Huckabee's Fair Tax

[RunInRed 16,492]

You economist/Huckabee supporters in the group, help me understand this. It seems to me, they are going to get you one way or the other b/c at the end of the day the Government has to have money to operate. I suppose the general idea is with this consumption (sales) tax, it allows the savers or fiscal conservatives to come out ahead. However, to me, it still seems progressive as a percentage of your income and has many flaws. Also, would this wipe out the State tax?

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Behind Huckabee's radical 'Fair Tax'

The Republican candidate is fairly conservative - except when it comes to an ambitious plan for scrapping the IRS.

CNNMoney.com RSS FEEDS

By Pat Regnier, Money Magazine editor at large

January 7 2008: 10:51 AM EST

NEW YORK (Money) -- With Mike Huckabee's big win in the Iowa Republican caucus Thursday, more people are asking, "So what's this guy actually stand for?"

Answer: For the most part, he's a pretty conventional conservative Republican.

But on economics, he has one big, out-of-left-field-or maybe make that out-of-right-field-idea. It's called the "Fair Tax," which is spin-ease for a national retail sales tax.

The sales tax idea isn't Huckabee's invention. It was developed by a group called Americans for Fair Taxation, and it has already been written into a bill sponsored by Georgia congressman John Linder.

Conservative talk radio host Neal Boortz has helped turn it into a grassroots cause, and his FairTax Book, which he co-wrote with Linder, briefly held the No. 1 spot on the New York Times non-fiction best seller list.

Here's a quick guide to how the "Fair Tax" is supposed to work, and to some of the problems it might run into if a President Huckabee ever tried to get it passed.

How would the "Fair Tax" change the tax code?

It would scrap it almost entirely. You wouldn't pay income tax, Social Security and Medicare payroll taxes, the alternative minimum tax, a capital gains tax or estate tax. No more complex tax returns to fill out, either.

Instead, everyone would pay a flat sales tax on almost everything they buy: Food, clothes, new cars, diapers, even health care and financial services.

How high would the sales tax be?

Under the proposal, you'd pay a 30% mark-up over the pre-tax price.

Hang on... I read another story about this and it said the Fair Tax would be 23%

Well, it depends on how you want to do the math.

Say you buy a $1 pack of gum, and then pay 30% in tax, for a total price of $1.30. The extra 30 cents you paid is 23% of $1.30.

Sales tax supporters frequently cite the number as percentage of your spending. They say this makes it easier to compare the sales tax to the income tax.

Critics, including conservative commentator Bruce Bartlett, have argued that people generally think of sales taxes in terms of mark-ups - that's how state sales taxes are expressed - and that FairTaxers are just trying to come up with the lowest possible number to make their idea easier to sell.

A 30% tax on food and medicine would be hard on the poor, wouldn't it?

If that's all there was to the plan, yes. On its own, a national sales tax would be extremely regressive - that is, it would tax everyone who spent everything they earned (and that's a lot of us) at 23% of their income, while those who made enough money to set some aside would, in effect, pay a lower overall rate.

But the sales tax plan would partly offset this effect by sending every household in America, from the family of a poor single mother to Warren Buffett, a check to cover the taxes on their spending up to the poverty level.

Factor in that cash from the government, and each family's net tax burden goes down, so that the Fair Tax looks more progressive.

For example, a family of three earning $30,000 a year and spending all their income would give 7% of their pay to the government; one earning and spending $125,000 would pay a net rate of about 19%.

So the "Fair Tax" really is pretty fair then?

"Fair" is a value judgment, but a lot of people won't think this admittedly lurid scenario sounds fair at all: Let's say a hedge fund manager has a good year and earns $1 billion. If he can somehow manage to scrape by spending, say, $100 million, the other $900 million is tax free. He'll have paid about 2% of his income in taxes that year.

If those who can afford to save a large chunk of their income pay less, the burden of taxes in any given year likely shifts to lower earners.

Advocates of a sales tax point out that the hedge fund manager will still have to pay taxes on that $900 million when he (or his heirs) actually spend it. They argue the tax looks much more equitable if you consider tax burdens over a lifetime.

What's the point of doing this, anyway?

Shifting to a sales tax gives people more incentive to save and invest, which supporters believe would be a big spur to economic growth.

