This is not about the merits of the FairTax itself, but about whether Mike Huckabee will be helped or not by his advocacy of the radical tax plan to replace most all current taxes with a national sales tax. I believe it is a dangerous, risky stance for Mike. Here's why…
- While not nearly as complicated as I expected it to be, the FairTax is such a radical change in our tax policy that the average voter will not immediately grasp what it's about. Even some should-know-better reporters are spouting falsehoods about it. To the extent that it is reducible to a soundbite, it is much more likely for that soundbite to be a negative one used by opponents of Huckabee and/or the FairTax.
- Continuing that point, detractors will make no effort to fairly portray the plan, even if they do understand that. We already see the merging of these 2 points with media assertions that the plan is overly regressive and, most damaging, that it will cause prices to rise by over 20%. Neither is actually true, and the latter charge is not even close to being true.
- The point about illegal immigrants and under-the-table earners now paying their fair share is a rhetorical winner, but it can be intellectually challenged by the expectation that a new underground economy would arise. The blackest of black markets.
- Given the criticism of Mike thus far about his record in Arkansas with taxes, and the skepticism by hardcore fiscal conservatives that he is bona fide, the FairTax is especially problematic for him. Given the first 2 points about confusion and obfuscation, voters, unable to sort it all out with facts, unsure whom to believe, might use the FairTax as a sign that Mike's opponents are correct. It does require a huge outlay of federal funds with its prebate (what makes it not regressive). Of course, the prebate is essentially a refund of taxes paid, so financially for the government it is not an outlay, but a wash. Will voters take the time and effort to figure that out, or will they be hoodwinked by devious ads and mailers saying "see, we told you this guy was a big-government conservative. See how much money he wants to spend."?
- Likewise, detractors will deviously assert that the FairTax is a big tax hike. "See, we told you this guy was Tax Hike Mike. He wants you to pay 23% more for your groceries. Will you even be able to afford that next new car?" In a soundbite world, can you make voters understand that CURRENT prices already reflect the cost of taxes, and that the FairTax wouldn't cause prices to rise materially, if at all?
Keywords: Take Control & Keep It Simple
The best pithy argument for the FairTax is not the abolishment of the IRS (even though that is a catchy line), but about Americans being more in control, and about making taxes simpler to understand. Fiscal conservatives talk about "starving the beast" of government, but how do you do that with an income tax (not to mention all those other federal taxes)? For most of us, we can't just stop making an income, so we have to keep feeding the beast. Sure, we can seek out tax shelters and such, but generally speaking those are marginal effects, and so the beast gets fed. With a sales tax, effectively kicking in above and beyond basic needs, taxpayers do have more control over how much food to put in the bowl, by way of discretionary spending. Of course, there are macro-economic impacts to those spending decisions which should not be ignored, but I would argue that for the most part, these would be purchases delayed, not purchases avoided altogether.
How would that work? Well, it might not work, given how hard it is for the federal government to pay attention to us. But you do what you can, and if you don't like the way the government is operating, or disagree profoundly with how it spends its money, you can "vote with your wallet". A drop in the ocean, it may feel like, but no less important than your single vote among millions. Even if there is no direct impact or benefit, there would still be a psychological or symbolic benefit for taxpayers. In short, a sales tax is more in line with the precepts of "of the people, by the people" than is the income tax.
Mike should also hammer away at the idea of making taxes simpler. You shouldn't need a CPA to understand how your government is funded. The current system is so complex that even the experts can't figure it out. Such a setup fosters discord and distrust that weasels will not pay their fair share. It breeds anxiety that the taxpayer is a sucker unless he ponies up for expert help.
Both of these rhetorical approaches connect at the point of governmental transparency, a big hot button for young voters. And so while the FairTax platform for Huckabee presents some difficult challenges, it also affords an opportunity to connect with voters if handled correctly. Governor Huckabee has demonstrated an ability to lead and persuade on issues important to him, and I have confidence in him on this subject, despite its risk.
4 comments:
Increasingly, Mr. Huckabee is what leaderhip looks like. I've been extraordinarily pleased at Mr. Huckabee's keen understanding, and ardent advocacy, of the FairTax. His grasp of the business benefits are crisp. And, where others live in denial, I truly believe that he is aware of the economic emergency currently in progress that will go from bad to worse, very soon, if we do not get this job done.
He's in good company.
I agree that Fair Tax is a risky political move. Personally, I'm more in favor of a Flat Income Tax, but the Fair Tax is preferable to our current system.
It is imperative that FairTax supporters continue to rebuke it's detractors at every turn. Be it in print or aired on TV or radio. Everyone who's been on board with the FairTax knew the vested interests in the current code would rear their heads as we gained strength. They knew that an educated public was our ally and their enemy.
