Thursday, January 17, 2008

More Fair Tax Scrutiny

In case anyone is still taking Mike Huckabee seriously (polls show him sliding in South Carolina), let's return again to this "fair tax" idea.

I know a conservative economist whose quick take on the "fair tax" was positive. He said, "getting rid of penalties on hard work and entrepreneurship (taxing income and profit) and replacing them with incentives to be fruitful, to save and invest (the unintended consequence of a sales tax) makes a lot of sense."

But that "quick take" is too quick. Don't take it! Jerry Bowyer, chief economist of BenchMark Financial Network and a CNBC contributor, raises what strike me a fatal objections in "Fair Tax Flaws" (Wall Street Journal, January 8, 2008 -- not available from WSJ online; I've pulled it from Advocates argue that, all things being equal, the fair tax will end tax evasion, simplify tax collection, force illegal aliens to pay taxes, and grow the economy. But Bowyer's point is that it is unreasonable to expect all things to remain equal. If you change the tax system, behavior will change in predictable but inconvenient ways.

"People would simply switch from cheating on income taxes to cheating on sales taxes....Look at cigarettes. Organized crime sells smokes on the black market in jurisdictions that impose high cigarette taxes....Increase sales taxes to a combined state and federal 30%, up from a state based 6% now, and watch the dodging begin."

As a former tax accountant, he sees enormous complexities involved in business transactions (what exactly would qualify as one?), business-to-business transactions (to save 30% on costs, businesses will consolidate like mad), and transition rules (people have invested for retirement based on the present tax regime).

As for repealing the 16th Amendment which authorizes the federal government to collect income taxes, "It's hard to get good ideas through the ratification process; imagine how hard it would be to push this stinker."

1 comment:

Mark said...

Fairtax is kind of a hoax really--

In some ways, its like those little pills they used to sell, saying you could add them to water and use it for gasoline.

I read the bill and the book.

I was for the tax at first, till I read Boortz page 148 "The federal government itself will become a major taxpayer"

You can't tax the government, you can only tax people, you know that. Thats a basic and true tenet of FT..

But FT pretends to be able to tax the government -- to pay for the government. Thats like pretending I can make 300,000 in one month, by paying myself 10,000 a day for cutting my own grass.

FT pretends it can get 300 Billion dollars -- by taxing the government.

FT pretends to be able to get 460 billion dollars from health care patients.

FT pretends to be able to get 100 billion from renters.

FT pretends to get 150 billion from the sales of new homes.

FT pretends to get 200 billion from the sales of new cars.

FT pretends a lot.

FT won't be able to tax the government. FT won't be able to tax people on their health care.

FT won't be able to get 200 billion from taxing people buying new cars.

FT won't be able to get 100 billion from taxing people who rent.

To make up for all these taxes that FT won't be able to collect -- the fair tax rate would have to be 60-80%.