Huckabee Tax Plan Would Be A Disaster!

Tax Policy Center ^ | 1/17/2008 | Leonard E. Burman

[papasmurf]

Marketplace, January 8, 2008—Mike Huckabee is right that our tax system badly needs reform. But his proposed plan, the FairTax, would be a disaster.

Sure, the FairTax sounds great. Dump all current federal taxes. Abolish the IRS! And replace them with a simple 23 percent national sales tax. Every household would get an annual "prebate"—Free money!—to help them handle the tax.

Only problem is that it really is just too good to be true.

First, there's fuzzy math: Say you buy something for $10 and $3 is added to the price. That sounds like a 30 percent sales tax, but FairTax promoters say that $3 is only 23 percent of the final price of $13. Yeah, sure.

And the 30 percent tax rate wouldn't come close to paying for current government services. Fairtaxers assume the government will pay sales tax on everything it buys. But unless Lockheed Martin just eats the $9 million tax on a $30 million fighter jet, the extra cost will just be passed on to the taxpayers. In fact, everything government buys would cost more. And states certainly wouldn't just roll over and let the federal government tack 30 percent onto all their purchases.

Tax rates this high invite cheating. A whole new underground economy would appear overnight. Why pay 30 percent tax on an item that you can get on the black market tax-free?



And the tax would hammer the middle class. Think about it. The prebate protects those with low incomes. People with high incomes only spend a fraction of their income, so they get a huge tax cut. But middle-class people end up holding the bag. The president's tax reform panel estimated that replacing just the federal income tax with a national sales tax would boost middle-income tax bills by $5,000-- and that's after the prebate!

The FairTax isn't fair. It isn't even feasible. Let's move on to real tax-reform ideas.

Leonard Burman is director of the Tax Policy Center. Contact him at feedback@ui.urban.org. Author(s): Leonard E. Burman Published: January 08, 2008

The views expressed are those of the authors and should not be attributed to the Urban Institute, its sponsors, staff, or trustees

[papasmurf]

To be honest, I was a supporter of the Fair Tax plan. I donated to help advance the plan. As well, I gave to Hermain Cain's Senate bid. (still love Hermain, though!)

Having looked at the Flat Tax Plan and FRed Thompson's Plan the best I can, I see the problem with the Flat Tax is that is assumes a "static" revenue stream, and FRed's assumes a "dynamic" revenue stream.

Well, guess what? The Federal revenue IS "dynamic", and right now, it's VERY "dynamic". This guarantees that the Flat Tax Plan will leave us with a huge deficit, if it is not revised to a higher rate.

According to the experts, as reported by factcheck.org, it would have to be somewhere in the 34-39% range to work. And at that rate, my FRiends, the only thing that would be Flat...is my wallet!

Obviously, the "proof is in the puddin'", and we are the "puddin". So, what say you?

[gruna]

It’s a stupid idea.

[wastedyears]

Why the heck does everybody call it “Huckabee’s tax plan?”

[counterpunch]

the worst part of the so-called Fair Tax is this “pre-bate” which is a monthly rebate from the government covering the increased cost of living.
So basically, every man, woman, and child in America would have their very own EBT (government welfare benefits) card!
It would create a huge new entitlement program that every American citizen would be enrolled in.

And the congress could much around with the amount of the rebate. Perhaps the “rich” would get their rebates cut off, while the “poor” would begin receiving say, a $5,000 rebate every month. Or maybe you’ll lose your rebate benefits if your lifestyle doesn’t meet certain Green Standards...

This is a backdoor to socialism and nanny-statism.
No wonder Huckabee supports it.

[Sloth]

The FairTax would still be a massive improvement over the current system, if for no other reason than putting the taxes people pay in front of their faces instead of hiding them in income withholding, etc.

[counterpunch]

the worst part of the so-called Fair Tax is this “pre-bate” which is a monthly rebate from the government covering the increased cost of living.
So basically, every man, woman, and child in America would have their very own EBT (government welfare benefits) card!
It would create a huge new entitlement program that every American citizen would automatically be enrolled in.

And the congress could muck around with the amount of the rebate. Perhaps the “rich” would get their rebates cut off, while the “poor” would begin receiving say, a $5,000 rebate every month. Or maybe you’ll lose your rebate benefits if your lifestyle doesn’t meet certain Green Standards...

This is a backdoor to socialism and nanny-statism.
No wonder Huckabee supports it.

[kitkat]

It also calls for no tax when you sell your home. BUT, if you replace it with another home, you pay 30% on the new home, which means a $100,000 house would cost you $130,000. This would deflate the real estate market.

