Bruce Bartlett Isn't Fair
David Weigel | August 27, 2007, 4:30pm
In the
Wall Street Journal he picks apart the Fair Tax like a hungry vulture come upon an abandoned skeleton depot:
State sales taxes have long exempted all but a few services because of the enormous difficulty in taxing intangibles. But the FairTax would apply to 100% of services, including medical care, thus increasing their cost by 30%. No state comes close to taxing services so broadly.
Consumers would also find themselves taxed on newly constructed homes. Imagine paying 30% to the federal government on top of the purchase price of your next house.
Since sales taxes are regressive--taking more in percentage terms from the incomes of the poor and middle class than the rich--some provision is needed to prevent a vast increase in taxation on the nonwealthy. The FairTax does this by sending monthly checks to every household based on income.
Aside from the incredible complexity and intrusiveness of tracking every American's monthly income--and creating a de facto national welfare program--the FairTax does not include the cost of this rebate in the tax rate. As noted earlier, the FairTax is designed only to match current revenues and does not cover any increased spending that it may require. Since the rebate will cost at least $600 billion the first year, either federal discretionary spending would have to be cut by 60% or the rate would have to be five percentage points higher than advertised.
Also, a funny thing about the Fair Taxers propelling Mike Huckabee to (de facto) victory in Iowa... Huckabee doesn't really support the Fair Tax. He says he does, but when you ask him about taxes he starts rapping about "the four Fs" - flatter, fairer, finite, and family-friendly. He wants to scrap income taxes while maintaining some kind of progressivity and regulatory system making sure taxes serve a social function. That's not really the Fair Tax.
Bartlett's done a good job analyzing the tax, but lot of the Fair Tax's appeal is to angry, populist, Buchanan-ish Republicans who hold the Wall Street Journal in equal esteem with Pravda and Black Inches (arguably NSFW), so I doubt this'll have much impact.
Bartlett's reason archive is here.
(Via Ramesh Ponnuru)
Bill Woolsey | August 28, 2007, 7:56am | #
The most plausible scenario for a fair tax is that the gross price that buyers pay for consumer goods would rise about 30%. Their net (after tax) incomes would increase about the same (because there is no income or federal payroll taxes.)
However, it all depends on monetary policy--that is, what the Federal Reserve chooses to do about it.
If the Federal Reserve acts to prevent gross prices from rising (or from a quantity theory perspective, faills to act in a way that would let those prices rise,) then net prices (what the sellers set and what they receive) would fall about 23% or so, leaving the gross prices unchanged. But that would also require that gross incomes be reduced (pre-tax incomes) so that they are roughly equivalent to todays take home pay.
In other words, your employer would give you a pay cut, so that your pay check would remain about he same.
I think this scenario is very unlikely. So, as I said above, the most likely scenario is little change in gross pay, with net pay rising because of the aboltion of verious federal taxes. And then, an increase in gross prices by 30% and pre-tax prices being little changed.
The efficiency gains would, in the long run, result more rapid increases in incomes. The most likely scenario is that prices (pre and post tax) would continue to rise at a low rate--which is what the Fed is trying to do.
Some advocates of a fair tax count twice. Higher after tax incomes because no taxes and lower prices because the taxes are competed away. No... it won't be both.
piperTom | August 28, 2007, 11:20am | #
Yesterday, MP answered the question about how "a fixed percentage, across the board, qualify for 'taking more, percentage wise,' from the poor?" The "obvious, common sense" answer: "Because they spend a higher proportion of their income on taxable consumables."
Besides being obvious and common sense, this answer is plain wrong!
Consider what the Odious Rich do with their "excess" income. Basically, the choices are (a) give it away, (b) invest it, and (c) keep it forever and ever, not even letting the heirs spend it. Choice (c) is silly; no one ever does that. If they did, it would still be the same as choice (a), a gift to the economy in the form of reduced inflation.
So what about choice (a)? We don't tax it today, so the question is a non-issue relative to the FairTax. Also, one would assume that the beneficiaries would spend it, so a FairTaxing government would get its cut anyhow.
We're down to (b), investment and presumed growth of the unspent, excess income. It's unspent until... when? Until retirement? Then it's spent and taxed. Until the spendthrift heirs get it? Then it's spent and taxed. Until the second generation of spendthrift heirs ... no matter! As long as none of 'em spend it, it's the same as choice (c), a benefit to society generally. High income types can shift their spending to a later time; that's the only difference.
Let's not perpetuate the myth that the Odious Rich don't spend their money. Everybody spends their money, one way or another.
