As Huckabee rises, the FairTax follows
For years people like me have been spreading the word about the FairTax on the grassroots level. The result is that support for replacing the federal income tax with a national consumption tax is broad and deep – especially among the politically engaged. However, until Mike Huckabee came along there has not been a national figure of import who strongly supported the FairTax and understood why it would help this country dramatically.
Gov. Huckabee’s rise in the polls correlates with increased scrutiny and attacks. And the same goes for the FairTax since it is a cornerstone of his campaign. So naturally journalists who have never heard of the FairTax or who have a political ax to grind are attacking it. The attacks are typically formulaic and betray a serious deficit of understanding of the FairTax, which is regrettable since it is FAR easier to understand than the income tax. There are also individuals who have long pledged or hinted at their endorsement of one of the other (former) front runners and are troubled by Huckabee’s rise. These are conservative columnists who, until now, have been receptive or at least indifferent to the FairTax, but now are so desperate to tear down Huckabee that they are attacking a policy position he holds that they would normally agree with (especially if their candidate of choice supported it).
It has opened my eyes to the lack of conviction amongst those guilty of writing hatchet pieces out of spite for a single advocate rather than a genuine dislike of the proposal. I’ve personally lost a great deal of respect for James Taranto of the Wall Street Journal. He is an admitted pro-Giuliani writer who has engaged in a rash of genuinely sophomoric attacks that are well below his normal standard, apparently as an attempt to (unsuccessfully) build a protective hedge around his preferred candidate.
The first thing everyone trots out when they attack the FairTax is the tax rate. Is it 23% or is it 30%? Then comes other predictable questions and allegations. It will cause black markets to flourish. It will kill the housing market. Who will administer the tax? It isn’t politically feasible. Yada, yada, yada.
I’ve personally addressed nearly any question you can think of here if you care to take the time to look through the FairTax category. I’ve seriously thought about making a flip book so that when someone starts plowing through the standard questions I can just silently flip to the appropriate page. If I haven’t addressed your particular concern in the past then I would be more than happy to give it a shot.
The good news is that the attacks against the FairTax have been used before against politicians who support the bill. In some early races those politicians lost or had to temper their support. But in recent years the support has become broad enough and individuals have become educated enough to fend off the expected attacks.
The most important thing to keep in mind while evaluating the FairTax is – well – nothing. Keep your mind open. Don’t fall victim to the “devil you know” argument. The FairTax can’t be judged in a vacuum; it must be contrasted with the system we currently have. Pretend that there was no federal income tax today, but due to an insatiable appetite for spending our government had to find additional revenue. Two options were given to the people: an income tax and the FairTax.
Politician A takes the stage to explain why you should choose the income tax. As he strides towards the lectern you eye the large men who follow closely with stacks of filing boxes on dollies. He proceeds to tell you how his plan is to force every family, individual, and business in the country to fill out detailed, extensive paperwork, exposing your most intimate financial information to the government. He points to the aforementioned boxes and casually mentions that the 50+ thousand pages within provide all the instructions you’ll need to insure compliance. He can hardly control his joy as he lectures you about all of your undesirable choices and how the malleable code will give him and his ilk considerable leverage over how you live your life. For some reason, a faint smirk creeps onto the faces of all of the wealthy men and women – the tycoons of industry – in the room. They see a lush opportunity where well financed lobbyists can ply the legislators with food, drink, and pleasurable activities in order to gain favorable treatment. The politician, noticing your alarm, attempts to assuage you by noting that there will actually be many types of income taxes and the individual rates associate with each one will seem quite reasonable. Alas the politician underestimated you and presumed that you couldn’t perform the simple math necessary to realize that all of those different low rate taxes added up to a lot of money. Politician A makes a last ditch effort to win you over and suggests that instead of a once a year payment when the taxes are due he will arrange a prepayment plan where he takes more than is necessary from every paycheck and then at the end of the year (after you fill out the gobs of paperwork) he will graciously refund you the difference – without interest of course.
After watching Politician A get booed off the stage, Politician B stands before the crowd. He proposes a simple plan, one that will raise as much revenue as that proposed by Politician A, but without a heavy burden on your life. He pulls a svelte binder out of his briefcase and explains that his plan is defined in full between its covers. The plan calls for a single rate tax to be applied just once to all new goods and services. Unlike his competition’s plan, this consumption tax doesn’t increase the cost of American exports and put products made in the USA at a disadvantage around the world. He admits that his plan has no levers that can be used to manipulate the actions of the free people in this country. The lobbyists in the room – already on their third celebratory drink after hearing Politician A – suddenly become very quiet. They strain to figure out how to find loopholes in this plan. Politician B pulls a small card with a few blanks out of his pocket and announces that it represents the sum total of all the paperwork that individuals in the country will have to complete. Someone in the room complains about the poor bearing the brunt of the tax, to which the politician coolly announces that not person in the country will have to pay taxes on the essentials of life. The lobbyists, hoping to have their client’s products categorized as an “essential of life,” begin to perk back up. Their joy is short lived as the politician continues that his plan includes a monthly “prebate” equal to the amount of taxes a poverty level family would pay if they spent all of their money on taxable items. As the smattering of applause crescendos into a thunderous cacophony Politician B confidently exits the stage.
Now that might be a bit dramatic, but I think it is a fair representation of how the two tax systems would be received if they were laid out as choices. The only difference is that the income tax has been around for a little under 100 years and people are familiar with it. Don’t let the familiarity cloud your judgment.
