A New Tax, Anyone?
"Read my lips: No new taxes!"
Vice President George Bush, 1988
Unlike the senior Bush, ex-Governor Mike Huckabee of Arkansas wants a new national sales tax, called the "Fair Tax", to replace the federal income and Social Security Tax. Since Huckabee has become a serious candidate for the Republican presidential nomination (1), his plan deserves consideration. The idea has also been endorsed by fellow GOP candidates Fred Thompson and John McCain, and Democrat Mike Gravel.
Q. How would the Fair Tax work?
All new goods and all services would be taxed at 23% of their total price, including tax. For example, if an item sells for $100 now, the tax would be $30 = .23($100+30). This would be equivalent to a 30% tax based on the pre-tax price.
However, every family would receive a "prebate" from the Government equal to 23% of the poverty-level income for a family of that size. This would be paid every month. Considering the prebate, the poor would pay no tax at all.
Q. Would this tax bring in enough to pay for the federal budget plus Social Security and Medicare?
Since the federal government spends about 22% of the Gross Domestic Product (GDP), you might think so. However, there would be a tremendous incentive to buy new goods in Canada, Mexico and other countries to legally avoid the tax. In addition, "black markets" would sprout all over America in which the tax would not be charged. My guess is that actual collected taxes would be far below present revenues.
Q. How would the change in taxes affect the economy?
The good news is that foreign corporations would flock to set up headquarters in the US, since there would be no income tax here. Without an income tax, American corporations could afford to pay bigger dividends to investors.
The bad news is that retail businesses located near the Canadian border (such as in Detroit, St Paul, Seattle, or Buffalo) or the Mexican border (such as in southern California, southern Texas, or Arizona) would lose so much trade that many would close.
For example,the tax on a new $30,000 car would be about $9,000, so not many new cars would be sold in the US. But if someone would buy a new car in Toronto and drive it here, it could be sold here as a used car, tax-free!
Anything that could be purchased through mail-order from foreign firms would be bought that way, thus cutting out American-based dealers. Also, the home-building industry would be devastated since the tax would only be charged on new homes, not re-sold homes.
Q. Could we then eliminate the IRS and save millions?
The cost of enforcing the sales tax and processing the "prebate" checks every month would be big too, maybe as big as the cost of the IRS now.
Q. Who would benefit the most from the switch to a sales tax?
The rich. According to the US Department of Labor, families with incomes of at least $150,000 per year spend only about half their post-tax income on living expenses and invest the rest. Under the new plan, their tax rate would drop to no more than 11.5% of income, instead of about 40% today.
Q. Who would lose the most through the switch?
Most families with an income of $70,000 or less would pay more, although the very poor would still pay nothing (after the "prebate.")
Retired people, who now pay little or no income tax (2) and no Social Security Tax, would pay much more than they do now. The net effect of the change would be to shift the burden of taxation from the affluent to the working class and lower-middle class.
If that does not appeal to you, you are not thinking like a Republican!
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(1) Huckabee started soaring in the polls after the appearance of a Huckabee campaign song (to the tune of 1958 summer hit "Hushabye") in the September 9 Glazerbeam.
As Josef Stalin once said, "There are no coincidences!"
(2) Social Security benefits are not taxed unless the recipient has other household income of at least $30,000. There is no Social Security Tax on these benefits, pensions or investment income.
Vice President George Bush, 1988
Unlike the senior Bush, ex-Governor Mike Huckabee of Arkansas wants a new national sales tax, called the "Fair Tax", to replace the federal income and Social Security Tax. Since Huckabee has become a serious candidate for the Republican presidential nomination (1), his plan deserves consideration. The idea has also been endorsed by fellow GOP candidates Fred Thompson and John McCain, and Democrat Mike Gravel.
Q. How would the Fair Tax work?
All new goods and all services would be taxed at 23% of their total price, including tax. For example, if an item sells for $100 now, the tax would be $30 = .23($100+30). This would be equivalent to a 30% tax based on the pre-tax price.
However, every family would receive a "prebate" from the Government equal to 23% of the poverty-level income for a family of that size. This would be paid every month. Considering the prebate, the poor would pay no tax at all.
Q. Would this tax bring in enough to pay for the federal budget plus Social Security and Medicare?
Since the federal government spends about 22% of the Gross Domestic Product (GDP), you might think so. However, there would be a tremendous incentive to buy new goods in Canada, Mexico and other countries to legally avoid the tax. In addition, "black markets" would sprout all over America in which the tax would not be charged. My guess is that actual collected taxes would be far below present revenues.
Q. How would the change in taxes affect the economy?
The good news is that foreign corporations would flock to set up headquarters in the US, since there would be no income tax here. Without an income tax, American corporations could afford to pay bigger dividends to investors.
The bad news is that retail businesses located near the Canadian border (such as in Detroit, St Paul, Seattle, or Buffalo) or the Mexican border (such as in southern California, southern Texas, or Arizona) would lose so much trade that many would close.
For example,the tax on a new $30,000 car would be about $9,000, so not many new cars would be sold in the US. But if someone would buy a new car in Toronto and drive it here, it could be sold here as a used car, tax-free!
Anything that could be purchased through mail-order from foreign firms would be bought that way, thus cutting out American-based dealers. Also, the home-building industry would be devastated since the tax would only be charged on new homes, not re-sold homes.
Q. Could we then eliminate the IRS and save millions?
The cost of enforcing the sales tax and processing the "prebate" checks every month would be big too, maybe as big as the cost of the IRS now.
Q. Who would benefit the most from the switch to a sales tax?
The rich. According to the US Department of Labor, families with incomes of at least $150,000 per year spend only about half their post-tax income on living expenses and invest the rest. Under the new plan, their tax rate would drop to no more than 11.5% of income, instead of about 40% today.
Q. Who would lose the most through the switch?
Most families with an income of $70,000 or less would pay more, although the very poor would still pay nothing (after the "prebate.")
Retired people, who now pay little or no income tax (2) and no Social Security Tax, would pay much more than they do now. The net effect of the change would be to shift the burden of taxation from the affluent to the working class and lower-middle class.
If that does not appeal to you, you are not thinking like a Republican!
---------------------------------------------------------------------------------------------
(1) Huckabee started soaring in the polls after the appearance of a Huckabee campaign song (to the tune of 1958 summer hit "Hushabye") in the September 9 Glazerbeam.
As Josef Stalin once said, "There are no coincidences!"
(2) Social Security benefits are not taxed unless the recipient has other household income of at least $30,000. There is no Social Security Tax on these benefits, pensions or investment income.
Labels: Fair Tax, Huckabee, Republican
posted by Gerald S Glazer at 10:13 AM
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