Where Did Those Fairtaxers Go? An Update

Last week, I wrote that Americans For the Fair Tax COO David Polyansky left the group.

Turns out that he's now the chief operating officer of one Mike Huckabee For President, Inc.

"He was instrumental in bringing in the FairTaxers in Iowa and has a plan for getting them out to the caucus next month," a Huckabee spokesman says.

Comments

I wrote some time ago my own blog that his dedication to this FairTax scheme runs the risk of turning Huckabee's candidacy into a one-issue sideshow. The American people only have room in their minds for so many big ideas, and a fundamental overhaul of our tax structure is one for which the majority of voters will not have much patience.

When Huckabee came in a surprise second in the Ames Straw Poll in August, the FairTax campaign played no small part. Their assistance in purchasing tickets and transporting delegates to the polling places was a crucial element in his strong showing. As the winds began to blow his way recently, I thought that in order to broaden his appeal, Huckabee would downplay, or at least cease to emphasize, his support for the FairTax scheme.

Then, last Wednesday, he actually brought it up unbidden during the CNN/YouTube GOP debate. Now, this latest news indicates to me that Huckabee is practically wedded to FairTax as a theme of his campaign. In my opinion this limits his electability in a significant way.

If Steve Forbes couldn't sell a flat tax scheme to the American people during the peace and prosperity of the Clinton years, Huckabee will not be able to sell it now. This is especially true due to the genesis and nature of FairTax, which does not hold up well at all under scrutiny.

Conservative economist Bruce Bartlett even characterizes it as a "crackpot scheme."

For starters, the FairTax is deceptively calculated. When you think of a 23 percent sales tax, you think of paying an extra 23 cents on the dollar. That's how every sales tax in the world works. The FairTax, on the other hand, doesn't represent 23 percent of the pre-tax value of the item you bought, but the post-tax value of the item. So, under FairTax, you wouldn't pay $1.23 for a $1 widget - but $1.30, since the 30-cent tax is 23 percent of $1.30. How straightforward!

The legerdemain doesn't end there. Unlike every other sales tax in the world, the FairTax actually applies to everything - every pencil, every tank - the government buys. Unfortunately, the FairTax proposal doesn't take into account this increase in government spending. Thus, it will either provoke a massive cut in federal spending or a massive increase in taxes.

And what about the poor who bear the brunt of this highly regressive tax? The FairTax would track every household's monthly income and then cut checks to minimize the pain, a logistical challenge that will ultimately resemble some welfare state nightmare. What's more, this would cost gobs of money, forcing further cuts in spending.

For these and other reasons, every reputable tax expert who has ever looked at the FairTax has concluded that the true tax rate would have to be much, much higher than 23 percent (or even 30 percent) to work - and, even at that unrealistically low rate, the plan would inspire massive tax evasion. In short, the FairTax is a crackpot scheme from beginning to end.

And FairTax is no more a "grassroots" movement than the movement to abolish the estate tax. It is the brainchild of a group of billionaires who see it as a way to keep more of their generational wealth in their families' hands. The failings of the FairTax as policy are well-documented, and will only become more obvious as more experts begin to take their shots at it.

If Mike Huckabee really is devoted to this scheme of imposing a national sales tax, and if he makes it through the primary to win the GOP nomination, the Republican Party will have a serious problem on its hands.

Posted by UncommonSense | December 3, 2007 11:43 AM

Uncommon Sense has accepted, wrongly, the entirely misleading assertions about the FairTax by Bruce Bartlett, a man whose living is derived from manipulation of the income tax code.

Let's take them one at a time:

1. If expressed the way income taxes are expressed (where the tax is inclusively calculated as part of the overall price), the FairTax rate is 23%. If it is expressed exclusive of the retail price (as are most sales taxes) it is 30%. Because this is designed to replace the income tax we at FairTax.org express it the same way as the income tax although explanations of the two methods abound on our website. No secret and no attempt to mislead just spin from Mr. Bartlett who knows full well that whether one measures in "feet" or "meters" the measurement is the same.

2. Up to 20% of everything we buy today--yes, pencils and tanks--already contain an "embedded" and hidden income tax and FICA cost. Mr. Bartlett also knows this is the truth. The FairTax makes visible this tax cost in a transparent figure of 23% (or 30% if one prefers tomatoes as opposed to tomatoes). As these "embedded" income tax costs are eliminated, retail prices for everything we buy will fall and the net difference between retail prices today and after the FairTax will be minimal. The cost to government has been extensively researched and certainly is accounted for but one doesn't have to be a tax lobbyists to understand this: while federal government purchases will seem to cost more, revenues will offset dollar for dollar those expenditures. Government purchases must be included so as not to create distortions in the economy between the public and private sectors which would hurt private business.

3. Mr. Bartlett either knows full well or should know that the prebate is not based on family income but family size so there is no "logitical nightmare" (as he has helped create with the income tax system). Simply put, the federal government gets out of the business of tracking income and spending under the FairTax. Bartlett compounds this distortion by calling the FairTax "regressive" when he knows that it eliminates all federal taxes for those below the poverty line and offsets a greater percentage of federal taxes the closer one is to poverty. It also eliminates the highly regressive FICA tax. This is the definition of a "progressive" tax system.

