credits, deductions, depreciation, etc.
    So yeah, 99.99% of the tax code is devoted to things other than the progressive tax rate.

  3. Dan says:

    I’ve taken to calling it the Stupid Tax whenever it comes up in conversation.

  4. John says:

    Of course, Huckabee has absolutely no chance of passing his national sales tax plan, even if he ends up winning the election. Barring madness, the Dems will still control the House, and probably the Senate as well, and pretty much any crazy conservative legislation ought to be DOA.

  5. P J Evans says:

    I heard about this last night. My first reaction was “about fifteen minutes after it goes into effect, people will be doing business cash-only, off the books”.
    You know, for people who talk so much about ‘fiscal responsibility’, the GOP seems to be full of people who flunked Econ 101.

  6. mds says:

    Barring madness, the Dems will still control the House, and probably the Senate as well, and pretty much any crazy conservative legislation ought to be DOA.
    Yeah, thank God that “temporary” gutting of FISA was blocked, eh?
    Regardless, it’s poisonous to the continued functioning of our republic to have people out there pushing the fact that progressive income taxation is the root of all evil, especially for lower- and middle-income Americans. Abolishing the IRS sounds great, even though the result would either be a ~40-50% sales tax, or a continued draining of the Treasury. We’ve got to break out of the mindset that asserts “government is the problem” (despite its correctness when Republicans control the government), and encourage the attitude of promoting the general welfare that so many seemed to believe in prior to the Nixonian Theory of Misgovernment. Simply dismissing the same mendacious, dangerously seductive pseudo-economics because “it’ll never get enacted” continues to cede ground to its adherents.

  7. MDS, you win the car!
    The fact that what they’re arguing for would destroy the capacity of government to accomplish any of the things it’s meant to do IS the point. Not whether they can achieve it at this time.
    The Overton Window is jammed open and the stupid blows over the sill at a rate of 3 pounds per second, every second that these crazy suggestions go unchallenged.

  8. ewan says:

    Liberals don’t like the sales tax idea because when they raise taxes, joe sixpack will know it the next time he buys anything. Not good for those who wish raise taxes.
    In Europe, the VAT tax is popular as they the socialistic governments can hide the tax. Herr Sixpack doesn’t know what percentage of what he pays for items is tax.

  9. First, is the FairTax more regressive than the current system?
    The effective tax rate percentages, that different income groups would pay under the FairTax, are calculated by crediting the monthly “prebate” (advance rebate of projected tax on necessities) against total monthly spending of citizen families (1 member and greater, Dept. of Commerce poverty-level data; a single person receiving ~$200/mo, a family of four, ~$500/mo, in addition to working earners receiving paychecks with no Federal deductions) Prof.’s Kotlikoff and Rapson (10/06) concluded,

    “…the FairTax imposes much lower average taxes on working-age households than does the current system…
    “Consider, as an example, a single household age 30 earning $50,000. The householdis average tax rate under the current system is 21.1 percent. Itis 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax.”

    Further, per Jokischa and Kotlikoff (circa 2006?)

    “…once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there’s a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent.”

  10. Now, what about Bruce Bartlett’s (Forbes’s, Giuliani’s) “Flat” tax? Problems? Well, Giuliani used to be dead set against it. I guess he re-embraced it because it would bring Forbes to his team, and he needed a tax reform plan, and he just couldn’t get his mind around the FairTax. However, Dan Mastromarco plainly tells us the the “flat” tax is really a VAT! and it’s clearly inferior to the FairTax.

  11. DocAmazing says:

    Ian, Ewan–
    Don’t bother. The people who read this blog are capable of understanding arithmetic. Try selling your wares to Freepers.
    BTW, Ewan, when I buy catalog items from Belgium and Germany (bike parts, in the main), they very clearly indicate what portion of the puchase price is VAT and what’s list price. Kinda like we poor benighted Californians knowing the pre-sales-tax price and the post-sales-tax price. Gotta remember, Ewan–not everybody’s as…special as you are.

  12. There’s a whole lotta interest in FairTax. It’s simply getting the information out there, boys and girls.

  13. Matt Weiner says:

    If the best argument for the national sales tax is “It’s better than the Steve Forbes tax plan!” then we can rest easy. (Though I’m pretty sure that it is not in fact better.)

