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%.