I don't have any use for Huckabee as a candidate. I think his social conservatism is a bit of a facade (I could be wrong) and his fiscal credentials aren't sufficient. But that doesn't mean that he hasn't found a big truffle in the woods of fiscal policy by supporting the very aptly named Fair Tax. I know there are political obstacles to its adoption, and the concomitant elimination of all other federal taxes, but it would almost immediately cure a whole range of our economic ills, and put the economy on a growth path. The only other necessity is that government spending has to come under control. A true balanced budget amendment would be a good start on that.

Snochasr:

1. What would actually happen is that Congress would enact the "Fair" tax -- and then fail to repeal the income tax. We would have both.
2. Once people got used to the idea of a national sales tax, it would become easy as pie to nock it up a quarter of a cent... then another, then another, then another. It would be very hard to notice the increase, because a sales tax is invisible: The clerk just says "four fifty-two," and you hand him a fiver.
3. A national VAT (value-added tax) would become doubly tempting -- for in addition to the money collected by the VAT directly, it would increase the price, hence the money from the national sales tax.
4. Every state in the Union would jump on the bandwagon, and everything in the world would be heavily taxed by sales taxes and VATs.
5. As the cost of goods skyrocket, consumer spending would plummet... and there goes the economy.
6. Since any sort of consumption tax is by definition regressive (poor people spend a lot higher percent of their income than do rich people), a huge tangle of sales-tax exemptions would arise; within a couple of years, it would become as convoluted as the income tax is today.
7. Kiss your mortgage-interest deduction goodbye; that means a lot of properties that are currently good investments become financial burdens. Real property values will likewise plummet, dragging a lot of people underwater.

I would be in favor of a Flat Tax -- by which I mean an income tax with no tiers, every dollar is taxed at the same percent, no matter whether it's your first dollar or your fifty millionth. It could be phased in slowly, so that, e.g., mortgage-interest deductions could be reduced over a few years to avoid tanking the real-estate market (again).

That would have all the advantages "Fair" Tax advocates claim, in terms of simplifying income taxes, without all the drawbacks of national sales taxes and VATs. And it would be very difficult to raise that rate, because it would be so glaringly obvious that's what you were doing.

I would even favor ending withholding: Let people know how much they're really paying and you might start seeing powerful agitation to lower taxes overall.

But Huck's Folly, the "Fair" Tax, is a nightmare waiting to be hatched.

Dafydd

I find it odd that you didn't mention Neal Boortz's support for the FairTax. Perhaps this fact goes against your blog post that Huckabee is a big-gov populist: that one of the most visible Libertarians in the country is gung-ho for the Fairtax, wrote a best-selling book about it, defends it vigorously, and donates his portion of the proceeds from the book to charity.

The FairTax is a pipe dream with the current administration and Congress. So is any system which makes transparent the actual amount of taxation in America.

The twin goals of the FairTax are the stimulation of the economy through the unbridling of capitalism, and the revelation of the true level of capital consumption by the Federal Government.

I don't get farther into a discussion of the FairTax in this comment, but I (as a copy shop worker making $9/hr) expect to earn more and pay less under the FairTax than the IRS, partly from the infamous trickle-down effect of my boss getting richer.

BlueNight:

I find it odd that you didn't mention Neal Boortz's support for the FairTax. Perhaps this fact goes against your blog post that Huckabee is a big-gov populist: that one of the most visible Libertarians in the country is gung-ho for the Fairtax, wrote a best-selling book about it, defends it vigorously, and donates his portion of the proceeds from the book to charity.

Well, that's one way of looking at it, I suppose.

Another is that this is just another sign that a huge chunk of libertarians, and especially Libertarians, are easily bamboozled by the "Big Idea."

What's the big idea?

It's actually a wonkish or fannish attribute, not specific to libertarians; any overfed, smartass, too-clever-by-half ideologue likely has a penchant for "Big Idea-ism;" it goes hand in foot with the ideologue's deeply held belief that he is always the smartest guy in the room. (Which irritates those of us who actually are the smartest guys in the room.)

The "Big Idea" is generally some crackpot scheme whose only merit is that it's different from what we're doing now. However, even if one believes that we must do something different, it doesn't follow that any old different thing will necessarily make a better country.

