It's Time for the Fair Tax
By Gov. Mike Huckabee Posted in Taxes — Comments (107) / Email this page » / Leave a comment »
I’d like you to join me at the best “Going Out of Business” sale I can imagine – one held by the Internal Revenue Service. I want to completely eliminate all federal income and payroll taxes. And do I mean all – personal federal, corporate federal, gift, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment. Instead we will have the FairTax, a simple tax based on wealth.
The FairTax will replace the Internal Revenue Code with a consumption tax, like the taxes on retail sales forty-five states and the District of Columbia have now. All of us will get a monthly rebate to reimburse us for taxes on purchases up to the poverty line, so that we’re not taxed on necessities. We’ll be taxed on what we decide to buy, not what we happen to earn. We won’t be taxed on what we choose to save or the interest those savings earn. The tax will apply only to new goods, so we can reduce our taxes further by buying a used car or computer.
Our current progressive tax system penalizes us for our success. As we climb the ladder, the government lurks on each rung, hungry for a bigger bite of our earnings. The FairTax is also progressive, but it doesn’t punish the American dream of success, or the old-fashioned virtues of hard work and thrift, it rewards them. The FairTax is revenue neutral, so the Government won’t have more money to waste. The FairTax will lower the lifetime tax burden on all of us: single or married; working or retired; rich, poor or middle class. As our disposable incomes rise, so will consumption and our gross domestic product.
Read on . . .
Under the FairTax, we’ll all be treated the same: no more tax avoidance by those who can afford the most creative – and expensive – lawyers and accountants. No more clever loopholes for the few at the expense of the many. No more lobbyists buying tax breaks for their clients from Congress. No more tax cheats and untaxed underground economy.
The FairTax will instantly make American products 12 to 25% more competitive because the cost of those goods will no longer be inflated by corporate taxes, costs of tax compliance, and Social Security matching payments. When we buy products now, those taxes are built into the cost, so all of us pay corporate taxes indirectly on top of the personal taxes we pay directly. Compliance costs are just make-work with no real added value, yet they consume as much as 3% of our gross domestic product annually. These costs are an especially heavy burden on small businesses, which generate most of our jobs.
Other governments give their goods an advantage on the world market by rebating value added taxes on exports, an advantage estimated at 18% compared to American goods. No matter how hard Americans work, no matter how innovative and creative we are, no matter how superior our products are, we suffer from a built-in competitive disadvantage simply because of our tax system. Our tax system deprives us of about $1 billion in exports annually. When you export over-priced goods, you inevitably end up exporting jobs and industries. We are the square peg trying to fit into the round hole of international trade. The rest of the world isn’t going to change, it’s time that we do. The FairTax is the path to greater prosperity and job security for us and our children.
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I especially enjoyed learning about how other countries rebate the VAT in order to give companies a competitive advantage when they export goods to the U.S.
My concern is that even under a FairTax, the untaxed underground economy will continue.
Perhaps FairTax will minimize the underground economy. But not eliminate it.
My other concern is a more practical one: Republicans' best weapon in election season is being identified with the "low taxes" party. Whenever a candidate starts talking about replacing the income tax with a sales tax, the Democrats omit the part about the income tax and start branding the GOP candidate as the "guy who wants to raise your sales taxes". This actually happened to Jim Demint in 2002 and it hurt his campaign. He had to backtrack to avoid the label of "tax-hiker".
Better idea: let's let the Democrats be connected to the tax-hiker label. I can live with an income tax. It's not ideal but it is ok.
Let's focus on areas where we might be able to win a few small battles. School reform should be at the top of that list.
The campaign that can't handle that kind of mis-labeling is an incompetent campaign. That shouldn't stop Fair Tax candidates from advocating. Let the Dems be exposed for their lies.
"I am afraid that even after the American people will elect those who promise to leave Iraq, the U.S. will not do so." - Hamas leader Abu Abdullah
Wetterling tried to do this to Bachmann in this past election when she wasn't busy accusing her of being a pedophile. The strategy didn't work very well.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
The underground economy is everything from Wendy Waitress not reporting all of her tips to Mr. Cash Money, the drug dealer.
Let’s play a little game. Let’s take a look into the life Mr. Cash Money.
Mr. Cash Money sells “medicinal items” for cash on the street and takes a “commission” from working ladies. He even provides a “protection service”!
Do we think Mr. Cash Money files a tax return every year? Don’t hold your breath.
Poof, now we are FairTax land.
Mr. Cash Money needs a new suit. Nothing used for this guy! Bam, FairTax paid.
Mr. Cash Money needs some groceries, Bam, FairTax paid.
Mr. Cash Money needs to pay his rent, Bam, FairTax paid.
Mr. Cash Money needs to………..you get the picture, Bam, FairTax paid.
Do you think Mr. Cash Money will expose himself to the Gov’t by applying for the prebate?
Again, Don’t hold your breath.
Now let’s look at Wendy Waitress. She has been good and filed her taxes, just did not report all of her tips. A bad tax plan made a technical criminal out of a good person. She has worked hard but was never able to get ahead.
Poof, now we are FairTax land.
Wendy applies for and gets the prebate. She now takes all her tips and put them into savings which are no longer taxed. She is frugal and buys used items where possible which is not taxed. She takes a night course which is not taxed. She gets a better job which is not taxed. Now she is able to buy that new car, dress shoes or whatever she has always wanted, and yes, it is taxed. But so what, thanks to the FairTax Wendy has been able to get over that hump of sustenance to success.
So in the grand scheme of things…….. No, the Underground Economy would not be a problem.
Ashford Schwall
--....enjoyed learning about how other countries rebate the VAT in order to give companies a competitive advantage when they export goods to the U.S.
» Hello. VAT countries DO NOT REBATE in order to provide a competitive advantage. This is MISLEADING. Whoever was working point on this for Governor Huckaby sorely underestimated the intellect of the target audience in this forum.