Ian | August 30, 2007, 10:15pm | #
Huckabee is all about calling his listeners to "do something," to awaken them to their own empowerment, and
summon them to action in order that "Main Street," and not "Wall Street," will prevail in guarding the values and beliefs upon which the Republic was founded.
Huckabee puts his listeners at ease, and reassures them, articulating clear concepts in a natural, easy style (no doubt something well-cultivated as a pastor). He’s not angry or demanding, like a Ron Paul, nor is he as “rigidly-scripted” as Romney, and his large brown eyes peer through a humble demeanor, drawing a striking contrast to a somewhat mechanical-squinty Brownback.
One can easily imagine sitting comfortably with this man over a cup of coffee at the Main Street Cafe.
Huckabee's former advocacy of the FLAT tax has succumbed to a saner consumption approach.
He is ONE with the FairTax grassroots movement. While many - like Romney, and others, who are invested in the current income tax system - seek to
demagog the well-researched FairTax plan, its acceptance in the
professional / academic community continues to grow. Renown economist Laurence Kotlikoff believes that failure to enact the FairTax - choosing instead to try to "flatten" what he deems to be a non-flattenable income tax system - will eventuate into an
irrevocable economic meltdown because of the hidden aspects of the current system that make political accountability impossible.
Romney's recent WEAK response to FairTax questioning on “
This Week with Geo. Stephanopoulos” drew a sharper contrast between Huckabee and all other presidential front-runners who will not embrace it. Huckabee understands that what's wrong with the income tax can't be fixed with "a tap of the hammer, nor a twist of the screwdriver."
That his opponents cling to the destructive Tax Code, the IRS, preserving political power of granting tax favors at continued cost to - and misery of - American families, invigorates his campaign's raison d'etre.
Of the FairTax, Huckabee asserts that it's...
• SIMPLE, easy to understand
• EFFICIENT, inexpensive to comply with and doesn't cause less-than-optimal business decisions for tax minimization purposes
• FAIR, FLAT, and FAMILY FRIENDLY, loophole-free, and everyone pays their share
• LOW TAX RATE is achieved by broad base with no exclusions
• PREDICTABLE, doesn't change, so financial planning is possible
• UNINTRUSIVE, doesn't intrude into our personal affairs or limit our liberty
• VISIBLE, not hidden from the public in tax-inflated prices or otherwise
• PRODUCTIVE, rewards - rather than penalizes - work and productivity
A detailed benefits analysis of the plan (from The FairTax Book) explains Huckabee's ardent advocacy:
FOR
INDIVIDUALS:
• No more tax on income - make as much as you wish
• You receive your full paycheck - no more deductions
• You pay the tax when you buy "at retail" - not "used"
• No more double taxation (e.g. like on current Capital Gains)
• Reduction of "pre-FairTaxed" retail prices by 20%-30%
• Adding back 29.9% FairTax maintains current price levels
• FairTax would constitute 23% portion of new prices
• Every household receives a monthly check, or "pre-bate"
• "Prebate" is "advance payback" for monthly consumption to poverty level
• FairTax's "prebate" ensures progressivity, poverty protection
•
Finally, citizens are knowledgeable of what their tax IS
• Elimination of "parasitic" Income Tax industry
• NO MORE IRS. NO MORE FILING OF TAX RETURNS by individuals
• Those possessing illicit forms of income will ALSO pay the FairTax
• Households have more disposable income to purchase goods
• Savings is bolstered with reduction of interest rates
FOR
BUSINESSES:
• Corporate income and payroll taxes revoked under FairTax
• Business compensated for collecting tax at "cash register"
• No more tax-related lawyers, lobbyists on company payrolls
•
No more embedded (hidden) income/payroll taxes in prices
• Reduced costs. Competition - not tax policy - drives prices
• Off-shore "tax haven" headquarters can now return to U.S
•
No more "favors" from politicians at expense of taxpayers
• Resources go to R&D and study of competition - not taxes
• Marketplace distortions eliminated for fair competition
• US exports increase their share of foreign markets
FOR THE
COUNTRY:
• 7% - 13% economic growth projected in the first year of the FairTax
•
Jobs return to the U.S.
• Foreign corporations "set up shop" in the U.S.
• Tax system trends are corrected to "enlarge the pie"
• Larger economic "pie," means thinner tax rate "slices"
• Initial 23% portion of price is pressured downward as "pie" increases
•
No more "closed door" tax deals by politicians and business
• FairTax sets new global standard. Other countries will follow
While passionately supporting FairTax, Huckabee understands that, if elected President, Congress will have to present the bill for his signature. His call to action goes beyond his candidacy, Main Street will have to
demand that their legislators deliver the bill.