But the cover of The FairTax Book sums up the real grassroots appeal: It shows the letters "IRS" inside a red circle, with a big red line slashed across.

Could this happen?

The Fair Tax may have fans among talk radio listeners, but it hasn't been taken very seriously in Washington so far.

That may be because the sales tax would take away many special tax breaks and loopholes beloved by lobbyists. It would also limit the ability of legislators to target tax breaks to help favored groups - including many in the middle class.

And besides the inevitable debate over fairness, many tax experts, including a panel appointed by President Bush to consider tax reform options, question whether it could really work.

Would legislators really be willing to tax baby food, or will they try to carve out exceptions? With each exception, the rate on everything else would have to be higher.

And with all taxes rolled into one high rate, the temptation to cheat could be very high as well. Too much evasion would require the government to raise the tax.

So while that might not technically be an IRS anymore, you can bet there'd still be plenty of government employees out there enforcing the tax laws.

[CCTAU 3,350]

What an idiotic twisting of the plan. Go to Fair Tax and read up on it. this guy uses all of the idiotic arguments that have already been rebuffed. He read an old article full of bull**** and recycled it.

And he left out that all of the illegals in this country would finally pay their share. Along with all who visit and or work in this country for an extended period of time.

It allows you to control how much tax you pay. If you don't want to pay as much in taxes, then you just don't spend as much.

[AFTiger 282]

Neal's rebuttal

FAIRTAX IN THE NEWS

Early this morning I went to the lobby of the hotel ... dressed like a homeless man ... searching out a cup of coffee. MSNBC was broadcasting their morning show from the lobby. As I stood there I listened to them discussing the FairTax. Naturally, they were getting it all wrong. The frustration was immense. I wanted to blurt you "You have no clue what you're talking about," but hotel security would have had me out in the snow in a heartbeat. I went back to the room and sulked. I'm surrounded by television programs here. I could give them an incredible segment on the FairTax.

I should be downstairs right now with that Fox & Friends crew telling the truth about the FairTax. No takers. So, who do I get to discuss it with? That would be the lady who brought me my oatmeal and toast. Well, at least she says she's going to read the book. I gave her a copy. (and a tip)

Yesterday on the AirTran flight from Atlanta to Boston I was treated to a New York Times article by one Tom Redburn. Maybe that was Redburn I heard yammering in the lobby this morning, because he, too, has no clue. Check out this excerpt from Redburn's article:

"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 because $30 is 23 percent of $130."

Arrggggghhhhhhhhh!

As you read this there is a truck driver hauling a load of soup across on a desolate Interstate in Kansas. On the back of his truck he has written "fairtax.org" in the grime on his tailgate. This truck driver knows know about the FairTax than did those people in the lobby this morning or the fancy New York Times reporter.

Someone get me a venue tonight in Manchester! Get a few hundred people in there! Let me tell them what this is really all about!

Damn, this is just killing me! Can you tell?

Tom Redburn made several mistakes in his article. First ... nowhere ... not in one sentence ... did Redburn make one comment about the concept of imbedded taxes. He didn't even drop a hint. There are several core principles of the FairTax, and one of them is that the new national retail sales tax will replace the federal taxes that are already embedded in the price of everything we buy. We didn't make the embedded taxes up. The study was done by Harvard economists. I thought the left loved Harvard. These economists determined that, on the average, 22 percent of the cost of everything we buy represents the total embedded tax burden of every person or company responsible for bringing that product to the marketplace. Those taxes disappear under the FairTax, and when they disappear competitive marketplace pressures will drive that tax component out of the price. Then along comes the 23 percent FairTax to replace it. Result? The item costs pretty much the same. Now any reporter who wanted to do any research at all would be able to figure this out ... yet Redburn makes absolutely no mention at all of embedded taxes in his article.

Why? Sloppy reporting? Or an agenda? This is a concept that hundreds of thousands of waiters and waitresses, truck drivers, construction workers, electricians, retail and service workers, farmers, hotel housekeepers and yes, even accountants understand .. but a New York Times reporter can't?

There are over 70 sponsors of H.R. 25, the FairTax Act, in the congress. Does Redburn want us to believe that these sponsors would actually put their name on a piece of legislation that would add 30 percent to the price of everything we buy?