When IMPORTS arrive in a VAT country, the VAT is paid up front as a part of the import/customs process. It is up to the businesses to then recoup the VAT from its customers.
The ONLY difference in a VAT country is that the VAT countries collect the VAT based on import values at the time of import. If a company exports items where VAT had already been collected, then it is REFUNDED to that company. This is the same identical scheme in the US where sales tax is generally charged on all products UNLESS the person/company making the purchase can demonstrate an exemption from the sales tax OR provide a resale certificate in which instance the sales tax is NOT CHARGED. When that company which purchased for resale eventually resells the product(s) to a non-tax exempt customer, the sales tax is then added for that customer.
Even ordinary US Citizens can be refunded Canadian VAT taxes for purchases there if you can demonstrate that the products purchased there were, in fact, exported to the US or any other country.
--Let's focus on areas where we might be able to win a few small battles. School reform should be at the top of that list.
» Wasn't school reform paramount in the 2000 elections? No one is going to do jack on any of these campaign issues. It's all fodder to get your hopes up.
There is one big problem with the Fair Tax. In order for it to work, the 16th Amendment, authorizing the Federal government to levy an income tax, MUST be repealed. Unfortunately, I rarely ever hear this discussed when the Fair Tax comes up. If we institute the Fair Tax without repealing the government's ability to levy an income tax, we would likely end up with both at some point.
I'm all for the Fair Tax, but not on top of the income tax.
We are in far greater danger of having both an income tax and a sales tax if we do not work together to pass the FairTax.
There is nothing constitutionally stopping Congress from passing a sales tax tomorrow while leaving the income tax in place. On the other hand, the FairTax legislation repeals funding for and bureaucracy of the income tax structure. On the heels of its demise, there will be no one clamoring for a return of the income tax. At worst, it will take years to rebuild an income tax.
We cannot allow even that to happen. Therefore, immediately following the passage of the FairTax, we must work toward HJ 16, which is an aggressive repeal of the 16th in that it prevents an income tax in the future.
We must not, however, let the fear of both keep us from implementing most likely avenue to prevent both.
The Fair tax will also eliminate the hidden corporate taxes from our homefront corporations. Replacing those with the sales tax on the goods bought in the states. This will do two things give our exported goods a huge competitive advantage by losing the hidden corporate taxes on them and the DOUBLE bonus of shifting that burden onto Imports that are sold inside the US by taxing them forcing a more balanced playing field with our homemade goods.
Another not so bragged up benefit is the fact that the Fair tax rewards responsible spending and savings something our nation has gone from a leader in Savings to a world Debtor population/nation.
I'm glad to finally see someone running for President endorsing the FairTax.
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(Formerly known as bee) / Internet member since 1987
Member of the Surreality-Based Community
1. How does this effect companies who carry large inventories and purchase lots of goods (such as a retail store) as opposed to companies who carry very little inventory (such as perhaps a family doctors office?) It seems to me in that case some businesses would reap huge benefits while others are milked to death depending on the rate.
2. While this may have some great facets to it, how likely of a scenario is this? We couldn't privatize social security, are we really going to abolish the IRS? Wouldn't it be more realistic to first work for smaller changes within the current system? If not than why?
Other than that I think you are quality candidate though not my first choice. Good luck!
on the internet, just google it, or go on Neil Boortz site, or Cato.
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
It's been a long time since I've looked at the FairTax details, but I believe part of it is an inventory credit for businesses that have inventory produced under the old tax system but not yet sold before the FairTax took effect.
As far as point 2 goes, since the FairTax is such a radical change, I think it has a better chance of going all in at once instead of by pieces. Otherwise you have to pick and choose which of the old taxes are going away when, instead of dumping them all at once, just as one example.
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(Formerly known as bee) / Internet member since 1987
Member of the Surreality-Based Community
What about new inventory after the switch? Two businesses might have same profit, but one is paying up the yin yang for new inventory (think shoe sales man compared to psychologist). Other areas of concern could be standard self-employed deductible purchases to produce the wealth I am purchasing everyday goods with. For instance I am a professional violist. I buy a $10,000 bow for work and now I pay $2300 in taxes. All a hair dresser buys are a few hair products perhaps. Not to mention my mileage going to events, etc.
I can easil see the all or nothing or approach being most likely with system, but how likely is the "all" approach compared to the "nothing?"
It does sound like it has some good ideas, but it also looks like it could adversely effect honest people earning a living. I am open to though.
i would have guessed their costs are more related to how quickly they turn and to their cost of capital.
But even when you finance things you still pay a tax. If they are floating an inventory for a company and then I guess it could be avoided. I am no business person, these are just-off the-top-of-my-head-concerns.
As for the self employed I know that story very well, and it would be interesting to find out how I personally would be affected.
No tax would be owed. At least thats the way it works with state sales taxes. Things like office supplies a business consumes internally they have to pay sales tax on. Things that could properly be termed inventory (like car parts at a auto maker's plant or sodas at a 7-11) are not taxed until they are sold to the end consumer.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
If I understand your question, you seem to be assuming that a business must pay tax on the items it uses to produce its taxable product or service. That is an incorrect premise.
As long as the violin bow in question will be used solely for performing at concerts (the tickets for which will be taxed), you will be able to deduct the tax you paid when you purchased it from the tax you collect for ticket sales and remit the difference.
And by the way, has anyone mentioned you get to keep ¼ of 1% that you collect as compensation for collecting it?
And contrary to your allegation that honest people will be affected negatively, the exact opposite is true. The FairTax has been designed to be the most friendly to the honest while taxing those who are gaming the current system.
absolutely no sales tax on its inventory. Goods and services are taxed at the retail level only, i.e. at the time of purchase by the consumer.
What advantage does the fair tax have over the flat tax?
that income taxes, even a flat one, have a perverting effect upon business decisions and since business still must factor in things such as depreciation and such there are high compliance costs.
The fair tax, is much simpler, and easier to collect. (at least on paper)
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
All capital purchases are fully deducted in the first year.