[GoDuke]

I’m more inclined towards some sort of flat tax but as always the devil would be in the details.

[dinoparty]

I am a fairly frugal (some say cheap) person, so it would probably benefit me. However, I can certainly see the problems. I’m no economist, but it seems to me this would be a large disincentive to spend money, which can’t be good for the economy.

[Red_Devil 232]

A lot of SC voters are saying they are for the Huckster just because of this “Flat-Tax” he is promoting. I wonder if they will wake up before Saturday? Not!

[papasmurf]

Only because, I would think, Huck has taken the easy way out and attached himself, and his candidacy, to it, rather than work at coming up with a way to re-organize or improve the IRS/Tax system.

FRed has done the work! (so much for lazy, eh?)

[counterpunch]

It would only be an improvement if you think the Great Society and socialism is an improvement.

[papasmurf]

Actually, no, it wouldn’t. The taxes would be hidden in the purchase price of the goods and services we buy.

[DeLaine]

This is the first anti-fairtax article that has ever made sense to me.
Thanks for posting this.

[Raymann]

I think a lot of people are forgetting that we’d be able to purchase goods that aren’t pretaxed. Something that costs $10 now would only cost like $8 (but of course we’d have a higher sales tax on those goods).

The biggest boom is that my check won’t be deducted from anymore by the fed. That’s a couple hundred bucks more a month raise for me.

[cinives]

Only if it is a newly-constructed home. An existing home would not be taxed. This tax might do more to preserve open space than anything the greenies have devised to date.

[shuckmaster]

Only people who are real stupid think it would help our economy to have a tax plan that allows people to avoid taxes by avoiding retail purchases while making the retailer responsible for collecting the tax from his shrinking customer base.

[CSM]

“Tax rates this high invite cheating. A whole new underground economy would appear overnight. Why pay 30 percent tax on an item that you can get on the black market tax-free?”

That’s not an indictmemnt of the FairTax proposal, it is an indictment of the size of our Federal Government. With everyone seeing the cost of our government with every purchase, we would sure start to see a lot more support for shrinking that enormous beast. How else does the author propose getting the majority of the voters to clamor for reduced government when by his own table, we are almost at a pont where half the people don’t even carry any of the burden?

[papasmurf]

That just wrong. The tax is preloaded. If you bought something that was $10.00, under the flat tax, you would pay (depending on which interpretation you believe-see the factcheck article I linked to) either $12.30, or $13.00.

Either it can't work. There are just too many things that aren't static, expenses don't stay the same.

[wrench]

"Actually, no, it wouldn’t. The taxes would be hidden in the purchase price of the goods and services we buy."

What they want to do is have retail prices presented just as pump gas prices are presented today, all tax included. Problem is retailers chafe at being made into tax collectors. The mantra oft heard is "We don't charge tax, we are forced to COLLECT tax".

What we will end up with if this thing is approved is a huge line item added to the bottom of the register receipt, and it will be fed, state and local sales tax approaching 40%.

[papasmurf]

That’s two completely separate issues.

Taxes.
A ballooning government payroll.

[staytrue]

eliminating the income tax would eliminate billions of man hours of record keeping and filing of forms.

that would be a huge boost to the economy.

further, it would also be a 30% tariff on imported goods while the income tax, taxes only domestic productions, a sales tax would tax both non domestic and domestic production equally.

[camle]

the “fair tax”, which is hardly fair at all, is little more than smoke and mirrors whilst the neville chamberlain-ish supporters proffer yet another pocket for the feds to pick.

and it’s supporters use name-calling, personal attacks, etc. to silence dissent - much like a certain movement in Germany did a while back.

and they can’t seem to see the plan for the shell game that it is. they hate the IRS that much.

and to formulate policy based upon hate is seldom a good idea.

[Sloth]

The tax collection mechanism is irrelevant to the way the revenue is spent.

[papasmurf]

Yes. So that you know, the Flat Tax they keep talking about that many Europeans have is added in the supply chain, not at the retail level.

As a small business owner, I know that we are already a tax collector for the government. I have to fill out the paperwork, file it, and pass on the taxes I collect to the government. Then, I am accountable for them, and I am the one who gets the audits, and I am the one that has to spend my money to go through those audits.

In most of Europe, the taxes are paid well before the retailer even sees the product.

[wiggen]

lost me. why would the original price of an item decline?

[ejonesie22]

One does not jump out of the Hindenburg and onto the deck of the Titanic.

The Fair Tax has issues on many levels from an execution stand point, but even before the, the idea of the equity of burden among income peers comes into play. People who enjoy the benefits of our consumer society will pay more than the cheap SOB next door who wont get his kids anything for Christmas to evade taxes.