Oh ... and about that 30 percent crap. (I used to call it nonsense ... but it's been around so long now it's just crap). Under the FairTax when you walk into the store to buy a $100 toaster, the price tag will say "$100." When you get to the cash register you will pay $100. No more, no less. On your receipt you will see that $23 of the purchase price went to the government as the FairTax. The rest is retained by the retailer. Now I know we have a problem with government schools in this country, but even so, most people can figure out that $23 is 23 percent of $100.

With every day that passes, and with every negative article I read, I come to believe more strongly that what we're dealing with here is "reporters" who are really activists. They have an agenda, and that agenda is to work to maintain the current tax status quo. They're not attempting to honestly report on the FairTax, they're trying to sabotage it.

We have an incredible tax reform plan here that can grow out economy, transfer massive amounts of power from the government to the people, and make the United States the world's tax haven for business and industry ... and people like Redburn and others are doing everything they can, either out of ignorance or design, to destroy it.

Neals Nuze

[Wishbone 0]

This tax plan would put most of the lobbyists out of business and would undoe much of the government curruption and meddling. I will vote for Huckabee if i think he has a chance to win, soley based on his tax plan.

Too many good points about this plan to list.

[Auburn85 432]

i figured more people would be happy to not have their income taxed. I mean really, how messed up is it that we've become accustomed to not recieving our full paycheck? Instead we get it with numerous deductions.

With the fair tax it's obviously a consumption tax. The government only gets money unless you buy stuff. So at the federal level ,you would not be PUNISHED for working.

[TexasTiger 13,028]

This tax plan would put most of the lobbyists out of business and would undoe much of the government curruption and meddling.

You're gonna have to explain that one to me.

[AURaptor 1,126]

This tax plan would put most of the lobbyists out of business and would undoe much of the government curruption and meddling.

You're gonna have to explain that one to me.

No more corporate loop holes.

[TexasTiger 13,028]

This tax plan would put most of the lobbyists out of business and would undoe much of the government curruption and meddling.

You're gonna have to explain that one to me.

No more corporate loop holes.

Lobbyists try to influence legislation beyond tax law.

[CCTAU 3,350]

This tax plan would put most of the lobbyists out of business and would undoe much of the government curruption and meddling.

You're gonna have to explain that one to me.

No more corporate loop holes.

Lobbyists try to influence legislation beyond tax law.

He said most not all. the government will always have those who want more for less. But from our standpoint, we only pay taxes on the stuff we really want. We still get a rebate check on the taxes we would have paid on the necessities. AND only those who apply and are legally working in this country can apply to get this back. So everyone pays taxes, but only Americans and legals get the tax break.

[TitanTiger 20,511]

Obviously the details need to be scrutinized but the biggest upside to this kind of tax for me is that it taxes the underground economy. People who deal in cash under the table: drug dealers, prostitutes, pimps, and even more normal hard-working people like illegal immigrants and people who insist on cash to avoid income taxes would pay the tax.

[RunInRed 16,492]

Is the 30% figure accurate on all goods? i.e. a $1 pack of gum would now cost $1.30? Would this apply to everything - autos, etc?

If so, this makes Langford's 10% seem like a bargain!

[Captain Liger 0]

I dunno. Even if you're allowed to keep your entire paycheck and not pay income tax it doesn't seem like that money you get to keep would make much of a difference.

Say I get that $63k BMW I've been eyeing and know I can afford with what I'm earning now. Under this new tax law go ahead and slap on another $18,900 in tax. So the actual price is $81,900. Holy crap, I could buy a low end Porsche for that. No, wait, I couldn't because the new price of that would be over $100k. Crap.

Seems like people's salaries are gonna have to rise to keep up with this.

Then again, maybe I'm wrong. Or maybe I should just buy a Pinto.

[AFTiger 282]

I dunno. Even if you're allowed to keep your entire paycheck and not pay income tax it doesn't seem like that money you get to keep would make much of a difference.

Say I get that $63k BMW I've been eyeing and know I can afford with what I'm earning now. Under this new tax law go ahead and slap on another $18,900 in tax. So the actual price is $81,900. Holy crap, I could buy a low end Porsche for that. No, wait, I couldn't because the new price of that would be over $100k. Crap.

Seems like people's salaries are gonna have to rise to keep up with this.

Then again, maybe I'm wrong. Or maybe I should just buy a Pinto.