More generally, the flat tax is not an income tax. It is a consumption tax disguised as an income tax, so that it doesn't look as radical to the layperson. But economically, it is taxing a very similar base compared with the FairTax.
Flat tax deals only with the income tax. The FairTax gets rid of pretty much all other taxes (FICA, death tax, interest tax, corporate taxes, et al) and replaces it with a nat'l sales tax made somewhat progressive via a monthly stipend which essentially is a pre-rebate for the tax on $500 worth of items (it's easier to just presume everyone's spending that much; for those that aren't, it's free money).
Another way of thinking about it: a flat tax is like an engine overhaul, whereas the FairTax is like an entirely new vehicle.
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(Formerly known as bee) / Internet member since 1987
Member of the Surreality-Based Community
Repealing the 16th amendment is next to impossible. Nobody has convinced me the 16th amendment will be repealed. Having the income tax AND a national sales tax might be some politician's heavenly dream, but it's a nightmare to me. Flat tax can be done, and no repealing constitution amendment is needed.
You’re a persistent cuss, pilgrim.
John Wayne to Jimmy Stewart in The Man Who Shot Liberty Valance
That's what Congressman Linder proposes.
...btw, the "nightmare scenario" is already here: we have an income tax already, and there's no constitutional limit to congress's right to enact federal consumption taxes. There's already nothing preventing congress from enacting an income tax AND a consumption tax at the same time. So how does it follow that enacting HR25 (and pushing to repeal the 16th) puts us in any situation worse than the one we're in now?
We all know that the sunset provision, supposedly protecting against having both federal sales and income taxes, is in real life meaningless. When the proposed Constitutional amendment outlawing the income tax fails, and the sunset provision on the national sales tax is imminent, Congress will face a fiscal emergency. The government will be about to lose almost all its funding, and the only way to prevent financial meltdown will be to either negotiate a whole new tax code in a short period, or much more doable pass a one page bill repealing the sunset provision. Then after a decent interval, once the sunset provision is history, they can get around to restoring the income tax on "the rich".
Instead of the meaningless "sunset provision," how about a sunrise provision instead. The bill replacing the income tax with a national sales tax only takes effect when and if the the accompanying Constitutional amendment outlawing federal income tax is ratified.
After I wrote most of this, I saw that you just posted a comment supporting the sunrise approach. My compliments to you. I too would support such a national sales tax that does not take effect until the income tax is Constitutionally barred; however I'm very pessimistic about the prerequisite Constitutional amendment ever being passed much less ratified.
There's already nothing preventing congress from enacting an income tax AND a consumption tax at the same time. So how does it follow that enacting HR25 (and pushing to repeal the 16th) puts us in any situation worse than the one we're in now?
A rebuttal to that general point is in my other comment in this thread.
...but differ on how we'd implement it.
I like your idea about sunrising the FairTax contingent to the repeal of the 16th, even though I don't share your risk assessment of the political situation (and I've been wrong before).
Personally, I think selling the FairTax will be harder than repealing the 16th. Once people warm to the former, the latter should (despite the higher procedural bar) be a slam-dunk. (and again, I've been wrong before).
The FairTax untaxes income or production, the Flat tax retains the anchor of taxes on production. Further, the FairTax removes the compliance costs. Under the income tax, businesses don't really pay taxes, they just pass it on emebedded in the price of a product. Sure they pay taxes and have a compliance cost. This is called a tax incidence but they pass on the tax burden to the consumer. Under the FairTax, that embedded burden is removed.
The Income tax equation
Income-taxes = spending
The FairTax ( consumption tax) equation
Income = spending + taxes
Ashford Schwall
Your analysis is fundamentally flawed. The flat tax is actually a consumption tax, not an income tax. Specifically, it is a subtraction method VAT with labor compensation taxed at the individual level instead of at the business level.
The current estimate is 23% on all purchases, so the bottle of milk @2.50 becomes 3.08 - ok, not too shabby.
BUT, can you really imagine politicains dealing with having you see what government costs 5 - 10 times a day. The current method is quite slick and hidden - full of loopholes for special interests and generates huge buckets of cash for election campaigns.
And exactly why it's time to engage in the fight.
Yes, the forces in opposition are formidable, indeed UNBEATABLE. But right is right, and by God, I will join and encourage those who have engaged.
It starts with one man. I think we're well beyond that, perhaps even 1% of Americans (which would be 3 million people if it's so).
It's war -- so when can we start shooting back at the enemy Democrats?
If you're gonna compare prices to the current system, you should include the cost of taxation under the current system- when you do, the FairTax doesn't look bad at all.
In order for you to get that $2.50 into your pocket, you paid 7.65% in payroll tax. Your employer matched it (or if you're self-employed, your 'self-employment tax' is 15.3%. If you're average, you pay 10% in income tax. OK, you already paid 25% of the cost of that bottle of milk in taxes, but wait- there's more:
The producer of that milk pays income taxes, and pays to comply with income taxation- and it passes those costs along to customers in the form of higher prices, to workers in the form of lower wages, and to ownership in the form of reduced profit. It's estimated that between 22% and 29% of the sticker price of everything we buy is tax and tax-compliance related expense. Accountants and lawyers ain't cheap.
It *can* happen, but only if we get the message out: the proposed tax system is more efficient than the one we've got now.
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"No compromise with the main purpose, no peace till victory, no pact with unrepentant wrong." - Winston Churchill
You're proposing to eliminate both the personal and corporate income taxes in toto at the Federal level (but not at the state and local). You would also eliminate FICA/FUTA withholding (both the employer and the employee contribution).
Along with the income tax, you would also eliminate the various offsets and negative-taxation programs like the EITC. Also gone would be deductions for health-care benefits purchased by employers, and the tax deductibility of certain interest payments (notably those on home mortgages).
You would presumably keep the various federal excise and use taxes in place.