  14. ewan says:

    There’s a whole lotta interest in FairTax. It’s simply getting the information out there, boys and girls.
    —-Ian from Ann Arbor
    Thanks, Ian, for the link. I have sent this to everyone I know. I’m sure this is letter is not comfortable to those oppose the fair tax.

  15. VoiceFromTheWilderness says:

    As with most political discourse the whole issue is entirely enveloped with obfuscation.
    The tax code is complicated because rich people pay accountants, lawyers, and politicians mucho dinero to make it possible for them to weasle out of placing even larger amounts of money into the public coffers. Any ‘debate’ about any so called flat tax (whether sales or income) that fails to address exactly how passing this great and glorious solution to all problems, is going to prevent rich people from behaving in precisely the same way in future is an obvious and complete waste of time.
    2nd: if these flat tax proposals are so great and glorious, why are they only promulgated by rich people?
    3rd: Exactly how naive can you be to believe that you are just going to abolish the entire tax preparation/accounting industry by electing some goon? Talk about delusional fantasies, and lack of understanding of the real world.
    All of these flat tax proposal are a fascinating example of one powerful force (rich people) going up against another powerful force (entrenched bureacracies).
    Quite entertaining, and absolutely guaranteed never to be resolved.
    Hold firm to your faith little republican — some day you can be a tool too!

  16. VoiceFromTheWilderness says:

    I forgot: The other hilarious part about the sales tax idea when promulgated by so called ‘free market capitalists’ (what a crock) is that in order to believe that a sales tax is a good idea you have to believe that sales tax isn’t going to affect buying and selling — that the law of supply and demand has been revoked.
    It is absolutely fabulous to watch a Republican candidate run on a platform whose number one consequence would be a reduction in sales. Lets see, 75% (or there abouts) of the US economy is consumer purchases, so 75% US businesses will be hurt by this brilliant innovation.
    It thus logically follows that republicans will support it. Why? Because they are a bunch of raving lunatics who don’t have the slightest clue about logic, or truth, or governing.
    For the rest of us: Rest assured this sales tax idea will never come to pass. Don’t waste time on it, rather enjoy it for what it is: a spectacle of republican stupidity and naivete in full flower. Watch, marvel, thrill as republican lunacy combats with republican lunacy. Which lunatic is most lunatic of all?

  17. Help me out here, VoiceFromTheWilderness: Are you saying that the present income tax system is not a bigger lunacy than the proposed FairTax?
    BTW, it was the Dems that instituted the Fed Reserve and Income Tax acts. Oh, those wonderful “for the People” types. And it was that erudite Dem President, former President of Princeton, Woodrow Wilson, who would later see the light of what his signature did to destroy the freeholder spirit in America (3:42 into link above),
    “I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is now controlled by a system of credit. We are no longer a government of free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”

  18. Matt Weiner says:

    OK, folks, there are probably better things to do than arguing comparative lunacy with someone who cites tax protester arguments (and quotes that are probably made up).

  19. “If the best argument for the national sales tax is “It’s better than the Steve Forbes tax plan!” then we can rest easy. (Though I’m pretty sure that it is not in fact better.)
    –Matt Weiner”
    PART I
    (Paraphrased) Reply by Dan R Mastromarco (LL.M., Taxation, Georgetown, principal in the Argus Group, adjunct professor at the University of Maryland, International Management Program, and research consultant to Americans for Fair Taxation – FairTax.org) to:
    “A National Sales Tax Doesnit Add Up” by Bruce Bartlett, December 29, 1999
    Many engaged in true tax reform find Bartlett-type attacks exasperating, if not embarrassing. I’d like to convey perspective of both flat taxers and sales taxers who believe that such attacks are counterproductive, but first provide some political history by which to frame said perspectives.
    For years Conservatives have posited that a VAT is bad policy (when liberals were discussing it), fearing it would become additional to an income tax (it was called a “money machine”). Circa 1980, conservative intellectuals touted Hall-Rabushka “subtraction method”[ H-R ] VAT which taxed business value added at the business side and labor value added at the labor side. Unlike European VATs (identical in scope), H-R became favorite of Dick Armey and Steve Forbes. It eliminated steeply progressive tax rates and tax on savings. Because of the prior VAT criticisms, H-R was packaged as the “flat tax” and is sold as an income tax to this day, rather than the VAT that its DNA characterizes it as being.
    Some conservative commentators have called for the repeal of the 16th Amendment and for the adoption of the flat tax, (despite the fact that it is styled as a direct tax and could not be adopted with such repeal). Mr. Bartlett has called the national sales tax [ie, the FairTax] a VAT (which it isn’t), castigated VATs as evil, and has said that sales taxes have become VATs in Europe (which they didn’t). In the next breath, he “throws his arms around” the flat tax (which is a VAT). He quotes Bill Gale that the [FairTax] would have to be imposed at 60 percent, but glaringly fails to recognize that if the two bases are the same, he would have to impose that rate for the flat tax to be revenue neutral. In truth, all economists know that the two plans differ NOT in economic effect or base, but in administration.

