Friday, December 28, 2007

Huckabee and the Fair Tax

I received a questioning email and a link to a Washington Post article about Mike Huckabee and his backing of the Fair Tax. The inquiry was, "why aren't you backing Huckabee? Ron Paul isn't endorsing the Fair Tax?" Good question, and long overdue in addressing.

Mainly, I've given up on the Fair Tax, not because I don't think it will pass (I don't), but mainly because I am not convinced that it is fair after all.

The Fair Tax would eliminate all the various taxes we have at the federal level: income taxes, social security taxes, payroll taxes, and myriad other hidden taxes that are embedded into the cost of goods and services. It would eliminate the IRS.

THAT is the basis of my earlier support for the Fair Tax. I am in favor of all of the above.

Problem is, the Fair Tax would replace those things with a 23% sales tax on services and new goods.

So, what's unfair? It charges the same rate to all people, regardless of income, regardless of age, regardless of wealth. It eliminates all the loopholes currently in the convoluted tax code. If you don't want to pay the Fair Tax, don't spend. (That's kind of like saying, "if you don't like air pollution, don't breathe. You can't avoid it.)

Fine, but I don't think that the amount you spend is any kind of a measure of one's fair share in the cost of government.

I thank the critics on the left for spurring this thought. It's been churning inside my mind for months. So many on the left argue that the basis for payment is one's fair share. I agree! But they have it wrong. I do not believe that because you worked longer, or harder, or smarter, such that your wealth increases, that your share in government correspondingly increases.

True, if you use government services more than others, you should pay more than others. That is fair! But what correlation does that have upon spending (Fair Tax)? Or income (The Left)? Well, none whatsoever.

So, the Fair Tax has become in my mind, something that is typical of anything good that ever comes of government anymore. Mainly, it has some rotten component that I have to hold my nose over in order to enjoy the other parts.

Not exactly the basis for getting all excited, and certainly not enough to make me a single-issue Huckabee supporter. On the balance, I still prefer Ron Paul on all things economic.

I will say that I am glad at least one presidential candidate is talking about the Fair Tax. I still think something useful can come out of it, like really getting towards all of us paying a genuine fair share. That would be very useful, because I have to think that if we were sharing in the tax burden equally, fairly, a whole lot of people would discover that they've been getting a free ride, and that maybe, just maybe, some of this government really isn't so 'essential' or 'necessary'.


Bruce Barnes said...

The Fair Tax Act of 2007 – HR 25/S 1025
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%.

The wealthiest 10 % own 80% of all stock and 73% of all individual assets. Shouldn’t the wealthiest 10 % be paying 73 % of the individual income taxes? The wealthiest 1-percent make 25% of all individual income and the wealthiest 0.5 % make more than the lowest 50%. Does anyone really think that the poorest 50 % of taxpayers should or could finance 50% of the income tax budget? Our present tax system is not doing a good job.

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.

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.
The consumption tax will increase the tax on people about 28.5 %. Instead of individuals paying 60 % of taxes, they will pay 100% of the budget. 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.
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.
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.
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.
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.
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.
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. Does a rose by any other name still smell as sweet?
More information on the fair tax act can be found at "Americans for Fair Taxation"

Bruce Barnes said...

Reasons for a Net Worth Tax System

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

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.

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.

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.

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%.

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.

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 lessee 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.

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.

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.

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.

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.
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.

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.

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.
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.

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.

A progressive tax on net worth levels the playing field. Small companies that create the most jobs become more competitive with large companies.

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.

Mike Kole said...

Bruce- That's a lot to digest there, but for me it boils down to one paragraph from your second comment:

"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."

Bull crap. The fairest share in the cost of government is not the ability to pay, but the share in the consumption of that government's services. That was the whole point of my post. How'd you miss it?

Moreover, the Indianapolis un-election fest that just took place largely occurred because of property taxes- a tax on nominal net worth. There we saw that retirees who owned their own homes, and little else, are deeply punished by ever higher proprety taxes, to the extent that some had to sell those homes due to an inability to pay the taxes. It is very unfair, and people saw and understood it as such, crossing all sorts of lines: class, race, gender, partisanship, age- you name it.

I really think the fairest thing is one person, one bill, with as much determined by user fees as humanly possible.

Anonymous said...

I don't think you've read Neal Bortz' book or else you would have mentioned the "prebate" for lower income households. The thing I like about that is one must be a LEGAL resident as well as be near or below the poverty level to get the monthly payment. Workers here illegally will soon tire of paying the 23% sales/use tax without getting the "welfare" part of the equation.

The part I don't like (about the fair tax) is that it essentially turns every business operating at the "retail" level (including doctors, lawyers, CPAs) in to tax collectors. If the fair tax passes, I forsee the career of insuring compliance with the collection and payment of the new tax to be the new leading job growth area in this country.