You want to add a consumption tax levied on consumer goods at the point of sale (rather than, say, a VAT levied at multiple points in the value-chain and rebated on exports). Presumably this tax would be collected by retail businesses, and compliance with the federal law would be enforced by... someone. (Now I know why your plan can't deliver on the promise of eliminating the IRS.)
Now you mention that interest income would not be taxed. That's a good start on getting America's middle class back on the road to wealth-building, but it's not enough. You also have to eliminate taxes on dividends and capital gains of all kinds. Does your plan do that?
And finally, the very last thing we need is what Europe has: taxes on both consumption (in the form of onerous VATs) and on incomes. So to be credible to me, your plan can't stop at merely eliminating the income tax. You also have to salt the earth so that evil thing can never, ever come back. You have to repeal the Sixteenth Amendment.
I'm in favor of any tax-collection scheme that privileges private investing, so the key requirement is no taxes on interest income, dividends or capgains, ever again. If you can do all that, I'll support your plan.
Romney or Fred.
Currently writing non-political stories over at first-cut-stories.blogspot.com
You also have to eliminate taxes on dividends and capital gains of all kinds. Does your plan do that?
Yes. The FairTax repeals all income-based taxation. This means gifts, inheritance, cap gains, payroll... anything for which the taxable event is you getting paid.
...now the one hitch here is that repealing federal income taxes doesn't mean congress couldn't create new ones later. To prevent that happening would require an amendment to the constitution, repealing the 16th amendment (thereby protecting income from federal taxation).
Procedurally, passage of this bill can't amend the constitution- it'll have to be done separately. This leaves us the possibility that we'll repeal federal income taxes and enact a consumption tax, but fail to repeal the 16th- which wouldn't be all that different from the situation we're in right now (where congress *could* enact a consumption tax even though we've got an income tax).
the possibility that we'll repeal federal income taxes and enact a consumption tax, but fail to repeal the 16th- which wouldn't be all that different from the situation we're in right now (where congress *could* enact a consumption tax even though we've got an income tax).
True only in the sense that the Constitutional power of Congress to enact or repeal either a federal income tax or federal sales tax is there in either scenario. What would be completely changed if we ever instituted Huckabee's sales tax is the political dynamics of the issue.
Currently political precedent or inertia is the biggest obstacle to instituting a national sales tax. You can be sure the Democrats (and a few Republicans) would dearly love to add a national sales tax on top of the existing income tax. However the Democrats know that trying to institute a brand new federal tax that hits everybody would generate tremendous political resistance, so they don't even bother.
In the unlikely event a President Huckabee succeeded in overcoming the resistance to a national sales tax by offering repeal of the income tax in return, the resulting political dynamic would be totally different. Once the national sales tax was in place, the obstacles to restoring the federal income tax would be nowhere near as powerful as the current obstacles to instituting a national sales tax. The federal income tax would not be unprecedented as the federal sales tax now is. A proposal to restore the income tax could be targetted only at "the rich", so the majority of voters wouldn't see it as coming out of their pockets (unlike a sales tax that hits every voter).
Bottom line, if we pass a federal sales tax to supposedly replace the federal income tax, we'll inevitably be paying both federal income taxes and sales taxes.
...let's stick with the devil we know, for fear of getting something worse.
What would be completely changed if we ever instituted Huckabee's sales tax is the political dynamics of the issue.
...so, the only thing that's preventing us from getting a better tax code than the one we've got is that we're all afraid to disrupt the status quo, for fear that any changes we make might embolden someone else to propose changes that might see a floor vote. What if they figure out on their own that they can do that? Is that a good enough reason to defend our existing travesty of a tax system? The one that costs a staggering 22-29% of what it generates in revenue, just to comply with? The one that is too complex for any single person to fully understand? The one that drives US jobs and businesses overseas and puts US manufactured goods at a price disadvantage?
We need tax reform, badly. I'm willing to fight to get it to happen- and I'm willing to fight to prevent dual tax systems (as are, I expect, the majority). I support Congressman Linder's sunset proposal (to repeal the FairTax legislation within 5 years if the 16th Amendment is not repealed) and I'd like to see energies like yours directed at making political gains, rather than being paralyzed by potential what-ifs. I understand your point and appreciate your analysis, and respectfully disagree with your conclusion- if we get the FairTax enacted, I think it'll either be repealed or the 16th will be, because folks in your camp will quit resisting change out of fear and start pulling in the right direction (to close the door on federal income taxation for good).
...so, the only thing that's preventing us from getting a better tax code than the one we've got is that we're all afraid to disrupt the status quo, for fear that any changes we make might embolden someone else to propose changes that might see a floor vote.
No, the problem is that you propose conceding ground to the tax-addicts that tax-skeptics currently have a firm grip on, ground that we'll never get back; and in return we only get temporary possession of ground that the tax addicts will inevitably get back.
For the forseeable future it's politically impossible for any Congress to enact a federal sales tax. I am not going to give up this political ground for anything less than an ironclad guarantee that the federal income tax is permanently abolished. Snake oil "sunset clauses" don't cut it, only a Constitutional amendment as a prerequisite will do.
If it was politically feasible to credibly abolish the current federal income tax and replace it with a federal value added tax or sales tax, I would support that. What I oppose is setting in motion a political process that inevitably results in having both a federal income tax and federal sales tax; compared to that, I prefer just the income tax without a federal sales tax.
If you think I'm being too pessimistic about the political ability to permanently abolish the federal income tax in exchange for the federal sales tax, then "fair tax" advocates should put their money where their mouth is: I'll support your proposal if it's written to only take effect when/if the Constititional amendment barring restoration of the income tax (on top of the sales tax) is ratified.
As I pointed out elsewhere in this thread, a conditional rollback of the sales tax if the amendment isn't ratified is a bait and switch con game (kind of like immigration enforcement after the Z-visas are handed out). Prove that your federal sales tax is really permanently replacing the income tax and I'm with you; but forget it without real proof.