I would be remiss if I didn’t point out that here in Alabama proponents of rewriting our constitution constantly scold others for blindly trusting “the devil you know.” Ironically, some of those same people seem eager to rush to judgment against the FairTax because they perceive it as an ideologically biased piece of legislation. At least in the case of the FairTax you can take the time to read the copious research and debate the intricacies of the bill if you are so inclined. In the case of rewriting the constitution there is no given as to what it will look like after being rewritten. It is a true unknown and much more worthy of skepticism than a plan that is in writing and can actually be evaluated on its merits.
The Senator noticed my Fairtax sticker Saturday and commented “There is another fair taxer!”.
He didn’t mention the button I had on right beside it though. haha
I followed Taranto’s critique of Boortz’s explanation of how the Fair Tax works and it seems to me that he makes a valid point. If Boortz did indeed state that a one dollar price consists of 77 cents for the actual product and 23 cents for the fair tax, that is a 29.87 percent tax rate, not a 23 percent rate.
I’m by no means an expert on the Fair Tax but it seems to me that, if the Fair Tax rate is 23 percent, it would be better to say that a $1.23 price consists of $1.00 for the product and 23 cents for the tax. Or, a $1.00 price consists of 81.3 cents for the product and 18.7 cents for the tax.
A problem I have with the Fair Tax is this: I accumulated a significant amount of savings (for me) during my working years for which I have already payed income taxes. Now if we switch to the Fair Tax it looks like I will have to pay taxes on it again if I spend any of that money.
Here’s my problem with Taranto on this topic:
He was in the audience a couple of years ago when Boortz debated a Yale tax professor at a NY university. He walked with Boortz to a restaurant and dined with him – talking about the FairTax all the while. Taranto knows the particulars of the FairTax. He is picking nits on how the rate is expressed (I actually agree with Taranto on the point) in order to denigrate Huckabee by disparaging the FairTax. The FairTax people choose to express the tax rate in the same manner as income taxes for comparison purposes: on an inclusive basis. Sales taxes are generally expressed on an exclusive basis. It is little more than semantics, but I believe that it looks deceptive even though knowledgeable advocates explain the rate in a forthright manner (they didn’t ask me, though).
Also, Taranto intentionally mis-characterized (remember, he knows better) the fact that the FairTax will ensnare participants in the underground economy. He put words into Huckabee’s mouth by asking whether he really thought pimps and drug dealers would collect and remit taxes to the government for their illicit services. I don’t know a single FairTax supporter who has ever suggested such a thing, but Taranto trumps it up as though it is a common belief. The fact is that those individuals will continue to purchase items and as such will finally start paying directly into federal coffers.
Your last point is the most valid argument against the FairTax, but is only partially true. The FairTax will replace both personal income taxes, but also corporate taxes and payroll taxes. With the income tax you’re still going to effectively pay those corporate and payroll taxes with your saved money when you purchase items. I personally believe that moeny in the bank on day one will have slightly diminished purchasing power due to the personal income taxes though.
Like I said, this is the most valid complaint. I have some modest savings (I’m still a young fellow), but when I lay out the pros and cons of each system the extensive pros of the FairTax outweigh the equally extensive cons of the income tax.
On the whole I’m a fan of the Fair Tax. At least I won’t have to pay income tax on the earnings from my savings. But the advocates need to stop using the 77/23/100 example and calling it 23 percent; that’s just dead wrong.
Agreed. They (they being the ones who started Americans for Fair Taxation) didn’t ask me, though!
Freely admitting that I am not well-versed on how the Fair Tax would work and affect me and others, from what I do know about it I would guess that it would be a momentous improvement over our present income tax system.
That said, I believe that an even better proposal is that put forth by presidential candidate, Texas Congressman Dr. Ron Paul, to just downsize our bloated government with all of its “Nanny State” appurtenances and do away with the IRS and the income tax altogether.
As you know, Don, I am a Paul supporter. I like to tell people that he supports the Fair-est Tax – no income tax! I would abandon my plea for the FairTax immediately if Paul were to win and ditch the income tax, but I like to keep a couple of irons in the fire.
Let’s not stray too far from the FairTax Bill regarding the 23% rate. A requirement of the bill is that 23 cents tax out of every dollar spent on new goods and services be collected at the point of sale. The income tax requires that every dollar earned has a percentage tax taken from it to satisfy the law. Both of those tax collection methods are considered inclusive. The tax is included in the total price or total wage. Apples to apples, so to speak. So, the 23 cents is contained in each dollar spent, resulting in the fact that 77 cents of every dollar is the cost of the product itself. Further, 23 cents is 23 % of each dollar spent. If you insist on calculating the tax exclusively, and thereby changing the requirement that the FairTax be inclusive, then you must use the cost of the product, 77 cents times 29.87 % to find the tax, which of course is 23 cents. Either way, the tax is 23 cents out of every dollar.
And Brian, another way to explain gainers and losers is that everyone gets a break by not having to pay the embedded taxes cascaded into the price of everything we buy today. The folks with post-tax savings, etc., are the only ones that will lose anything, but they will be better off under the FairTax by not having to pay the embedded taxes. Those of us who saved pre-tax (another little tweak of the income tax law along the way) will receive a “windfall” break from taxes through HR 25 / S1025, depending on how much we’ve saved, of course!