• Many libertarians believe in the Big Idea of complete drug legalization; well, I support drug legalization (with the one exception I've mentioned before), but I don't imagine it would change America in any significant way.
• Most liberals passionately believe in the Big Idea of nationalizing health care; I don't think there are too many readers of this blog who agree with that.
• It could be fascism, Scientology, "intelligent design;" arrogant intellectuals can seize upon any "-ism" and turn it into a Theory of Everything.
• And in the present case, a huge number of people worship at the altar of a national sales tax; it has become their "Big Idea."

Whether or not one thinks that substituting such a system for our current taxation scheme would lead to financial paradise, there is a gargantuan question being begged: How could we possibly get Democrats or even establishmentarian Republicans to vote to eliminate the IRS?

Go back up to my first comment on this post and look at points 1, 2, and 3 especially: We would not have a national sales tax in lieu of an income, property, and payroll tax; we would have a national sales tax in addition to an income, property, and payroll tax. No matter what Neal Boortz thinks, or what the other two "Neils" in the movement, Schulman and Smith, think; the net result would be the most massive tax increase in human history, as we more or less double the State's piece of the action.

Dafydd

You are talking about the practical difficulties of enacting the FAIR tax as written, not about what the actual proposal is. The bill as written includes repeal of the 16th amendment and thus abolition of the IRS is integral to the "concept." That single fact is one of the major benefits. You also conflate the notion of a FAIR tax and a VAT tax, but they are vastly different, in that a retail sales tax is visible to everybody, and an increase would be equally visible. A VAT tax can be hiked many times and nobody can tell.

You claim the home mortgage deduction would be eliminated, but of course interest rates would drop if it were not for the deduction offsetting it. Both the Flat tax and the FAIR tax are regressive (as well as the FICA taxes eliminated by the FAIR tax), but both plans generally exclude a large "family deduction"-- the flat tax by a line on the IRS tax form (along with all of the other exceptions, etc. to what is defined as "income"), while the FAIR tax does it with a monthly "prebate" check to EVERY taxpayer in exactly the same amount, no IRS involvement at all. Both plans would need to be phased in, with the FAIR tax waiting for the States to approve repeal of the 16th and an "existing inventory" transition plan after that.

My point remains that the FAIR tax, regardless of practical political considerations, is not a crackpot idea disqualifying Huckabee from candidacy. In fact, his support for it may be the only thing I like about him.

I ditto most of what snochasr said. Keep in mind, Dafydd, that a national sales tax, no matter how high or low, which allows the co-existence of the IRS, is NOT the FairTax, no matter how many people call it that.

Just like co-ops, triggers, and state options are The Public Option.

Names have power, and if we allow the masters of men to name things, they will continue to have power.

A pox on Fox for giving Huckabee a platform. If he's the 2012 nominee it will be Dole/McCain all over again.

BlueNight, Snochasr:

Let me see if I understand this syllogism...

1. Mike Huckabee is campaigning on the so-called Fair Tax.
2. We all agree that it's virtually impossible to enact; as noted, the first thing we must do is repeal the 16th Amendment: If we do so and the "Fair" Tax isn't enacted, then we have no revenue whatsoever; and if it's not repealed but the "Fair" Tax is enacted, then we have double taxation.
3. We have no magic wand we can wave to suddenly create a national sales tax in lieu of a national income tax; thus the entire thing is a massive hoax.
4. Thus, Mike Huckabee either believes that his election would bring about the impossible dream through some form of sorcery, in which case he's a nutbag; or else he knows it's a crack-pipe dream, but he pushes it anyway to get elected -- in which case he's the same kind of lying demagogue as Barack H. Obama.

...And this is who 29% of Republicans want as the party's standard-bearer in 2012? Yeesh.

By the way, Snochasr; this is incorrect:

Both the Flat tax and the FAIR tax are regressive.

By definition, a flat tax is neither regressive nor progressive: Rich or poor, everybody pays the same percent of income, as the same rate would apply both to ordinary income and capital gains. If you add a deduction for the first X% of income, it's progressive. But in no case is it regressive.

A pure "Fair" Tax is completely regressive:

• If a poor person earns $12,000 in a year and spends $10,000 in purchases subject to sales tax, paying 10% tax, then he pays $1,000 out of $12,000 or 8.3% of his income.
• If a middle-income person earns $50,000 and spends $30,000, he pays 6% of his income.
• If a rich person earns $500,000 and spends $120,000 on sales-taxable purchases, he pays 2.4%.