As I understand it, the price now already reflects the various taxes which would be removed under the fair tax. The net price to you would not change.

[Captain Liger 0]

I dunno. Even if you're allowed to keep your entire paycheck and not pay income tax it doesn't seem like that money you get to keep would make much of a difference.

Say I get that $63k BMW I've been eyeing and know I can afford with what I'm earning now. Under this new tax law go ahead and slap on another $18,900 in tax. So the actual price is $81,900. Holy crap, I could buy a low end Porsche for that. No, wait, I couldn't because the new price of that would be over $100k. Crap.

Seems like people's salaries are gonna have to rise to keep up with this.

Then again, maybe I'm wrong. Or maybe I should just buy a Pinto.

As I understand it, the price now already reflects the various taxes which would be removed under the fair tax. The net price to you would not change.

But the sticker price is always minus tax, title and license. So if the sticker price is $63k before TTL like the current model I'm looking at then you still have to calculate in the 30% national sales tax, right? Which would bring the total of the car up to $81,900?

I'm probably missing something. I haven't read enough about it, I admit. But, geez, if I have to pay almost another $20k in taxes for one purchase??? I dunno... seems like my paycheck getting taxed ain't such a bad deal afterall.

[AU_tiger_2000 0]

I dunno. Even if you're allowed to keep your entire paycheck and not pay income tax it doesn't seem like that money you get to keep would make much of a difference.

Say I get that $63k BMW I've been eyeing and know I can afford with what I'm earning now. Under this new tax law go ahead and slap on another $18,900 in tax. So the actual price is $81,900. Holy crap, I could buy a low end Porsche for that. No, wait, I couldn't because the new price of that would be over $100k. Crap.

Seems like people's salaries are gonna have to rise to keep up with this.

Then again, maybe I'm wrong. Or maybe I should just buy a Pinto.

If you buy a high end $63k BMW you are already going to be paying luxury tax ($1200), sales tax (@ 6% that would be $3780), possibly gas guzzler tax (around $2000) along with others that I am sure that I am leaving out. Now consider that you are probably in a 30% tax bracket if you can afford such a car coupled with the extra taxes that you are already paying on the car and the one time payment of $18,900 might not be as bad.

[AFTiger 282]

I dunno. Even if you're allowed to keep your entire paycheck and not pay income tax it doesn't seem like that money you get to keep would make much of a difference.

Say I get that $63k BMW I've been eyeing and know I can afford with what I'm earning now. Under this new tax law go ahead and slap on another $18,900 in tax. So the actual price is $81,900. Holy crap, I could buy a low end Porsche for that. No, wait, I couldn't because the new price of that would be over $100k. Crap.

Seems like people's salaries are gonna have to rise to keep up with this.

Then again, maybe I'm wrong. Or maybe I should just buy a Pinto.

As I understand it, the price now already reflects the various taxes which would be removed under the fair tax. The net price to you would not change.

But the sticker price is always minus tax, title and license. So if the sticker price is $63k before TTL like the current model I'm looking at then you still have to calculate in the 30% national sales tax, right? Which would bring the total of the car up to $81,900?

I'm probably missing something. I haven't read enough about it, I admit. But, geez, if I have to pay almost another $20k in taxes for one purchase??? I dunno... seems like my paycheck getting taxed ain't such a bad deal afterall.

The sticker prices reflects the cost of material, cost of labor, transportation, dealer profit, and all taxes on materials, labor, transportation, and dealer profits. Those taxes are hidden.

[otterinbham 0]

I dunno. Even if you're allowed to keep your entire paycheck and not pay income tax it doesn't seem like that money you get to keep would make much of a difference.

Say I get that $63k BMW I've been eyeing and know I can afford with what I'm earning now. Under this new tax law go ahead and slap on another $18,900 in tax. So the actual price is $81,900. Holy crap, I could buy a low end Porsche for that. No, wait, I couldn't because the new price of that would be over $100k. Crap.

Seems like people's salaries are gonna have to rise to keep up with this.

Then again, maybe I'm wrong. Or maybe I should just buy a Pinto.

I'm not sold on the Fair Tax idea, but look at it this way, CL:

If you buy something today for $1, under the current mess of tax codes it's effectively costing you $2.