Even if the 16th were repealed... there is nothing to stop it from getting passed and ratified again. I also seriously doubt it is necessary to even have the 16th to levy income taxes with the kind of courts we have today anyway. Just look at how things like the ICC are abused in ways that couldn't have even be envisioned back when the 16th was passed.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
Right about no absolute guarantee of anything. But for practical purposes we settle for extremely good odds.
Right now, there is for real life purposes a guarantee that Congress will not add a national sales tax on top of the existing income tax in any of our lifetimes. There's absolutely no legal obstacle stopping Congress from taxing us both ways simultaneously, and lots of them (maybe a majority) would just love to do it if they could get away with it; but just as a political fact of life, they could never assemble a coalition big enough to even get it seriously considered.
If we replaced the federal income tax with a federal sales tax, the political obstacles to subsequently restoring the income tax on top of the sales tax would be no where near as strong as the current political guarantee against adding a sales tax on top of the existing income tax. With a national sales tax, it would take a Constitutional amendment barring income tax to give us a practical guarantee against its return, as powerful as the practical guarantee we already have against a federal sales tax being added to the income tax.
I also seriously doubt it is necessary to even have the 16th to levy income taxes with the kind of courts we have today anyway.
I agree, repealing the 16th isn't good enough. That's why I've insisted on an amendment explicitly barring the income tax or proxies for it, as my prerequisite for enacting a national sales tax.
that I've already paid the income tax on the retirement funds I have in my Roth IRAs. Considering that's what I live on, I'll feel like I must have made a real bad decision to go with the Roths if the Fair Tax passes. I'll live, though.
I hope it won't apply to the purchase of financial assets and real estate.
I really doubt that it can be done, even if it's a good idea. All Reagan had to do was change the formulas, and look how hard that was. Change the system?--Probably impossible.
We've traded our National Sovereignty for cheap roofing and yardwork.
That AARP guy who retired with a government pension, Soc Sec, and an IRA, and who always voted Democrat. Well when he buys a new Mercedes, at least he will be paying taxes on it!
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
You won't have to pay the income tax (and tax compliance costs) that artificially inflate the prices of goods and services you buy any more.
It's estimated that between 22% and 29% of the price of anything you buy is tax or tax-compliance expense. That's what our tax system costs you before you pay your first cent in direct taxation.
The FairTax will repeal all business taxes (it applies only to retail sales of goods and services) which means prices for goods and services will drop.
The FairTax will repeal all business taxes (it applies only to retail sales of goods and services) which means prices for goods and services will drop.
Businesses won't be paying sales tax on computers, desks, staplers, copy paper, rental cars, and all those other things that businesses need?
Run like Reagan!
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(Formerly known as bee) / Internet member since 1987
Member of the Surreality-Based Community
That's my point: There isn't going to be some mystic price drop anywhere. If this new tax system is truly revenue neutral, the same expenses should show up in the system in the long run. Less compliance costs, but those aren't going to be lower for retail businesses under the sales tax.
Run like Reagan!
You're right, we're proposing to simply shift the taxable event from pay to purchase, meaning you'll still be paying roughly the same tax, just at a different point in time- the real gains will be in efficiency. Instead of having accountants and attorneys do your taxes, it will be done at the point of sale, anonymously, by software in the cash register.
Any employer that provides benefits, retirement accounts, has a significant payroll, holds assets that depreciate, etc. is going to pay some amount to comply with the tax- the labor involved isn't free and it's not like it doesn't require expertise.
This cost is already borne by business, and is passed along to consumers, to workers, and to owners in the form of higher prices, lower wages, and lower profits. Part of what will happen if the corporate income tax is repealed is that these baked-in expenses will go away, and you can expect to see some price adjustments as a result.
You're right, we're proposing to simply shift the taxable event from pay to purchase, meaning you'll still be paying roughly the same tax, just at a different point in time
You don't pay any tax on costs of good sold. You don't pay any tax on profit (whether retained or distributed to owners). That is a significant reduction in tax burden on business. They would certainly pay some tax but it would not be roughly the same tax.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
Our current tax system is expensive. My wife's small business paid more to do its taxes (compliance) last year than it paid in tax, and the statistics suggest that this is pretty typical.
According to the Tax Foundation, small business in 2003 paid some $724 in compliance costs for every $100 it paid in actual tax. As a nation, we spend an estimated $250B+/yr to do our federal taxes, and that's not even counting the opportunity costs incurred when businesses forego maximization of revenue in order to capture tax benefits.
That cost is passed along from business to 1 of 3 outputs:
1) to customers, in the form of higher prices,
2) to labor, in the form of lower wages/fewer jobs, and
3) to ownership, in the form of reduced profit
It's estimated that between 22 and 29% of the cost of anything you buy in the US (this from the actuaries who calculate the federal cost-of-living index) is tax or tax compliance related expense.
That's what our existing tax system costs us, even before you pay your first cent in individual taxes.
I am still up in the air on your FairTax proposal, but I warm more to it every day. I just want to see first that the monthly rebate is feasible, because that will decide whether this is progressive or not.
All the same, Governor Huckabee, I am proud to be one of your supporters in this face. Keep using as much media as you can to get your message out!
Thanks for warming up to the FairTax.. I was skeptical too.
You mention the word “progressive”. Many people get hung up on that. What is “progressive”? Under the income tax it is “ make more pay more”. Under the FairTax, a consumption tax, it is “spend more, pay more”. So lets make sure we look at the FairTax through the right set of glasses or rules.
The Fair Tax and the Income should have the same goals. Fund the government’s needs in the most fair and efficient manner. Soccer and Hockey have the same goals, get the object of play in the opponents net but you can not officiate a Soccer game using Hockey rules. Likewise you can not evaluate a consumption tax using income tax rules.
Ashford Schwall
Thanks for stopping by here.
You're a distant third for me in the current candidates (counting Fred as a candidate).
I'd MUCH rather see you serve your country by running for US Senate. That is a campaign of yours that I could immeadiately get behind. We have several competent candidates for President, but you are the only person I know who could easily retreive the Senate for us.