That is regressive: The richer you are, the less a percent of your income you pay. Even if you add an exemption for the first, say, $10,000, so the poor don't pay at all, it's still regressive above a certain point; in this example, the middle-income taxpayer still pays 4%, vice 2.4% for the rich person.

That is integral to the "Fair" Tax idea, because purchases subject to sales tax always rise slower than income; at higher income levels, people spend less of a percent of income on purchases and more on, say, investments -- which would not be taxed under a national sales tax.

Dafydd

By definition, a flat tax is neither regressive nor progressive:

You are correct if you count total income, but you turn right around and argue that a sales tax is regressive because rich people do not spend all of their income, while poor folks do. Therefore if you count taxes as a percent of disposable income (total minus the income shielded by the prebate) you come out at a much more "FAIR" place. The rich pay a progressive rate on what they spend, approaching the full rate, while the current income tax is regressive because of all the deductions, etc. that the rich get. By taxing only consumption, we encourage savings and investment, and we tax that aspect of the rich that we most envy, which is their conspicuous consumption. I don't mind living next to a million-dollar income if 80% of it goes right back into his business. Let him acquire two Ferraris and a yacht and I mind (though not much).

The FAIR tax bill is written so that it takes effect only upon ratification of the repeal of the 16th. There is no opportunity for double taxation as written. Once all of the advantages to the economy are considered and all of the myths dispelled, it could be a very popular reform measure. I don't think Huckabee is wrong to champion it, though whether that is politically smart or not, or whether it can actually come to fruition in a real Congress (since it requires them to give up their largest tool for social engineering) are two other considerations.

Oh, now you've gone and used numbers.

A pure "Fair" Tax is completely regressive:

◦If a poor person earns $12,000 in a year and spends $10,000 in purchases subject to sales tax, paying 10% tax, then he pays $1,000 out of $12,000 or 8.3% of his income.

◦If a middle-income person earns $50,000 and spends $30,000, he pays 6% of his income.

◦If a rich person earns $500,000 and spends $120,000 on sales-taxable purchases, he pays 2.4%.

You really need to edjamacated about FairTax, which is a specific proposal with specific functionality, NOT a generic term for a national sales tax.

The FairTax includes monthly prebate checks at a flat rate per person to reimburse heads of households for the tax they paid on utilities, food, medical, etc. This makes it progressive. The text of the bill specifically eliminates the IRS and provides a "sunset" for the 16th Amendment. This makes it libertarian. Each FairTaxed purchase must have the tax amount clearly listed on each receipt a consumer receives. This makes it transparent. The FairTax does not apply to investments, savings, loan payments, child support, gifts to charities and individuals, and purchase of used items such as cars, furniture, pre-owned homes, and antiques. This makes it conservative, mostly by not punishing investment and thrifty spending.

Let's rerun those numbers with a simplified version of the FairTax, assuming prices remain the same on average:

◦If a poor person earns $12,000 in a year and spends $10,000 in purchases subject to FairTax (any good or service except investments or pre-owned items), paying 23% tax, he pays $2,300 out of $12,000 or 19.2% of his income. He also receives $2490.96 (in the form of monthly prebate checks of $207.58, assuming he's single with no dependents). That's $191 more than he spent; that's a -1.6% tax rate, progressive by any stretch of the imagination.

◦If a middle-income person, married with 1 child, earns $50,000 and spends $30,000 on FairTaxable goods and services, 23% out of his purchases, or $6900, is FairTax. That's 13.8% of his income. With the flat prebate for three members of the household, that's $5841.96 that year (486.83/mo). Thus his net FairTax $1058.04 for the year, making his Federal taxation 2.1% that year.

◦If a rich person, a business owner with a husband and three children, earns $500,000 and spends $120,000 on FairTaxable purchases, she pays a gross $27,600 (or 5.5%). Prebate: $630.20 times twelve = $7562.40, making the net taxes $20,037.60 or 4%.

-1%, 2%, 4%. Progressive.

FairTax takes $5000 less than the IRS each year, in a low-income ($20k) production job. I could afford college in several years! It leaves my boss with a lot more, which makes me feel a lot more secure.