Mr. Bartlett is not an economist so perhaps he does not know that scores of "reputable economists" have embraced the FairTax as the best thing that can happen to both taxpayers and our economy. More than 80 have signed an open letter supporting the plan on our website, www.fairtax.org

Finally, as to the the "political viability" of embracing the FairTax as a candidate, that is for each to weigh. But from where we sit, we hardly ever meet a citizen who, once they have learned the facts, does not like the FairTax. Our current system is driving wealth and jobs offshore, benefits primarily lobbyists and Members of Congress and is an annual torture for taxpayers.
Political leadership should mean getting ahead of the crowd and actually leading but in this case there is every indication that the body politic would be more than willing to be led to the FairTax.

And by the way, Uncommon Sense, this is a true grassroots movement driving public policy from outside Washington irrespective of the fact that successful businessmen first commissioned public polling that indicated that citizens favored a FairTax type approach. The $22 million of research, raised by these far thinkers, that support the idea came only after market research indicated the public desired this fundamental change in our tax system. Your assertion that thisn is designed to protect their wealth when, infact, existing wealth is taxed under the FairTax when spent (unlike the current system) is both insulting and uninformed.

Yes, it is a little hard to wrap your mind around the idea that a tax proposal might benefit every income level instead of the class warfare arguments that have again been trotted out here but that is exactly the case with the FairTax. Please go back to your candidate (where I suspect you work) and get them on the FairTax instead of throwing mud on a worthwhile idea.

Hoagie at FairTax.org

Posted by Hoagie | December 3, 2007 2:19 PM

For FY 2006, the IRS reports collections of 44.7% of Individual Income tax and 13.8% of Corporation income tax for the budget of $2.76 trillion. When employment taxes are included, individuals contribute 60 % to the budget while corporations only pay 28.5%. Income is not a measure of being rich, net worth is. Taxes should be based on ones ability to pay. Individuals have assets of $55 trillion and corporations have over $60 trillion. If corporations were paying their fair share, we would not have a budget deficit of 9%.

America should not adopt this tax system, HR 25/S 1025, that is based on all retail sales for personal consumption of new goods and services, for the following reasons.

1. The tax base is not much more than the present system. The base is less than the Gross Domestic Product, (GDP) $14 trillion. A tax on net worth is 8 times more, $115 trillion.
2. The consumption tax is not fair. Instead of individuals paying 60 % of taxes, they will pay 100% of the budget. That is a tax increase of about 28.5 % on people. In FY 2006, corporation income tax was 13.8 % of the federal budget and corporate employment taxes were 14.7 %. Under the “Fairtax plan,” businesses do not pay taxes. Corporations enjoy all of the privileges of persons except the vote. They benefit from infrastructure, employee public education, law enforcement and limited liability. If corporations do not pay taxes, their privileges should be revoked.
3. A sales tax is regressive. In a study of Texas sales tax, those who earn less than $22,000 a year pay 14.2 percent in state and local taxes, those who earn more than $60,000 wind up paying about 5 percent. Even with the rebate, wealthier people and older people that have already purchased most of their needs will pay less than 23% of their income.
4. Taxable property is what most of the people have. Intangible property which is not taxable is what the wealthiest people have the most of. Taxable property – any property (including a leasehold of any term or rents for such property), but excluding intangible property and used property. Intangible property – an asset that is not physical and not real property. It includes copyrights, trademarks, patents, goodwill, financial instruments, securities, commercial paper, debts, notes, and bonds. Taxable property or services purchased from a seller for a business purpose in an active trade or business, or for export from the United States for use or consumption outside the United States are not taxed. Purchases by consumers are taxed. Investments (property purchased exclusively for purposes of appreciation of income or the production of income) are not taxed. Used property – defined as property on which the federal sales tax has been collected already, and property that was held for other than a business purpose on December 31, 2008 (the day before the sales tax became effective). The term “used” relates to whether or not the sales tax has been paid previously, and not just to whether or not the item has been sold previously. It appears that almost everything will be taxed for the first few years.
5. Insurance will cost 23% more. All types of insurance: Life, health, property and casualty, liability, marine, fire, accident, disability, and long-term care will be taxed.
6. The consumption tax is not fair. When a company has a dispute with a customer, they may find themselves in a court that only the customer has funded and to add insult to injury, the customer has to pay his lawyer 23 % more than the company does.
7. Everyone will start their own business. If a business pays Fair Tax on items for business use, the owner can get that FairTax back. Investments (property purchased exclusively for purposes of appreciation of income or the production of income) are not taxed.
8. The FairTax Act will phase out appropriations for the Internal Revenue Service and then spend billions recreating bureaus to administer the Fair Tax. The IRS is uniquely qualified to administer the Fair Tax with people, computers, and facilities in every state and major city. The fair Tax Act will pay retailers to collect taxes and keep records for six years and pay states to collect from retailers. An administering state enters into a cooperative agreement with the U.S. Treasury Department governing the administration of the FairTax by such state. The Social Security Administration sends out the monthly rebates. The Secretary of the Treasury is given the authority to promulgate regulations, to provide guidelines, to assist states in administering the FairTax, to provide for uniformity in the administration of the tax, and to provide guidance to the general public. The Secretary of the Treasury is required to establish an Office of Revenue Allocation to arbitrate any disputes between states regarding the destination of sales for purposes of allocating sales tax revenue among the states. The Secretary of the Treasury and each state sales tax administering authority may employ persons as necessary for the administration of the FairTax and may delegate to employees the authority to conduct hearings, prescribe rules and regulations, and perform other such duties. Following due process of law, the tax administering authority can seize property, garnish wages, and file liens to collect FairTax amounts due. Each sales tax administering authority must establish, maintain, and adequately staff an effective, independent Problem Resolution Office to protect citizens from abusive administration. The sales tax administering authority must establish and maintain an appeals process that provides a full and fair hearing of any dispute regarding tax liability. The Treasury Department may use FairTax data in preparing economic or financial forecasts, projections, analyses, or estimates. The fair Tax Act establishes an Excise Tax Bureau within the Treasury Department to administer those excise taxes not administered by the Bureau of Alcohol, Tobacco and Firearms. It also establishes a Sales Tax Bureau to administer the national sales tax in those states where the federal government directly administers the tax and to discharge other federal duties and powers relating to the FairTax.

