While it looks like Mike Huckabee is going to fade into the background and wind up without the Republican primary nomination (such a shame, I was hoping the evangelicals would come through – he’s obviously the most defeatable candidate in a general election), his “solution” to “fix” American taxes lingers on in the nonsense that other candidates who haven’t given up the ghost (like Ron Paul) spew forth. This whole notion of abolishing the IRS, returning taxes to the people, and establishing a so-called “fair tax,” where people pay tax on what they consume only (a national sales tax, essentially) is irritating to say the least.
We’ve been down this road before folks, it doesn’t work. It won’t work. But saying things like “abolish the IRS” turns on the libertarians and the far-right fiscal conservatives who believe that any dollar in government coffers is a wasted dollar that should be spent at your local McDonalds.
On Marketplace, from American Public Media a while back, Len Burman, director of the Tax Policy Center at the Urban Institute, had his say on the not-at-all-”fair tax” plan, and he had some choice words for it:
Mike Hucakebee 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.
Agreed. The American tax system needs work, no doubt about it, and yes, it could even be scrapped and replaced with something new. But this, this isn’t it. Taxes like this appeal to the middle class by claiming it’ll return their money to them, when in reality most of the middle class will see a serious tax hike and won’t be able to pay for it. Lower income Americans get off because they don’t consume as much, and are more likely to participate in the underground economy to which taxes aren’t levied. And the upper crust? They could care less – the taxes won’t be so much as a blip on their radar, or they’ll just get around them.
[ Huckabee Tax Plan Would be a Disaster ]
Source: Marketplace (American Public Media)