Romney or Fred.
Currently writing non-political stories over at first-cut-stories.blogspot.com
It's good to see you here at RedState. I hope we see more of you as time goes by.
Managing Editor
In light of the scare fest the left had with Social Security reform, I am not optimistic, but I would love to see it implemented.
"Wubbies World" - MSgt, U.S. Air Force (Retired): "Call to Me and I will answer you, and I will tell you great and mighty things, which you do not know." -Jer 33:3-
consumption taxes.
Whats the current corporate tax on homebuilders? What would a new home price look like? Thats addressed under the Fairtax.org rebuttal section, and it would be awesome to have a mortgage with pretax $$$.
I'm a fan of the Fairtax, knowing that there are formidable forces who stand against ridding the country of the 16th amendment and 60000 pages of tax law, way of doing things.
So my devils advocate side is wary of the prebate with the looming immigration bill because I don't want illegals getting the prebate and the prebate also mandates some type of federal government layer that would pay out these prebates that covers all legal citizens and determining that said citizens are in fact eligible.
Other than the above concerns, bring on the Fairtax, especially since that bill continues to gain sponsorship, with the latest count showing huge favor for the Fairtax vs the flat tax.
Any concerns about the prebate and illegal immigrants would also apply to the EITC, which is free money based on how many kids they have. It is even available in advance of tax time... you can just get it added to your paychecks.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
Actually, I just looked this up and the EITC is not available to nonresident aliens unless they are married to U.S. citizens. I'm guessing that's a microscopic subset of the illegal population.
Last I checked they weren't allowed to work in the US or even live here. Somehow that didn't stop them. You think the ones that file taxes (on their illegal income they shouldn't even have) can't get their EITC payments? I got some nice ocean front property in Utah to sell you if you believe that.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
Governor Huckabee,
I am thrilled to see you posting here. It saddens me that more people do not know about you. Your resume is outstanding and you are an excellent candidate.
I will admit that I have just recently started looking into you as a candidate. My first choice has been, and honestly still is, Giuliani, but I like you more and more each day.
I love the fair tax idea and I liked it when Mr. Forbes ran for President while talking about tax reform. Unfortunately, that did not seem to work out very well for him. However, I believe you to have more experience, more credibility and more charisma than Mr. Forbes, so I wish you will on this endeavor.
However, please do not allow your campaign to get mired in this highly ambitious proposal. I believe you would do all Americans a much bigger service if you ran on your record of accomplishments. Let this be a part of your campaign, but don't make it the sole and most important issue. It will scare many voters off because the idea seems so radical.
I wish you well. As I said, Mayor Guiliani is my first choice, but you were the first candidate that I have donated money to. I did that simply because I believe you should be one of the top tier candidates. I also went out on bought your book just today and I look forward to reading it.
I do agree with an earlier poster, that if things do not work out for you in the Presidential campaign, and you are not selected as a VP candidate, then please consider running for Senate in the future.
Thank you, Governor Huckabee for bringing the first really interesting domestic policy proposal to bear in this race. I hope you'll talk about this more frequently. The drag of compliance costs is a serious issue and I like anything that can help with that.
Any presidential candidate presenting the fair tax as a serious policy proposal either takes the GOP primary voters for fools, or is hopelessly naive himself. Either way, that makes unfit for our nomination.
In theory it's a nice idea, far more economically rational than our current tax system. But anyone with a clue on how Washington works knows that if we instituted Huckabee's national sales tax or VAT, it would not be a replacement for the income tax, at least not for long. We would have both the income tax plus the federal sales tax.
Even if the income tax was initially repealed, eventually after the national sales tax was taken for granted, some Democratic congress would pass a "fairness" income tax on the super-rich for some "urgent" revenue need rather than inflict a sales-tax increase on ordinary working people. You know where it evolves from there, with "the rich" eventually redefined so almost half of us are paying income tax in addition to the national sales tax.
The only way to make Huckabee's national sales tax viable would be to pass a constitutional amendment outlawing federal income tax and proxies for income tax. If you think there's any chance of passing such a Constitutional amendment, there's a bridge I can sell you for a bargain price.
As others have pointed out, a flatter income tax with fewer deductions is more attainable, but even that would be a tough sell. At least it's in the realm of reality.
from http://linderfairtax.house.gov/index.cfm?FuseAction=FAQs.View&FAQ_id=20
If the FairTax is enacted, I expect that the Congress and states would promptly begin consideration of legislation to repeal the Sixteenth Amendment. To make certain that occurs, however, I am in favor of adding language to H.R. 25 during the 111th Congress that includes a sunset provision, meaning that either we succeed in repealing the Sixteenth Amendment within 5 years after the implementation of the FairTax or the FairTax goes away. In my view, we simply cannot risk having both a national income tax and a national sales tax in place at the same time.
Make the national income tax a flat tax with a sunset provision to implement a national sales tax after the 16th Amendment is repealed.
You’re a persistent cuss, pilgrim.
John Wayne to Jimmy Stewart in The Man Who Shot Liberty Valance
A ship in the harbor is safe
but that is not what ships are built for
Yeah right. I've heard this promise too many times from all sorts of candidates. Fair tax, flat tax, national sales tax, blah blah blah. Whatever happened to "do your taxes on a postcard"? Wasn't that Dick Armey's idea? The bottom line is, no Republican campaigning on a cut-spending platform will ever get elected. Newt couldn't even close the Department of Education! What makes you think that you are going to overhaul the most entrenched and most powerful bureaucracy on earth?
Before I trust you or any other Republican on any promise of something so massive as "eliminating all income taxes", please do me a favor. Close ONE federal agency. Just ONE. And close it for good. I don't care if it's the National Institute for Applied Onion Research, just cut something. That way I'll know that not only do you have the desire to cut spending but that you also have the will to do so in the face of opposition. Perhaps you could tell us, Governor, how many unnecessary state agencies you closed in Arkansas during your tenure, how many make-work government sinecures you eliminated, how much money you actuall SAVED for the taxpayers of Arkansas. Because, as others have noted, tax reform is meaningless without substantial spending restraint, otherwise all we will have is (a) two tax systems instead of one, or (b) a massive VAT.
