Huckabee wants a 23% Federal sales tax?

The more I hear about Mike Huckabee’s policy proposals, the more I think he’s a bad choice for running the country, let alone representing anyone in our Federal government.

Huckabee campaigning for 23% sales tax – Los Angeles Times

WASHINGTON — Mike Huckabee, one of the most conservative Republicans in the 2008 presidential race, has embraced one of the most radical ideas on the campaign trail: a plan to abolish all federal income and payroll taxes and replace them with a single 23% national sales tax.The idea — dubbed the “fair tax” by proponents — has been a political asset for Huckabee; its well-organized backers have helped catapult him from the back of the presidential pack to its top tier.

Proponents of a national sales tax say it would be an improvement over the current system because it would increase the incentive to save, by taxing money spent instead of money earned.

Also, the proposal would rid the tax code of its myriad loopholes and would free taxpayers and businesses from the time-consuming, often costly task of preparing annual tax returns.

“What we would do with the fair tax is to eliminate all the taxes on productivity, which means you could earn anything you want,” Huckabee said. “You wouldn’t be penalized for saving, earning, for having a capital gain, making an investment.”

Huckabee and Fairtax.org call for a 23% tax on virtually all purchases in place of federal income taxes, as well as payroll taxes to fund Social Security and Medicare.

To ease the effect on the poor, they propose a “prebate” — a monthly cash payment to every family — to cover sales taxes on spending up to the federal poverty level.

Is the “fair tax” fair? Maybe. But does it solve other problems in our tax system, or does it make them worse? I think it makes things worse. I don’t understand how this will be easier on regular people, save the government money, or cut down on bureaucracy.

First, this plan is missing one critical element. It doesn’t make the tax system easier on the regular, everyday person. We’ll have more money in our pockets but will pay a 30% (or higher) tax. Not only that, but we’ll need to deal with another bureaucratic mess to get whatever rebates the government sees fit to give out.

Secondly, the “prebate” program will be tasked with paying people rebates for everything they spent. This will invite huge amounts of fraud. I can easily see a black market developing to match poor people who don’t use up their entire rebate with rich people who easily used up their rebates. I can also see a “you scratch my back, I’ll scratch yours” barter system developing in place of regular commerce similar to how some lower wage persons work “under the table.” There is some incentive in today’s state-based sales tax programs, but those incentives will become much larger when 1/4 to 1/3 of a purchase price is added at the end as tax. For example, in California I’ll end up paying a 31.25% (23% + 8.25%) tax for every purchase I make.

Finally, a huge bureaucracy will need to be created in place of the IRS to manage the “prebate” program, develop eligibility criteria, investigate and manage fraud, and process all the paperwork submitted. All those folks freshly laid off from the IRS will be hired to staff this new tax agency.

Other issues that will need to be worked out including how to deal with people and companies who made financial plans based on expected taxes. Also, what about services and groceries? Some groceries are exempt in states that charge income tax. Would that continue under a federal system.

In the end, I believe the national sales tax is not a replacement or substitute for the Federal income tax system currently in place. If anything, it might make make feelings of an inherent sense of unfairness felt by poorer people, as well as create a less manageable system.

I am more amenable to a flat tax with no loop holes such as credits, deductions, or accounting trick rewards. A flat tax can be eased in over 25-30 years by making it optional for all those who have worked full-time more than two years consecutively and make it compulsory for those who haven’t. It can also be equalized in favor of poorer people by taxing only income over first 25,000 (or some other arbitrary number).

One thought on “Huckabee wants a 23% Federal sales tax?

  1. danny Post author

    This post attracted the attention of a Federal sales tax advocate. Fortunately or unfortunately, depending on perspective, it was caught by my comment spam filter.

    I appreciate the attention but the same exact comment, word-for-word, is being posted all over the blogosphere (other blog sites) in response to Federal sales tax commentary. Jeesh.

    The comment didn’t address my arguments or any other particular parts of my post. Rather it was a generalized argument for a national sales tax to replace the income tax system. As such, I decided the spam filter was right on target.

    Update: Yes, even informative comments can be spam if they aren’t relevant to the contents of a blog post. What qualifies as spam is relative. Having dealt with email spam for a number of years, I have very little patience for comments that are intended solely to direct readers to another web site. Such comments are spam if they are spread verbatim across many web sites, don’t address the post in question, lack relevancy, or are abusive. If you wish to comment on a blog post, please feel free to. Just be sure to be respectful. You also don’t earn much respect calling people names, even those as harmless as “stupido.” Another pearl of wisdom is to be kind to others, particularly when trying to convince them of your point of view. Using short URL tools to hide the real URL also doesn’t help your case.

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