How about you? What's your FairTax, Dafydd?

(My prebate calculations used the PA FairTax group's FairTax calculator. All other calculations were done semi-manually with Windows Calculator.)

Snochasr & BlueNight-

Sorry to bore you with numbers you’ve no doubt seen before, but on the IRS’s web site you can find a spread sheet that analyzes tax statistics. For the latest year shown (2007), taxpayers with adjusted gross income of $200,000 or more represent 3.2% of the number of returns filed, 32.8% of adjusted gross income, and 54.6% of income taxes. (The relevant numbers are in the bottom group labeled “Accumulated from Largest Size of Adjusted Gross Income.”)

Is this fair? No. How do we change it? Just get most of the 96.8% of taxpayers who earn less than $200,000 to vote to raise their own taxes and let “the rich” pay less. That could be accomplished via a FAIR tax, a flat tax, a VAT, a sales tax, or by just fiddling around with our current income tax. Despite the various proposals’ appeal to conservatives and libertarians, none of them has the slightest chance of being enacted and actually shifting the tax burden significantly from the wealthy to the less so.

Stop dreaming and move on.

(You didn’t say what the main purposes of a FAIR tax are, but reduced progressivity is certainly a significant result and would have to be sold to the general public.)

Dafydd-

By definition, a flat tax is neither regressive nor progressive: Rich or poor, everybody pays the same percent of income, as the same rate would apply both to ordinary income and capital gains.

A flat tax does not have to treat ordinary income and capital gains as equally taxable, and I hope you’re not advocating that they should be.

Last time I checked (OK, that was a few years ago) the US was the only major country that taxed capital gains significantly. Why? Because taxing capital gains discourages investment. Plus, in order to benefit from a capital gain, you must first put capital at risk and expose it the possibility of capital loss. Ordinary income is a one way street: It comes in and is only depleted when spent.

Taxing capital gains at the same rate as ordinary income (whether in the guise of a flat tax or otherwise, and even if both are taxed at a rate lower than the current capital gains tax) is a sure way to stifle investment. Admittedly, a low enough flat tax rate would diminish the investment disincentive, but it would not disappear unless the tax did, in its entirety.

BlueNight-

Sorry I missed your post by a minute.

The numbers you present look like they could be from a progressive tax system, but I think a dose of reality is required. Refer again to the IRS spread sheet I link to above. See the topmost section (“Size of Adjusted Gross Income”) and the last column (“Average total income tax (dollars)”).

Your FAIR tax for an income of $12,000 is a refund of $191; the IRS says the actual average tax for an income of $10,000-15,000 is a payment of $388. For an income of $50,000 you say $1,058 tax; the IRS says $3,441 ($40,000-50,000 AGI). At $500,000 income you say $20,038; the IRS says the average actual tax at this level ($200,000-500,000 AGI) is $56,377.

Your numbers may show progressivity, but would this still be true if the system raised anywhere near enough money?

(OK, we need to shrink the government too, but what you show is maybe a quarter of what we collect now.)

BlueNight:

The FairTax includes monthly prebate checks at a flat rate per person to reimburse heads of households for the tax they paid on utilities, food, medical, etc. This makes it progressive.

Say, you're right; I forgot to comment on these elements of the "Fair" Tax:

• As you note, under the Huckabee plan, we all get a monthly salary check from the government.

That makes it "libertarian."

• Too, you say the national sales tax is "progressive;" so those earning more money are punished by having to pay a higher percent of their income in taxes.

That makes it "conservative."

Hey, I think I'm getting the hang of this...

Dick E:

While we disagree on investment incentives -- the primary incentive is to make money with the money you already have; you can't make money by buying lots of caviar -- we do agree on the central point: The so-called "Fair" Tax is a hoax, like every other TOE*, because it's never going to be enacted or even seriously entertained in Congress.

Thus, those advocating it either (1) are demagogues, or (2) have let someone make a fool of them.

Dafydd

* TOE: "Theory of Everything," a huge scheme to totally transform all human society. Kind of like Obamunism.

Thus, those advocating it either (1) are demagogues, or (2) have let someone make a fool of them.

Look at the numbers in my previous comment again. Can you argue them, or is it down to name-calling now? (And isn't the Reagan Republican / Thatcherite focus on free-market capitalism a successful TOE?)