The flat tax is so simple, I can do it on a post card and be done with it. Everybody pays 17% over a set amount based on number of dependants. That's it. Period.
I read the documents relating to the fair tax and it's so complicated, it made my brain hurt.
You would need an army of IRS agents just to enforce it. Imagine all the people suddenly providing services and selling goods out of their garages - hello tax free underground market.
Then there's that $500 for everybody. Just who is going to make sure there's no cheating going on there? Can you say "Katrina"?
So what's so bad about the flat tax? It's a lot easier to administer and budget for.
doesn't help this debate. While the Fairtax has over 50 sponsors.
Its bad enough that the country already has massive wealth redistribution plan for the lower half paying people.
The pre bate is about a $90 per person/month regardless of income.
The Fairtax bill is about 125 pages, versus the current 60000 pages.
Does the flat tax rid the country of the 60000 worth of IRS code in place, or does it add to it?
What hyperbole? What inaccuracies? Please be specific.
The nat'l sales tax (can we just call it what it is?) is 125 +/- pages. The flat tax fits on ONE PAGE. So simple, a caveman can do it.
Here you go:
Your non-taxable income is $XX,XXX. For every dependant, add $X,XXX. People who make less than this amt. pay nothing. Everything over that amt. is taxed at 17%. No write-offs, no "earned income credit" or any other credits. That's it. Period.
That doesn't look like anything close to 60,000 pages or even 125. Once you add the legalese and definitions, perhaps it would take 2 pages. Steve Forbes outlines this pretty well in his book, A New Birth of Freedom.
Again, the "pre-bate" is just BEGGING for abuse/fraud. And do we really want another black market? Tax free goods and services is just what the mob ordered. So much for "no more IRS".
Finally, I don't care how many sponsors there are, the American people will never buy into a nat'l sales tax. I just don't see it selling politically (but then again, neither did illegal immigration amnesty and open borders but we seem to be getting that anyway.)
Here's your sales pitch: "We're going to tax you TWENTY-FOUR PERCENT. Oh, and you get $90 per person as a "pre-bate".
Gee, thanks. $90 goes a lot further in some parts of the country than it does in others. To truely make this tax "fair" you would need to have it adjustable based on local economies. There we go with more paperwork.
Again, what's wrong with the flat tax? I think what we really have are tax accountants running scared. After all, they would probably no longer be needed.
The code to support a flat tax would easily be 50,000 pages. Just determine income would take tens of thousands of pages. Business returns would still be a whole ream of paper that takes an entire team of accountants a month to put together. The complexity is in the income part, not in the progressive rates or home mortgage deduction.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
See S. 1040, the leading flat tax bill in Congress. The flat code code is actually much shorter than the Fair Tax code: 22 pages!
The flat tax is not an income tax. It is a consumption tax -- a VAT with one modification: wages would be deducted by businesses and taxed at the individual level instead. That allows some progressivity because you can then exempt a base level of wages from tax.
No single bill contains the entire tax code. You could create a 1 page bill to implement a flat tax, you would just leave the vast majority of those 60,000 pages of tax code in effect.
The comments about it being a consumption tax are just ridiculous since they are taxing income when it is earned. If you want to call the flat tax a consumption tax, you can do the same thing with the current income tax.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
First, the flat tax bill REPLACES the thousands of pages of rules on the individual and corporate income taxes with 22 pages. It's not an addition. It's a substitution.
Second, every economist in the world -- from libertarian right to communist left -- agrees that the flat tax is a consumption tax. It's not a debatable point. You clearly don't understand how it works, and instead of educating yourself you denigrate people with greater knowledge of the issue than yourself. Do a little independent research on it and then get back to me.
It's a consumption tax. It's a VAT. Again, that's not debatable. Just because the legal obligation to pay the tax rests on someone other than the retailer doesn't make it any less true. Just because you don't have the motivation to learn why doesn't make it any less true.
Here, I'll get you started with your research. Let's start with a very simple equation that represents one of the basic building blocks of economic thought: Income = Consumption + Savings. Written another way: Income - Savings = Consumption. The flat tax completely exempts savings from tax, by allowing full expensing at the business level, by exempting savings income (dividends, interest, capital gains), and by disallowing interest deductions (which represent dis-saving). If you start with income and you remove savings, what you have left over is consumption. That's the tax base for the flat tax.
That should get you started. Seeing as how I don't have time to teach you the entire course, I recommend you do your own research to educate yourself about why the flat tax actually taxes consumption and not income. The idea was developed by Stanford economists Bob Hall and Alvin Rabushka. Now get to work.
Written another way: Income - Savings = Consumption. The flat tax completely exempts savings from tax, by allowing full expensing at the business level, by exempting savings income (dividends, interest, capital gains), and by disallowing interest deductions (which represent dis-saving). If you start with income and you remove savings, what you have left over is consumption. That's the tax base for the flat tax.
But I can't see I see any point in debating somebody who can't be civil about it. Maybe you should rethink your tone and leave your pointy sticks at home.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
You repeatedly call my objectively true statement "ridiculous" and then chide me for my lack of civility. I don't know what to say to that.
Then, you can both walk away with resigned grins, and retain your posting privileges here.
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We are all heroes, you and Boo and I. Hamsters and rangers everywhere, rejoice!
with your comments that it's hard to refute them. Sort of like the Clinton Administration. (^:^)
Let's start.
"The flat tax completely exempts savings from tax, by allowing full expensing at the business level, by exempting savings income (dividends, interest, capital gains), and by disallowing interest deductions (which represent dis-saving)."
Do you not see the difference between "exempting savings" and "exempting savings income?"
Just how can "savings" be exempted until they are saved? How can that be "expensed at the business level?"