Posted by Bruce Barnes | December 3, 2007 8:00 PM

America should adopt a tax system based on net worth for the following reasons.

1. A tax on net worth has the largest tax base. The net worth of this country is larger than the income system, about $9 trillion, and the consumption system, less than the gross domestic product, (GDP) about $14 trillion. The individual assets of $55 trillion and business assets of about $60 trillion is over 8 times larger than the consumption system.
2. Income is not a measure of being rich, net worth is. George Will has said that the wealthiest 1-percent of households have more assets than the lowest 90%, $16 trillion. Since the total individual assets are $55 trillion. The wealthiest 10% own about 73% of the net worth in the USA. The biggest 1-percent of corporations own 80 % of the business net worth.
3. Taxes should be based on ones ability to pay. A tax on net worth is the fairest tax to all. Net Worth is the measure of ones ability to pay.
4. Taxes on net worth have the lowest percentage. America’s budget is about $3 trillion. A consumption system requires a sales tax of over 21%. A net worth tax would be less than 3%.
5. A tax on net worth is the most versatile. Besides a flat tax of 3% for individuals and businesses, there are other possibilities. Some people say we have double taxation. We could tax only people at 6% or only businesses at 6%. Since businesses can’t vote and they pass there cost on to their customers, that is the best way to go. Next is the progressive path. The first $1 million could be tax-free and increase by 0.1 % for each $1 million up to 5% after $50 million.
6. A tax on net worth is the simplest to file. Take what you own minus what you owe. Our present tax system is 63,000 pages of loopholes. Example: a person leases a car. The lessor does not own the car, so no tax. The leasing company owns the $25,000 car, but has a $10,000 loan. The company is taxed on $15,000. ($25,000 minus $10,000) The loan entity has $10,000 of assets so it pays tax on $10,000.
7. A tax on net worth is the easiest to enforce. Since this is a property rights country, all assets are traceable. Taxing only the most prosperous 10 % of businesses and people is the most efficient tax system.
8. Like the consumption tax, all of our present taxes could be replaced, Individual income tax, corporation income tax, employment taxes, gift tax, and estate tax. Plus the excise tax.
9. Guarantees funding for all budget items like social security and Medicare by eliminating use taxes. User fees or tolls are another way for the wealthy and businesses to avoid paying taxes. Budget items come out of general funds.
10. A tax on net worth promotes transparency. When a company shows an annual report with a book value of $1 billion and only $10 million in taxes, they aren’t paying their full taxes.
11. A tax on net worth promotes free trade. Money, inventory, buildings, etc. are all assets so everyone can move assets around for the best effect.
12. Eliminate inflation. Dr. Milton Friedman said to end inflation, stop printing money. By increasing the tax rate 1%, the national debt of $9 trillion could be paid off in 10 years.
13. We start collecting 100 percent of our earnings in every paycheck. We all get virtual raises, since payroll taxes are no longer siphoned from our checks.
14. Reducing taxes on the poorest 90% will raise revenue. When people have more money to spend, they buy more goods, which means more profit for businesses and the wealthiest 10%. Money flows up, water trickles down.
15. A tax on net worth promotes jobs. Employees cost companies less since the employment taxes are repealed and therefore employees become more competitive in the global market.
16. A progressive tax on net worth levels the playing field. Small companies that create the most jobs become more competitive with large companies.
17. A tax on net worth removes some incentive to move plants overseas. Taxes are based on assets no matter where they are located. What you own minus what you owe.

Posted by Bruce Barnes | December 3, 2007 8:14 PM