Cal, Dan Mastromarco did an excellent job of describing the downside of the "flat" income tax (favored by demagog, Bruce Bartlett). He resurrected a former 1999 comment (which I paraphrase, with source noted, for easier reading) in response to Bartlett's recent (ridiculous) attacks on FairTax. -Ian
(Paraphrased) Reply by Dan R Mastromarco (LL.M., Taxation, Georgetown, principal in the Argus Group, adjunct professor at the University of Maryland, International Management Program, and research consultant to Americans for Fair Taxation - FairTax.org) to:
"A National Sales Tax Doesn’t Add Up" by Bruce Bartlett, December 29, 1999
Many engaged in true tax reform find Bartlett-type attacks exasperating, if not embarrassing. I'd like to convey perspective of both flat taxers and sales taxers who believe that such attacks are counterproductive, but first provide some political history by which to frame said perspectives.
For years Conservatives have posited that a VAT is bad policy (when liberals were discussing it), fearing it would become additional to an income tax (it was called a "money machine"). Circa 1980, conservative intellectuals touted Hall-Rabushka "subtraction method"[ H-R ] VAT which taxed business value added at the business side and labor value added at the labor side. Unlike European VATs (identical in scope), H-R became favorite of Dick Armey and Steve Forbes. It eliminated steeply progressive tax rates and tax on savings. Because of the prior VAT criticisms, H-R was packaged as the "flat tax" and is sold as an income tax to this day, rather than the VAT that its DNA characterizes it as being.
Some conservative commentators have called for the repeal of the 16th Amendment and for the adoption of the flat tax, (despite the fact that it is styled as a direct tax and could not be adopted with such repeal). Mr. Bartlett has called the national sales tax [ie, the FairTax] a VAT (which it isn't), castigated VATs as evil, and has said that sales taxes have become VATs in Europe (which they didn't). In the next breath, he "throws his arms around" the flat tax (which is a VAT). He quotes Bill Gale that the [FairTax] would have to be imposed at 60 percent, but glaringly fails to recognize that if the two bases are the same, he would have to impose that rate for the flat tax to be revenue neutral. In truth, all economists know that the two plans differ NOT in economic effect or base, but in administration.
An income tax taxes savings and investment multiple times. Both flat tax and FairTax are neutral as to savings and investment, tax income only once, and are both consumption taxes. Both are single rate taxes, have nearly the same base, and would improve the U.S. standard of living. Neither redistributes wealth.
While some have even suggested that hey are the same plans under different names, the flat tax taxes value added at each stage in the production process, but the FairTax prefers to tax it when it is added up at the end and eliminate the need to make everyone a taxpayer and collector.
Substantive commonalities between the flat tax and FairTax doesn't mean that there are NO key political and policy distinctions that could be exploited in pitting one against the other. If FairTax supporters wanted to retaliate in response to the Bartlett-type critique, they would have much material with which to honestly do so:
• The flat tax will make small firms and farmers pay the tax even if they have no profit
• The flat tax is opposed by many small business groups
• The flat taxers implicitly support big government by disguising even more of the overall tax burden as the current law
• The flat tax has been kicking around for nearly 20 years
• The flat tax makes everyone a taxpayer and collector, while the FairTax exempts 115 million filers [2000 figure] from ever having to deal with the IRS
• The flat tax is regressive, but the FairTax would enable everyone to keep his full paycheck.
• The flat tax has not only stalled, it has lost public and Congressional support.
• The FairTax is instantly understood, while even some proponents of the flat tax don’t understand it
• There are no transition rules developed for the flat tax and they would be very difficult to craft
• The flat tax taxes exports and relieves imports from tax
• The flat tax confuses tax reform with temporary tax reduction and makes both twice as hard
• The flat tax retains the entire income tax apparatus which erodes as quickly as you can say, “tax bill”
FairTaxers could advance these truthful points without resorting to bigotry associated with a cultic religious organization. However, for the most part, FairTax supporters have chosen not to attack the flat tax, but rather accentuate the commonalities between the plans - despite the above-noted differences. The reason is that, in the battle for tax reform, the real enemy is our current system.
Income tax advocates look down upon the articles of Bruce Bartlett with smug chortling, as Bruce is doing their work for them. The IRS and the liberals who want an income tax to ensure (1) taxes can be raised without the American people knowing it, and (2) wealth can be redistributed from the middle class to the poor, do not even need to fight us - we're killing ourselves!
Perhaps Mr. Bartlett believes that the flat tax will help elect Republicans, effect tax reform, and provide tax cuts; however, the real effect of his criticism is to divide conservatives, to delay serious national consideration of tax reform, and to fertilize the roots of the income tax.
( Source - Addit'l at FairTax.org Whitepaper - May republish in whole or part. - Ian)
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