Tom Redburn - Huckabee’s Tax Plan Appeals, but Is It Fair? - New York Times
The big word out of Iowa is that evangelicals pushed former Southern Baptist pastor Mike Huckabee to the winner's circle. Indeed, Huckabee has received endorsements from several evangelical leaders, including many Southern Baptist leaders. But I have been concerned about reports that Huckabee raised taxes more than he lowered them during his 10 years as an Arkansas governor. I believe one reason republicans lost power in 2006 is because in the 12 years since the 1994 "republican revolution" they have betrayed financial conservatives. They promised to reduce the size of government and cut both taxes and spending. They have done none of the above. Southern Baptist preacher or not, I don't want another tax and spend republican headed to the oval office to give us more of the same. So in spite of his evangelical roots I would have a hard time supporting Mike Huckabee if....., if he were not supporting the FairTax.
I'll give a brief summary of the FairTax here. For more details and answers to your questions go to the official FairTax web site. The FairTax:
Eliminates all federal income taxes, both personal and corporate.
Abolishes the IRS.
Eliminates all payroll taxes, both social security and medicare.
Replaces these taxes with a 23% consumption tax on most items you buy.
Provides a "prebate" to every family each month, so that you pay no tax on life's basic necessities.
Because Huckabee supports this plan I could support him even without his Southern Baptist pastor roots, and in spite of the fact that he might have raised taxes too much in Arkansas. But his surge in the polls has brought about a lot of criticism of the plan in the media. I don't mind criticism, if it is honest and intellectually sound. But I've yet to find any substantive criticism that meets those criteria.
For example, in his New York Times column Tom Redburn says:
But the FairTax, as its many fervent backers call it, is not as simple as its supporters describe. And, to most tax experts who have looked at the proposal, it is anything but fair. For one, its burden would fall disproportionately on middle-income people.
I'm not sure how Mr. Redburn defines simple, but if we are going to compare the FairTax with the current Internal Revenue code, how could it NOT be much more simple than that? He may have a point that middle-income people would bear a disproportionate share of the tax burden. After all, the prebate would allow the poor to pay no taxes, and the rich could avoid taxes by choosing to spend less of their income. But this is a losing paradigm built on class envy. The fact is, that with the current system, the middle-income taxpayer already pays a disproportionate share of taxes, and the same taxpayer, though still paying a disproportionate share, would be better off under the FairTax. Would you rather have more money left after taxes, even though you are paying "more than your share"? Or would you be willing to have less after taxes so you can "soak the rich"? I think I'd rather have more spending power than more equity of tax burden.
But would you really have more spending power? Wouldn't a consumption tax cause the price of everything to go up? If you read Redburn's article he leads you to believe that everything is going to go up 30% or more with the FairTax.
It is not the same as a normal sales tax, however. Under the proposal, the tax is included first. That means a $100 item would cost $130, or 30 percent more. The plan’s supporters say that works out as a 23 percent rate because $30 is 23 percent of $130. Americans would no longer face federal withholding from their paychecks. But most analysts say the tax rate necessary to replace current federal revenues, under any likely plan, would actually need to be much higher. By some estimates it could add 40 percent, if not more, to the cost of living.
That would be a huge cost of living increase. Even if it were true, you'd be able to handle a lot of it with that prebate you are going to get to cover the basic necessities at the beginning of each month. Then there is also the nice bonus that you didn't have any federal taxes, medicare taxes, or social security taxes withheld from your paycheck. You get to stop worrying about the difference in gross and net pay, because you get to keep your whole check! (Yes, you may still have state taxes withheld, but I'm trying to keep this simple and just focus on federal taxes).
So even if Redburn is right, the prebate and the increased size of our paychecks would offset a lot of his supposed 40% cost of living increase. But the fact is that there will likely be little if any cost of living increase to begin with. That's because Redburn, like most critics of the FairTax, conveniently ignores the embedded taxes already included in the price of everything you buy. When you buy a $100 item Redburn says you will have to tack on another $30. What he doesn't tell you is that since the retailer, wholesaler, shipping company, and manufacturer no longer have to pay income tax, and no longer have to pay payroll taxes on their employees, they can now afford to sell that item for $77. Add another 30% to that $77 dollars ($23) and the item is back to $100. So now you got your $100 item for the same price it was before, plus your prebate, plus your whole paycheck. Wow, what a burden on the middle class!
I hope that clears up the 30% vs 23% thing too. The FairTax is inclusive, whereas most sales taxes are exclusive. In Georgia we have a 7% sales tax. So if I buy a $100 item, I pay an EXTRA $7 for a total of $107. But the FairTax doesn't add an extra $30 to raise the price to $137. With the inclusive FairTax, $23 of the original posted price was the tax! So in a state with no sales tax (though I don't know of any), you see an item priced at $100, you pay $100, and walk out of the store. The store keeps $77 and sends 23% of your $100 ($23) to the federal government. Yes, $23 is about 30% of $77, and so if you quote it like most other sales taxes, it would be a 30% tax. But it's not replacing another sales tax, it's replacing an income tax.
If I am in a 15% marginal tax bracket, and pay an additional 7.65% for social security and medicare, then I only get to keep $77.35 of each $100 I earn. The other $22.65 goes to the federal government. But we quote this as paying nearly 23% of our income in taxes, not as paying 30% of the amount we got to keep. That's why it makes more since to quote the FairTax as an inclusive 23% consumption tax rather than an exclusive 30% sales tax. It's about comparing apples with apples.
I'm not committed to any candidate for President yet, but I'm taking a long hard look at Mr. Huckabee and his FairTax. I hope you will at least give him a look.