  20. “If the best argument for the national sales tax is “It’s better than the Steve Forbes tax plan!” then we can rest easy. (Though I’m pretty sure that it is not in fact better.)
    –Matt Weiner”
    PART II
    An income tax taxes savings and investment multiple times. Both flat tax and FairTax are neutral as to savings and investment, tax income only once, and are both consumption taxes. Both are single rate taxes, have nearly the same base, and would improve the U.S. standard of living. Neither redistributes wealth.
    While some have even suggested that hey are the same plans under different names, the flat tax taxes value added at each stage in the production process, but the FairTax prefers to tax it when it is added up at the end and eliminate the need to make everyone a taxpayer and collector.
    Substantive commonalities between the flat tax and FairTax doesn’t mean that there are NO key political and policy distinctions that could be exploited in pitting one against the other. If FairTax supporters wanted to retaliate in response to the Bartlett-type critique, they would have much material with which to honestly do so:
    i The flat tax will make small firms and farmers pay the tax even if they have no profit
    i The flat tax is opposed by many small business groups
    i The flat taxers implicitly support big government by disguising even more of the overall tax burden as the current law
    i The flat tax has been kicking around for nearly 20 years
    i The flat tax makes everyone a taxpayer and collector, while the FairTax exempts 115 million filers [2000 figure] from ever having to deal with the IRS
    i The flat tax is regressive, but the FairTax would enable everyone to keep his full paycheck.
    i The flat tax has not only stalled, it has lost public and Congressional support.
    i The FairTax is instantly understood, while even some proponents of the flat tax donit understand it
    i There are no transition rules developed for the flat tax and they would be very difficult to craft
    i The flat tax taxes exports and relieves imports from tax
    i The flat tax confuses tax reform with temporary tax reduction and makes both twice as hard
    i The flat tax retains the entire income tax apparatus which erodes as quickly as you can say, itax billi

  21. “If the best argument for the national sales tax is “It’s better than the Steve Forbes tax plan!” then we can rest easy. (Though I’m pretty sure that it is not in fact better.)
    –Matt Weiner”
    PART III (end)
    FairTaxers could advance these truthful points without resorting to bigotry associated with a cultic religious organization. However, for the most part, FairTax supporters have chosen not to attack the flat tax, but rather accentuate the commonalities between the plans – despite the above-noted differences. The reason is that, in the battle for tax reform, the real enemy is our current system.
    Income tax advocates look down upon the articles of Bruce Bartlett with smug chortling, as Bruce is doing their work for them. The IRS and the liberals who want an income tax to ensure (1) taxes can be raised without the American people knowing it, and (2) wealth can be redistributed from the middle class to the poor, do not even need to fight us – we’re killing ourselves!
    Perhaps Mr. Bartlett believes that the flat tax will help elect Republicans, effect tax reform, and provide tax cuts; however, the real effect of his criticism is to divide conservatives, to delay serious national consideration of tax reform, and to fertilize the roots of the income tax.
    ( Source May republish in whole or part. – Ian)

  22. Matt Weiner says:

    And, that, folks, is why I shouldn’t have poked Ian. Sorry. (Though somewhere in there he does make the point that his favorite proposal is designed to prevent the government from helping poor people.)

  23. mds says:

    And, that, folks, is why I shouldn’t have poked Ian. Sorry.
    ‘Sokay, Mr. Weiner. Somewhere in Ann Arbor, Ian is enjoying a cigarette, and I’ve got the Greasemonkey “killfile” script installed. So he’s happy, and I’m happy. Plus, I apparently won a car.

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