That's because, for every dollar you earn, after Federal, State, Local, FUI, SUI, Property, Sales, License Plate, Capital Gains, Alcohol, Unemployment, etc. etc. etc. etc., you pay anywhere between 40-50% of your income in taxes. So that, theoretically, with a 23% sales tax, you actually come out ahead.

Oliver Wendell Holmes once wrote that taxes were the price that we pay for civilization. But when he wrote that at the turn of the last century, the total tax burden for the wealthiest Americans was around 5%, while most people paid less than 1%. I think he, along with the Founding Fathers, would be both astonished and outraged at the level of taxation we are being forced to swallow nowadays.

So, next time you walk into a store and you see something you want to buy, ask yourself, "Is this something I would buy for twice the price?" It's a pretty darned good way to eliminate impulse purchases.

[RunInRed 16,492]

So assuming we are running our gov't on 45-50% tax as you suggest and yet our national debt continues to grow daily - those revenues still aren't enough - what spending do you guys suggest cutting to balance the budget....with only 23% taxes! So you see, you can't only look at it from the taxpayers' economic point of view. You also have to consider what services the Gov't would have to stop providing. Of course, we do spend about $720M a day in Iraq...I guess that would be a decent place to start with cost saves.

[AFTiger 282]

So assuming we are running our gov't on 45-50% tax as you suggest and yet our national debt continues to grow daily - those revenues still aren't enough - what spending do you guys suggest cutting to balance the budget....with only 23% taxes! So you see, you can't only look at it from the taxpayers' economic point of view. You also have to consider what services the Gov't would have to stop providing. Of course, we do spend about $720M a day in Iraq...I guess that would be a decent place to start with cost saves.

There are several thousand earmarks that I would start with.

[CCTAU 3,350]

Please read up on it before you start taking off your shoes and doing the adding yourself.

EVERYTHING you buy today has an extra 23% build into the cost of it. If we go to the fair tax, that 23% will not be charged to the manufacturer. It will be charged to you. So in essence, you still ONLY pay the state and local taxes. It's jsut that now, EVERYONE will have to pay.

Right now, not everyone pays a full share of taxes. We have loopholes, tax shelters, etc. All that will go away. The government will have more money due to the fact that a serious tax burden has been lifted off of business owners allowing them to invest and hire more folks who pay more taxes. Don't worry, the government will not go broke.

And from a personal standpoint, we get to keep manage our own money.

The 63K BMW will now cost 23% less on the sticker. But you will pay the 23% in taxes. Therefore, the cost will remain the same, just the taxes come from a different place.

The $1 pack of gum will now have a sticker of .77 and you will pay the .23 + state and local. Your cost will still be $1 + tax.

[otterinbham 0]

So assuming we are running our gov't on 45-50% tax as you suggest and yet our national debt continues to grow daily - those revenues still aren't enough - what spending do you guys suggest cutting to balance the budget....with only 23% taxes! So you see, you can't only look at it from the taxpayers' economic point of view. You also have to consider what services the Gov't would have to stop providing. Of course, we do spend about $720M a day in Iraq...I guess that would be a decent place to start with cost saves.

Actually, due to all the loopholes, etc. etc., less income is currently getting taxed than what gets taxed under the fair tax system. Plus the current system actually penalizes people for saving money--ask any business owner or person in an upper tax bracket about all the gyrations he or she must perform by December 31st to reduce taxability.

What's more, there are tons of things that we can reduce immediately, starting with our massive entitlement system. According to the Federal government's own estimates, the average worker will net 4.6% on equities versus about 2% return on what he puts into Social Security. Yet the system is about to be a massive drain on the budget of the United States.

[Auburn85 432]

plus, there's this thing called a prebate. you would get one each month according to how much federal tax you spent on groceries.

[CCTAU 3,350]

plus, there's this thing called a prebate. you would get one each month according to how much federal tax you spent on groceries.

Actually, not how much you spent, but an already calculated amount of the necessary amount that you would need to spend in order to feed a family of your size. So if you are large and eat a lot, you will not break even.

[RunInRed 16,492]

Well regardless what you think about it (and I'm pretty skeptical) this plan has about as much chance of passing as Ron Paul winning the nomination.

[Captain Liger 0]

Well regardless what you think about it (and I'm pretty skepticle) this plan has about as much chance of passing as Ron Paul winning the nomination.

So what would you say the chances are? One in ten? One in a hundred?