Friday, September 4, 2015

Huckabee's Biggest Problem: The FairTax

As long as the former Governor of Arkansas, Mike Huckabee, has been running for the Presidency -- both now and previously -- he has been pushing something called a FairTax.  More often than not, he calls it a consumption tax rather than its real name. Essentially, the FairTax would replace all federal taxes with a 30% national sales tax on most goods and services.   In the first year of implementation, it would start out at 23%, and then, incrementally go up to 30%.

Also, in order to placate those who would argue that the tax disadvantages the poor, who currently pay no taxes, but would be faced with higher prices, the FairTax proponents have come up with the concept of a Prebate.  The Prebate would be a monthly check to every head of a household so that their basic needs and the needs of their family would be taken care of.  How socialist is that?  For, example, every single person aged 18 or older, and not living at home, would get a monthly check for $226 to cover their basic needs; this based on 2015 calculations.  A family of 4 -- two adults and two children -- would receive a monthly stipend of $611.

Of course, one of the biggest arguments for the FairTax is that it would eliminate the  Internal Revenue Service and their 83,000 employees.

My problem with the FairTax is that it will fall well short of funding the government; stymie growth in the economy; hurt the poor and middle class; and highly advantage the rich.  All this starts with the concept of a Prebate.

According to the U.S. Department of Agriculture (USDA), in its latest report on food plans, the cheapest that an average family of four can feed themselves in 2015 is with  $564 a month; assuming their two children are under the age of 5 and the family practices "thrifty" food planning. If the children are older, the  cost would be $648 a month.  So, this begs the question, how is a family of four supposed to cover their basic monthly needs if they only get a check for $611?  What about the basic needs of home heating, electricity, clothing, water, toiletries, rent or mortgage; all of which will be another 30% higher.  Even higher in places like California where the state and local sales taxes combined can run as high as 10%.

So, think about this.  If you're in the lowest tax bracket (10%) and the Prebate won't even cover the cost of food and you are living paycheck to paycheck, how are you supposed to manage the cost of goods and services going up 30%?  It's ridiculous to claim that the FairTax doesn't disadvantage those with lower incomes.

Then, there's the rich. Does anyone think that they will suddenly pay their fair share? The rich are better positioned to avoid the FairTax by avoiding building a new house or mansion and, instead, buying an existing old money mansion.  They might relocate to the Bahamas or Canada.  Also, since the deductions for charitable giving will be gone, our nation's needy will suffer as the wealthy give less.

One group, those aged 40+ will be hit the hardest. This is because the FairTax, unlike most state sales taxes, will tax healthcare and prescription drugs.  So, every monthly premium, co-pay, or health care expense that has yet to meet the deductible, plus prescription drug costs will be hit with a 30% tax.  We already pay the highest cost for healthcare in the world and Huckabee thinks we should pay even more.

But, the biggest impact of a consumption tax will be on the economy.  A high, 30% tax will force people to think twice about purchasing anything new. Take autos, for example.  People will hold on to them longer, buy used, or lower their standards and choose to buy a cheaper model.  And, this will happen on all types of goods and services.  Also, the FairTax is sure to create a black market for all kinds of products, and robbery is sure to rise.   All of this will slow the economy and result in less tax being collected.  As a result, the government will counter by raising the 30% to God only knows what.

In my opinion, The Fair Tax is very simple minded.  It will not work and will only serve to change the country for the worse.  We don't needs a tax system that punishes consumers for buying products and services; which today, accounts for 70% of the economic growth  and creates jobs.  Instead, we need a tax system that stimulates consumer activity.



California sales tax:

USDA Cost of Food:


Local Meetings said...
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George B said...
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George B said...
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