The FairTax was devised by a nonpartisan Internet thinktank of business owners and interested people of all sorts. They compared all the major tax schemes in history to come up with the fairest taxation for America which could replace a system so inefficient and full of loopholes, it might as well be a lace quilt. At least, that's how they've been marketed by Neal Boortz. Funny thing is, I believe him. He's always a free-market pundit, and I wouldn't mind more (sane) Libertarians with more political power. I don't believe him to be a fool, and I don't believe myself to be a fool either. (But what fool does?)

I guess that makes me a demagogue. But who gains political power if the FairTax were enacted (which would require a FairTax-friendly Congress and President)? The people gain economic knowledge, and knowledge is power. The people would see, for the first time since the New Deal, the cost of government on each and every receipt at each and every purchase. This would encourage them to retain and vote in fiscal conservatives, to keep the cost of government down. Thus, fiscal conservatives would also gain political power. Fiscal conservatives also tend to vote on the side of freedom. So in the end, the people get back both economic and political power they've ceded to the government.

Like I said before, the FairTax ends up being MORE progressive than the current system; it's a wonder liberals haven't picked up on that. Oh, wait, they have; they just don't want business owners keeping more of their profits, or the people seeing the true cost of government.

I am just totally not understanding this "theory of everything" argument. If something is highly desirable for one reason, it is a Good Thing (TM) but if it is desirable for a whole multitude of reasons, it is not? If something is highly desirable for objective reasons, but politically opposed by TPTB (the powers that be) in Washington because it would reduce their power, how does it become less desirable?

I perhaps understand your reluctance, because health care reform and climate change are similar "theories of everything," but they are completely opposite in that they are UNdesirable for a whole host of objective reasons, and only politically supported by TPTB as a means of increasing their power. Something that is a hoax, such as these two striking examples, CAN be, and is, being entertained by Congress as we speak. The FAIR tax is NOT a hoax by your own definition, that being Congress' unwillingness to consider it (though it has 57 cosponsors already).

To your original point, if Mike Huckabee can get elected by being a demagogue and/or being fooled by somebody or somebodies, who are you to say him nay? You are certainly free to argue against and oppose him for being a fool and a demagogue, or to oppose the FAIR tax on purely rational grounds, but some of us opposed candidate Obama in exactly that way, and look where we are today.

Snochasr, BlueNight:

I think this is worth a second post to explain what I mean by a TOE, why the "Fair" Tax is a hoax, and why that makes Huckabee either a demagogue (10%) or a man who has let someone make a fool of him (90% likely).

(Which last, by the way, does not necessarily mean one is a fool, but rather that one has been befooled; we all get befooled once in a while. Huckabee himself, however, is not very bright and is probably fooled more often than most.)

Dafydd

Thanks for the good conversation. BTW, I am a fan of your work (what little I've read), specifically the Doom series and the Star Trek Voyager one that was somewhat similar in concept.

BlueNight:

Thanks! I'm working on another book (after a multi-year hiatus), this one completely my own, as were seven of my previous novels.

I made good money with the media tie-in novels; but in the end, I think it was a trap that prevented me from building up a corpus of resaleable work in my own many universes.

I don't think I'll ever write tie-ins again.

Dafydd

Ah, but it got your name out there. Sorta like Matthew Woodring Stover writing the best SF/Fantasy novels ever (Heroes Die and Blade of Tyshalle) and following that up with the Star Wars Episode III novelization.

Dafydd-

While we disagree on investment incentives -- the primary incentive is to make money with the money you already have…

Actually we don’t disagree at all on that. It’s just that taxing an activity -- any activity -- creates a disincentive to engage in it. It doesn’t remove all incentive, nor does it replace the primary incentive.

In the case of capital gains, if you make a profit, you keep 85% of your gain (soon to be 80%). If you lose money, it’s dollar for dollar. (There are exceptions, but the main point stands.) Does that affect investment decisions? Sure it does -- especially when the long-term average gain on stocks is 10%.

…you can't make money by buying lots of caviar…

Sure you can -- if it’s inventory and not groceries.

(The one that bugs me is when certain parties -- who will remain unidentified -- think personal baubles or items of home décor are investments. It’s not an “investment” unless there’s a reasonable chance of someday selling it at a profit!)

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