Amageddon Must Be Near: WSJ Dumps On 3 Repukes, Huckabee, Linder & Chambliss

[DeSwiss]

Fair Tax, Flawed Tax
Does adding 30% to the price of every house sold sound like a good idea to you?

BY BRUCE BARTLETT
Sunday, August 26, 2007 12:01 a.m. EDT

Former Arkansas Gov. Mike Huckabee's unexpectedly strong second-place showing in the recent Iowa Republican straw poll is widely attributed to his support for the FairTax. For those who never heard about it, the FairTax is a national retail sales tax that would replace the entire current federal tax system. It was originally devised by the Church of Scientology in the early 1990s as a way to get rid of the Internal Revenue Service, with which the church was then at war (at the time the IRS refused to recognize it as a legitimate religion). The Scientologists' idea was that since almost all states have sales taxes, replacing federal taxes with the same sort of tax would allow them to collect the federal government's revenue and thereby get rid of their hated enemy, the IRS.

Rep. John Linder (R., Ga.) and Sen. Saxby Chambliss (R., Ga.) have introduced legislation (H.R. 25/S. 1025) to implement the FairTax. They assert that a rate of 23% would be sufficient to replace federal individual and corporate income taxes as well as payroll and estate taxes. Mr. Linder's Web site claims that U.S. gross domestic product will rise 10.5% the first year after enactment, exports will grow by 26%, and real investment spending will increase an astonishing 76%. In reality, the FairTax rate is not 23%. Messrs. Linder and Chambliss get this figure by calculating the tax as if it were already incorporated into the price of goods and services. (This is known as the tax-inclusive rate.) The distinction is confusing, but think of it this way. If a product costs $1 at retail, the FairTax adds 30%, for a total of $1.30. Since the 30-cent tax is 23% of $1.30, FairTax supporters say the rate is 23% rather than 30%.

*snip*

Similarly, state and local governments would have to pay the FairTax on most of their purchases. This means that it is partly financed by higher state and local taxes. It's also worth remembering that state sales taxes now average 6%, which means that the total tax rate will be 36% on retail sales. State sales taxes have long exempted all but a few services because of the enormous difficulty in taxing intangibles. But the FairTax would apply to 100% of services, including medical care, thus increasing their cost by 30%. No state comes close to taxing services so broadly. Consumers would also find themselves taxed on newly constructed homes. Imagine paying 30% to the federal government on top of the purchase price of your next house.

Since sales taxes are regressive--taking more in percentage terms from the incomes of the poor and middle class than the rich--some provision is needed to prevent a vast increase in taxation on the nonwealthy. The FairTax does this by sending monthly checks to every household based on income...... A 2000 estimate by Congress's Joint Committee on Taxation found the tax-inclusive rate would have to be 36% and the tax-exclusive rate would be 57%. In 2005, the U.S. Treasury Department calculated that a tax-exclusive rate of 34% would be needed just to replace the income tax, leaving the payroll tax in place. But if evasion were high then the rate might have to rise to 49%. If the FairTax were only able to cover the limited sales tax base of a typical state, then a rate of 64% would be required (89% with high evasion).

Mr. Bartlett was deputy assistant secretary of the Treasury for economic policy from 1988 to 1993.

Read more: http://www.opinionjournal.com/extra/?id=110010523

*** - While I know that H.R. 25/S. 1025 have no chance of making it to the floor of Congress, I think congressional committees should schedule hearings on these bills and show everyone these numbers, and then make the Repukes defend it.

Contrary to the major selling point used to confuse the mathematically-imparied of getting rid of the IRS and April 15th, this would make April 15th come every time you go to the store.....

[cheddar99]

1. I favor a 199% tax

on yachts and jets.

[DeSwiss]

2. Well.....

...that sounds awfully low to me. But maybe we can make it up by charging the same rate on privately owned jet fuel and yacht sails....

[cheddar99]

3. There aren't as many yachts

by percentage that are under sail as I would like. I would cut their tax in half, 99.5%. Yes, the fuel at marinas and airports should be taxed at 199% as well.