Universal Sales Tax

Mike Huckabee is the latest in a line of politicians to raise the Fair Tax issue. The difference being that the other people rarely get elected to office since citizens figure out that the Fair Tax plan Huckabee is pitching, the same one that appeared in congress in 2005, is not a solution.

The proposal counts on no one looking beyond the catchy it “eliminates the IRS” and “makes people pay on what they can afford to buy” bumper sticker slogans. It also appeals to everyone with the monthly prebates and since it is not income based the richest people will see their tax liability decline.

The Fair Tax is a loosely woven tapestry and once a few holes are poked in it the whole concept becomes unraveled.

1. Fair Tax. If it were a fair tax they would call it a national sales tax, or a universal sales tax; but they don’t. As a matter of fact it is a comprehensive sales tax since in order to make it work all goods and services must be taxed, phone bills, restaurant checks, a six pack, tires, cars, plane tickets, gas, everything except (perhaps) food and other essentials.

2. Percentage. The name is not the only lie. Huckabee and others, most notably, are using 23% as the sales tax amount, however, it doesn’t take a rocket scientist to figure out they are misleading people. The tax rate would be 30%, increasing the cost of a $1 item to $1.30. The retailer would forward that 30¢ to the Treasury Department, 30 ÷ 130 = 23%.

3. I.R.S. That brings us to the battle cry of the fair taxers, "No more I.R.S." There is still a need to collect, audit, and enforce the tax laws. It may have a new name, but there will be an I.R.S.

4. The 16th Amendment. The sixteenth amendment enables the US to collect an income tax. If the amendment is not repealed prior to enacting a fair tax it will be a scant few years before the Income Tax returns since the “prebates” can only grow so much to help pay for the tax increases necessary to enable those on a subsistence level to continue paying the Fair Tax that will have to increase to keep up with government spending.

5. Government Spending. The Fair taxers tally government spending by saying this is how much the government needs because this is how much they spent last year. Not including the deficit or the mounting interest on the deficit, nor does it subtract the 28% of the 2007 spending allocations (to date) that are pure pork; unnecessary projects.

6. Constitution. If the fair taxers want to save people money they should reexamine the scope of the government, compare it to it’s constitutional scope and slough off the unnecessary layers, including the need for a full time legislature earning more than 5 times the poverty rate. The constitution is a pact that limits the scope of the federal government, not the powers of states or rights of the individuals. Once the size of the government is manageable, then determine a budget. Abolishing the blank check granted by the 16th amendment is a good start to reigning in the government’s expansion.

7. Budget. Establish a zero sum budget. Determine how much they plan on spending and don’t spend over that amount, just like most households are forced to do. If there is a surplus between the planned income and the budgeted expenses the difference goes directly to paying off the debt. If the difference exceeds 10% of the estimate don’t add to the budget, lower the tax by a fraction of a percentage. The money is the property of the people, it is not the property of the government. Major expenses would be accrued for, just like in real life.

8. Revenue Neutral. Every independent arbiter agrees that 30% is too low, 34 to 39 is the estimate most economists who have bothered to study Fair Tax estimate would be the point at which it becomes revenue neutral (because they are factoring in all government spending, not just the published budget.) Using the concept of “prebate” everyone will get a check for the projected poverty spending level. Those below the poverty level will get a premium, the wealthy will see a decrease in their overall tax liability (based upon their optional spending). Those at the poverty level and the lower middle class who will not see this as revenue neutral at all since they are making up the difference. It is like the AMT in reverse, the AMT inadvertently caught the upper middle class, this will catch the opposite end of the socio-economic scale.

9. Progressive tax. Of course it is not a progressive tax (in the leftard mindset). In order to deflate the fair criticism that the Fair Tax is regressive since it in essence gives a tax break to the wealthy, the good folks at fairtax.org have introduced the concept of a “prebate”. That is a rebate in advance so people can pay their sales tax, it would be based on family size, but in order to get it one must apply for it, and it is assumed that the wealthy will say no to it since they don’t need it. This demonstrates they don't understand the means by which people became wealthy, by saving it. The amount of the prebate will be determined to cover the cost of the tax up to the poverty level. The only people to benefit are those below the poverty level and the wealthy, the hardest burden (from a progressive standpoint) are those at and just above the poverty level and perhaps much of the middle class.

10. Models and assumptions are not proof. Science is science, and economists love to tout themsleves as scientists. Every independent economic model done by economists has failed, unless they include some assumption or other unknown to force the data to give them the desired outcome. When push comes to shove the fair taxers have a lot in common with global warming scientists, they use faulty data and assumptions to make their data fit their desired results and disregard all other logic and facts to the contrary.

11. State and local sales taxes. The Fair Tax, a/k/a, national sales tax will not replace state and local sales taxes. The danger in this, and the reason it will fail politically, is that people will be able to add up the sales taxes on everything they buy and see just how much they are giving to the government. If you want a revolution give the people their whole paycheck, then take it away in 37 to 41 percent increments everytime they go to the store.

Most people don't notice how much they pay in taxes because it is taken from their paycheck. Once the government stops taking it from their paycheck and starts taking it from their wallet there will be another Boston Tea Party... except of course no one will be able to afford the tea.