"It's a consumption tax. It's a VAT."
Well... If that's true, does that mean there are no individual flat-rate income tax forms to file and taxes to pay with it?
And, while I won't go so far as to say every taxation expert in the world (not to mention every economist) agrees about this, there are plenty of them who think a VAT is a terrible way to finance a government. For one thing, it's an accounting nightmare, requiring a tax to be calcualted and charged at every point in the production process where "value is added."
Argue that a flat tax rate is better than a progressive one or that it's better than a national sales tax, but don't argue that it's a "consumption tax." It's a "production tax," if it's anything other than an "income tax."
"...every economist in the world -- from libertarian right to communist left -- agrees that the flat tax is a consumption tax. It's not a debatable point."
Just like AGW is not debatable. This is just nuts (and not the way to convince a skeptic). I keep up on this kind of stuff, and you're the absolute first person I've heard make this claim. Point me to one of those economists (preferably one who speaks English) and I'll report back here that I was wrong.
We've traded our National Sovereignty for cheap roofing and yardwork.
They are mathematically provable. I'll try a little more to explain, but at some point you have to make a decision: either do your own research (the literature is voluminous and easy to find) or fold your arms and insist that 2+2=5 without studying the issue yourself.
>>> Do you not see the difference between "exempting savings" and "exempting savings income?"
No, I don't. Because over the long run, they are the same. To understand why, consider the difference between a traditional IRA and a Roth IRA. With the former, you deduct your savings and then tax the distributions when the money is spent ("exempting savings"). With the latter, you save after-tax income and then exempt the earnings on the savings ("exempting savings income"). BUT HERE'S THE CRUX OF IT: assuming a constant tax rate, over the time the choice between a traditional IRA and a Roth IRA will yield the EXACT SAME earnings in present value terms. Do the math yourself -- remembering that if you choose the Roth then you have less to invest because it has to be taxed first. Remember to discount to present value, or else your nominal calculations will be meaningless.
>>> Just how can "savings" be exempted until they are saved?
I don't understand what you are asking here. Please re-word.
>>> How can that be "expensed at the business level?"
Expensing is probably the most important characteristic differentiating a consumption tax from an income tax. If you are taxing income, then the cost of capital goods (equipment, factories, etc.) must be "depreciated" -- i.e., deducted bit by bit over a period of several years. This is because to accurately measure net income, the cost of goods purchased to generate that income must be matched with the income generated, and the income is generated over a period of several years.
On the other hand, if you are taxing consumption, then the cost of capital goods should be fully deducted in the year of purchase. That's because the purchase of productive assets represents savings and investment, and not consumption. Think of it as IRA treatment for capital investments by businesses.
To summarize, an income tax sees capital goods as income-generating costs and therefore requires depreciation, whereas a consumption tax sees them as savings and investment and therefore allows immediate expensing.
>>> Well... If that's true, does that mean there are no individual flat-rate income tax forms to file and taxes to pay with it?
Yes, there is a tax return to file, but that doesn't mean the tax return is taxing "income". You seem to be making a critical mistake by assuming that a consumption tax is something assessed at the tax register and an income tax is something assessed on a return. That's not what differentiates an income tax from a consumption tax, and this is a fundamental point you need to understand. A consumption tax taxes a person's consumption, whether that consumption is measured at the tax register or through a year-end calculation. Yes, you CAN measure a person's consumption by taxing at the cash register. But another way to do it is, as I said previously, to make them (1) report their income, (2) subtract their savings, and then (3) apply a tax rate to the difference to determine tax liability.
>>> And, while I won't go so far as to say every taxation expert in the world (not to mention every economist) agrees about this, there are plenty of them who think a VAT is a terrible way to finance a government. For one thing, it's an accounting nightmare, requiring a tax to be calcualted and charged at every point in the production process where "value is added."
This is a different issue. Right now, I'm trying to explain why the flat tax (and a VAT) is a consumption tax. Whether it's a "terrible idea" or not is a separate issue. Once you get comfortable with the fact that it's a consumption tax, we can debate whether it's a good or bad idea.
>>> Argue that a flat tax rate is better than a progressive one or that it's better than a national sales tax, but don't argue that it's a "consumption tax." It's a "production tax," if it's anything other than an "income tax."
No, it's a consumption tax. And that's not an argument. It's a fact.
>>> I keep up on this kind of stuff, and you're the absolute first person I've heard make this claim.
These two statements are contradictory. If you really kept up with this stuff, we wouldn't be having this argument.
>>> Point me to one of those economists (preferably one who speaks English) and I'll report back here that I was wrong.
Milton Friedman. FA Hayek. Larry Kudlow. Art Laffer. Larry Lindsey. Glenn Hubbard. David Bradford. Robert Hall. Alvin Rabushka. Doug Holtz-Eakin. Bill Gale (Brookings). Kevin Hassett (AEI). Chris Edwards (Cato). Dan Mitchell (Cato). I can keep going, but it seems pointless.
Not the fact that I just lost an hour's work when Firefox crashed, but the fact that, although you didn't provide me a reference, Google did.
In this article, Daniel J. Mitchell writes
"The Flat Tax as a Consumption Tax
To many Americans, consumption taxes are those collected at the cash register- such as the state sales tax--or value-added taxes like those they might encounter on a trip to Europe. Few Americans consider the flat tax a consumption tax because it would be levied on personal income. Economists and public finance experts, however, do consider the flat tax a consumption tax. The confusion revolves around the current tax code's policy of imposing greater penalties on income that is saved and invested than on income that is consumed. A tax code that does not discriminate against savings and investment is considered a consumption-based tax system, regardless of whether taxes are collected at the paycheck or at the cash register. In this respect, the flat tax is a version of a consumption tax.
Both the flat tax and a national sales tax also could be considered ex
While I feel your proposals certainly carry the weight of logic and reason, I doubt they will do well against the entrenched interests in opposition. It is still good to see that the battle is joined.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777