Huckabee’s Fair Tax – A Burden on the Poor

One would need to purchase goods for this tax to work and if retail sales are falling, then this tax would do nothing to help bolster the economy or decrease our deficit. It could give a boost to an already thriving “black market”. Republicans – they love taking those “stupid pills” with their breakfast.

From The American Prospect

Huckabee’s Magic FairTax
Huckabee’s FairTax? Nothing of the sort. It’s just a grand sales tax with fuzzy math and a fancy name.
Ezra Klein | January 17, 2008 | web only

“When the FairTax becomes law,” Mike Huckabee promises, “it will be like waving a magic wand releasing us from pain and unfairness.” That’s quite a tax policy. I’ve always found sales taxes to be more like a magic wand imbuing me with lots of pennies, even though the sweater clearly said $25.95.

And let’s be clear. That is what the “FairTax” is. A sales tax. A big one. The magical tax fairy is going to float down from her wondrous revenue castle and, with a click of her enchanted rates calculator, eliminate all federal income and payroll taxes. But she will leave in its place a hefty sales tax affecting everything you purchase (save educational spending). For every dollar you spend, you will pay an extra 30-or-so cents in “FairTaxes.” It’s like the worst magic trick ever.

I say “30-or-so cents” because no one is exactly sure what the required rates will be. This gets a little tricky, so bear with me. The FairTax folks swear on a stack of bibles it will be 23 percent. But that calculation appears, impressively, to be both wrong and misleading. When most of us hear 23 percent taxation, we imagine paying a dollar and then being asked for 23 additional pennies, for a total of $1.23. Not the FairTaxers. They run their calculations as “tax inclusive,” which means they include the total tax in our hypothetical dollar. So they imagine the item costs 77 cents, then the shopkeep adds in their 23 cents of taxation, and then you divide that total dollar — which includes the added tax — by the tax rate, to get your 23 percent. But that’s not how we’re used to thinking of these things. If the total cost of your item is 77 cents, then adding 23 cents is a tax rate of 30 percent. So under the FairTax scenario, a dollar of goods would have you handing over 30 cents of taxes.

That’s the misleading part. The wrong part is that the FairTax proponents assume full compliance with the FairTax — no evasion, no black market in untaxed goods. To assume no shopkeep will ever sell a pack of cigarettes without adding and reporting the tax really does require a magic wand. It’s one thing to tout this plan as releasing us from “pain and unfairness.” But ending tax evasion? Why, that’s downright un-American!Additionally, the FairTaxers neglected to factor in that everything the federal government buy will now have a 30 percent sales tax on it, meaning spending will go up. On the flip side, they did factor in the increased revenue the government would derive from its own purchases, so it’s not as if they were unfamiliar with that aspect of their plan. The President’s Advisory Panel on Federal Tax Reform, however, took compliance and federal purchasing into account, and calculated that you’d need a 34 percent sales tax rate to achieve revenue neutrality. William Gale, Director of the Economic Studies Institute at Brookings, did the math and came up with 39.3 percent. However you slice it, it’s a hefty sum, and FairTax proponents are trying to underplay it.

Nor is the FairTax progressive in any but the loosest sense of the term. It would, to be sure, lower the tax burden on those making less than $24,000 a year. It would also lower the tax burden on those making more than $100,000 a year. Guess what happens to those in-between? The magical tax fairy waves her wand and increases their tax burden. That, apparently, is what FairTaxers believe to be unfair about the current system — it rests too lightly on the middle class. Indeed, in their own chart meant to sell the plan, they subdivide the country into income brackets, the highest of which is “$75,223 and up.” That bracket, then, includes a schoolteacher making $80,000, and it includes billionaires like Warren Buffett, and those making tens of millions a year, like the Yankee’s Alex Rodriguez. As they say, there are lies, damn lies, and then there are FairTax statistics. We live in a country where the top one percent of the country earned more than a fifth of all income in 2005. In that country, rich does not begin at $75,223. Indeed, in 2004, about 60 percent of Americans made between $25,000 and $100,000. I don’t know what you call raising taxes on the great middle, but progressive ain’t it.

Moreover, the FairTax doesn’t graduate its rates progressively (save for a complicated a minor “prebate” scheme that’s not really worth going into), it taxes proportionately. It levies the same rate across the income distribution, assuming that because 34 percent of millions is more than 34 percent of thousands, it’s progressive. But 34 percent of $50,000 a year leaves you with $32,500. 34 percent of $5 million leaves you with $3,300,000. The burden is not the same, even if the tax rate is.

The FairTax, in that way, is not very fair at all. Indeed, not only is it not fair, it’s not honest, not well-targeted, not well constructed, and not well distributed. But at it’s core is a worthwhile idea: Taxing consumption, rather than savings. It’s true that we spend too much and save too little, and we’d be better off bringing that a bit closer to balance. Saving and investing ensures appreciation of money, meaning that, in the long-term, we can spend and invest quite a bit more. There’s no reason not to set the tax system to encourage this. And there are actually progressive, fair ways to do so. Next week, I’ll talk about some of them.