And yes, I have read the book, twice, and over 100 articles and papers. That is one of a dozens of issues it has.

[xcamel]

Something you’ll all like..

[papasmurf]

I would only suggest that you navigate to the factcheck article I linked to and read it. At the bottom of the article are links, many links, to support their research. It’s a real eye opener, especially for me, as someone who fervently supported the FairTax plan for years. It’s like reading the fine print on a warranty. LOL

[papasmurf]

*ping*

[counterpunch]

No, you don't understand... there is this "pre-bate" that everyone gets according to the plan.
See post #6.

This is a back door to socialism, because government can easily manipulate the monthly rebate program, making it progressive and a vehicle for wealth redistribution.
 

[xcamel]

nice daydream, but not a word of it is true...

[SJackson]

the worst part of the so-called Fair Tax is this “pre-bate” which is a monthly rebate from the government covering the increased cost of living. So basically, every man, woman, and child in America would have their very own EBT (government welfare benefits) card! It would create a huge new entitlement program that every American citizen would be enrolled in.

You're right, imagine the political temptation to garner support by raising the rebate, and the rate or reinstitute an income tax. IMO everyone should pay taxes at some level, else they've no stake in the system.

[sheana]

Me too. The rules would be....keep it low, keep it simple.

[eleni121]

The system under which we operate now is a cadaver on a life support of our money!

A tax plan like Huck’s or Thompson’s would do better...in that it would force states to cut spending as well...AND would eliminate the bloated bottom feeders that skim the creature that abuses us now, namely the IRS.

[xcamel]

Just can't wait for the 'new release' called "The Truth" - so.. um... the prior releases were all lies?

...sure starting to sound like it...

[OKSooner]

From "The Tax Policy Center":

"Figure 9.4, our class warfare defense of the status quo."

Note that it doesn't say anything about the Social Security and Medicare taxes that are hidden by calling them "The employer's contribution".

It's a shame The Huckster is the only candidate who's had the good political sense to endorse the idea of putting the IRS out of business.

That's can't have anything to do with opposition from outfits like "The Tax Policy Center", though... /s

[counterpunch]

Exactly right.
Every two years Democrats would campaign on raising the rebate. It would create total wealth redistribution and a permanent Democrat majority.
Any Republican who considers this plan as being something good for even a minute is no conservative.

[dinoparty]

That is true and a good point, it may be a wash, but I still think psychologically it will be a disincentive to purchase, as people don’t like taxes and the taxes will be front and center, instead of hidden as a passed on cost.

[mmichaels1970]

The biggest boom is that my check won’t be deducted from anymore by the fed. That’s a couple hundred bucks more a month raise for me.

I'm not an expert at this "fair tax". Deductions like FICA would still come out of my check right? I'm a bit nervous that my "couple hundred bucks more a month raise" might be tweaked just a bit by the government. Couldn't they say that since I just got a couple hundred more bucks a month, let's just reduce that to $180 and give $20 more a month to FICA to save Social Security? They'd tell me that I'm still getting a raise, but I'm saving Social Security as well? I'm not trying to trash the idea, but this is something I'm personally worried about.

[eleni121]

disincentive to spend money, which can’t be good for the economy.

---

The spending party is over? Now someone has to pay the bill...and it should be the drunken sailors - us...not the rest of the world.

[Mr. Silverback]

Why the heck does everybody call it “Huckabee’s tax plan?”

The only other candidate who has backed any version of the Fair Tax is Duncan Hunter, and he's lost to Uncommitted in two states so far. If another top tier guy was backing it, it would be unfair to call it Huckabee's plan, but...

[OKSooner]

Ping.

[wastedyears]

Everybody on here, it is the FAIR TAX, not a flat tax. They’re two different things.

[Mr. Silverback]

Or maybe you’ll lose your rebate benefits if your lifestyle doesn’t meet certain Green Standards...

Or how about government weigh-ins? Sorry, you obviously eat too much, let's cut your food budget...unless you want to let us audit your grocery list each week...

[counterpunch]

WRONG!
It would be a back door to socialism and a permanent Democrat majority as Democrats promise the “poor” a bigger “pre-bate” check every election, and strip the “rich” of theirs completely.

It’s a perfect way to transfer a quarter of the upper income earners’ wealth to lower income earners.

[ejonesie22]

The first edition was the “almost truth”

Damn...

PT was right...

[counterpunch]

Now you’ve got it.

[xcamel]

seriously... "Up the 'Bate or up the Rate...For The Children...."

I can already hear it....

[OB1kNOb]

Huckabee Tax Plan Would Be A Disaster!

To be more precise.