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32 thoughts on “Huckabee’s Fair Tax – A Burden on the Poor

  1. A poor person will pay the same tax on a loaf of bread as a rich person. That’s not fair.

  2. Has any one here read “Free Lunch” by David Johnson, yet……In between posting and reading all my new’s alert’s last night saw an interview with Bill Moyers and David last night….Eye opening, have to get the book……Blessings

  3. Such a tax also puts a bigger burden on old folks as SS income is not taxed if outside income is below a certain level.

  4. A terrible idea…….Like all taxe’s once they start they never stop or decrese, just go higher….Dreadful..Walt and Cat’s you are correct on this one…..Blessings

  5. Was just wondering if bull shit plan’s on giving people on S.S. a chunk of cash..Not likely, but was wondering….You know like he is going to do for everyone else..I could use a give away just like the rest of the country….Oh and BTW is this another IOU from China or another IOU to the Social Security system?..Damn….Most day’s all this stuff coming down the pike make’s my head feel like it’s in the blender and the polatician’s just hit the puree button…..Blessings

  6. Great post, Cats.

    Fair Tax is just like the “Blue Skies Initiative” and “No Child Left Behind” — bullshit. It’s the worst sort of regressive tax.

    Here in Idaho, we have a terrible regressive tax — sales tax on everything, including food. So that mom trying to feed her kids on a minimum wage job pays the same tax rate on her groceries as Bruce Willis. Oh, but we get a $10 credit on our state tax form if we’re under a certain income level. That really helps…..not.

  7. Cat’s you are correct we need to survive another 366 day’s…Scary thing is this bunch of clown’s don’t want us to….Blessings

  8. It’s also unfair because it’s the poor and middle class who make the bulk of the purchases.

  9. OK, I guess you all are against the “Fair Tax”. Sorry, I am not as well versed in it as some of you so pardon this question, please.

    Isn’t one aspect of the “Fair Tax” plan to have a tax on New items such as cars, boats, etc., but no tax for purchasing a used similar item? Wouldn’t that shift at least SOME of the tax burden to the upper brackets and relieve the lower a bit?

    I know people that have more money tend to buy new vehicles more frequently and people with less are usually forced to buy used. Also it seems that it would reduce waste and pollutants by promoting “repair and reuse” vice “throw out and buy a new one”.

    OK, sorry, that was two questions.

  10. Hi hackerbob, I missed you!

    It’s great how you all come and join us again at The Zoo!

  11. thanks EV. Just popping in for a minute and this thread looked interesting. I have been lurking and have seen lots of great posts lately. Keep up the good work!!!

  12. Zooey,

    Yes, I read it earlier today and I am re-reading it now.

    This one article is not enough for me to formulate my overall opinion. I admit I need to do more research on it.

  13. I don’t know a lot about it either, Robert, but these “fair tax” schemes are regressive, and usually hurt those who need the most relief, while benefiting those with more money than they could ever spend in their lifetime.

  14. Zooey,

    I like the IDEA of taxing consumption. Those that have more tend to consume more (cars, computers, etc). Therefore they would pay more.

    An exception to this would be something like groceries. If there is an insistence on taxing groceries, then it may be worth while to investigate a “program” where those making less than $XX.xx would receive a “tax-exemption” card like we currently do with businesses like restaurants.

    Again, I am not recommending or endorsing a “Fair Tax” plan, just thinking through it.

  15. Zooey sez:

    There goes the dental floss market….

    No, Shayne and her friends can still use floss to get TRoS stuffing out of their teeth….

  16. Think all of us have been lurking today…I’m in the middle of doing dishes, chore’s and venting on TP…..Blessings

  17. I buy tons of floss. My teeth have been a little messed up since we thaught it would be a good idea to take a keg of beer to the low rim basketball court at our local elementary when we all kept in better touch and where home from various undergrad programs. Mortuary services and floss are the only industries I invest in

  18. Mortuary services and floss.? Damn…How do I address a post like that….One foot in the grave and hardley any teeth left…Gees, time to go back to the chore’s of the day…..

    It’s snowing here, Yike’s..North of Seattle is getting snow….Back to the DVD’s or a book….Blessings

  19. db, I guess you had to be there?

    Bob we determined TRoS isn’t really a teddy bear, just a lazy old hibernating bear. We still have to watch out for him. Glad you’re around.

  20. Oooh, I started reading Kite Runner today while my kid was at music. Makes me want to go back to it. Because she’s a SAG member we got No Country for Old Men and 3:10 to Yuma in the mail today for her to “review”. Looks like I could waste a lot of time today.

  21. The problem with these taxes are the wealthy don’t spend nearly as much of their income as less wealthy do. So the poor and middle spending 100% of their income to survive pay taxes on 100%. The upper middle save some that they don’t pay taxes on which isn’t so bad. But the very wealthy spend a very small percentage of their income, relatively, and so have large quantities of income, much of it unearned, that they pay no taxes on. So the big tax break goes to the wealthiest, again.

  22. I didn’t see Corporate taxes or Capital Gains taxes mentioned. Hummm… another free ride for the rich.

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