After being elected Governor of California in 1967, Ronald Reagan reneged on a campaign promise and signed into law the single biggest tax increase in the state's history: $1 billion. (At the time, the total state budget was only about $5 billion. Adjusted for inflation and population growth, the increase in today's dollars would be $10 billion.)
If the Club for Growth had been around in 1980, Reagan might not have become President. The influential fiscal conservative group would surely have done everything in their power to prevent the Gipper from gaining the nomination. They would have attempted to derail Reagan's campaign just as they are now doing to Gov. Huckabee.
For several months the Club for Growth has been attacking Huckabee's bona fides as a fiscal conservative. In the process, they've slandered the Governor's record, deceived numerous trusting conservatives, and cast doubts on the organization's honesty and trustworthiness. It's a disgraceful situation made all the more shameful by our continued willingness to be duped.
In January when Huckabee announced he was forming an exploratory committee, the CFG released a white paper on the Governor's record. (Oddly, Huckabee was the first candidate scrutinized even though he entered the race after McCain, Giuliani, Brownback, and Romney. For some reason, the CFG thought he was worthy of moving to the head of the line.) The following is an analysis of their white paper examining the question, "Is Arkansas Governor Mike Huckabee a Pro-Growth, Economic Conservative?"
The CFG begins by grudgingly admitting Huckabee's accomplishments:
Governor Huckabee touts himself as an economic conservative, writing in his biography that he "pushed through the Arkansas legislature the first major, broad-based tax cuts in state history" and "led efforts to establish a Property Taxpayers' Bill of Rights" early on as governor (Arkansas Times 09/22/05), but he only offers a small piece of the picture. It is true that Governor Huckabee fought for an $80 million tax cut package in 1997 that was passed by the Arkansas legislature (Cato Policy Analysis No. 315, 09/03/98); cut the state capital gains tax in 1999 (The Commercial Appeal 02/29/99); and passed the Property Taxpayers' Bill of Rights in the same year, limiting the increase in property taxes to 10% a year for individuals and 5% per taxing unit (AP 03/16/99).
Before the CFG attempts to downplay these significant actions, let's take another look at what they've admitted he was able to accomplish:
- Pushed through a Democrat legislature the first, major broad based tax cuts in the state's history.
- Pushed through a Democrat legislature an $80 million tax cut package.
- Cut the state's capital gains tax by 25%.
- Established a Property Taxpayers' Bill of Rights
- Limited the increase in property taxes to 10% a year for individuals and 5% per taxing unit
Here are a few that they left off the list:
- Eliminated the income tax for families below the poverty line.
- Increased the standard deductions.
- Eliminated the marriage penalty.
- Eliminated bracket creep by indexing the income taxes to inflation, thereby preventing taxpayers from moving into a higher bracket when their paychecks increase due to inflations.
- Doubled the child care tax credit.
- Eliminated capital gains tax on the sale of a home.
Now let's move on to the hit piece section of their analysis:
However, his record over the rest of his ten-year tenure tells a starkly different story.
A starkly different story? They imply that Huckabee made some radical tax increases that offset the cut in capital gains, the $80 million tax cut, and the other fiscally conservative policies. As you'll see, though, they have to dig deep to come up with any damning evidence to build their case:
Immediately upon taking office, Governor Huckabee signed a sales tax hike in 1996 to fund the Games and Fishing Commission and the Department of Parks and Tourism (Cato Policy Analysis No. 315, 09/03/98).
According to the Cato report cited:
Upon taking office in July 1996, Huckabee immediately backed a 1/8-cent sales tax hike to fund the Games and Fishing Commission and the Department of Parks and Tourism. The voters enacted that hike as a constitutional amendment in November 1996.Huckabee didn’t "sign a sales tax hike." An overwhelming 80% of the voters chose to do so through an amendment to their state's constitution.
Notice they also left off the rest of what Cato said:
In his first budget, however, he redeemed himself by proposing a sweeping overhaul of Arkansas's archaic income tax system. The $80 million tax cut package was enacted in 1997 and became the first broad-based state tax cut in more than 20 years. It increased the standard deduction, eliminated the income tax "marriage penalty," and indexed the state tax brackets for inflation.
He supported an internet sales tax in 2001 (Americans for Tax Reform 01/07/07).
Indeed, Huckabee joined 43 other governors in sending a "strong and unified message to Congress: deal fairly with Main Street retailers, consumers, and local governments."
The letter said, "If you care about a level playing field for Main Street retail businesses and local control of states, local governments, and schools, extend the moratorium on taxing Internet access ONLY with authorization for the states to streamline and simplify the existing sales tax system. To do otherwise perpetuates a fundamental inequity and ignores a growing problem….The loophole creates serious budget problems for schools, states, and local governments. A study estimated that states could lose as much as $14 billion by 2004 if they are unable to collect existing taxes on Web-based sales. Nearly half of state revenues come from sales taxes."
So Huckabee wanted his state to be the one to determine whether sales taxes were collected from goods sold within the state. Where are the defenders of federalism on that issue?
He publicly opposed the repeal of a sales tax on groceries and medicine in 2002 (Arkansas News Bureau 08/30/02).
What the CFG fails to note is that Arkansas law prohibits deficits and requires that the state budget be balanced. Because 89¢ of every general revenue tax dollar in Arkansas is spent on education, health, and human services, repealing that sales tax without instituting another tax would have required cutting needed services.
He signed bills raising taxes on gasoline (1999), cigarettes (2003) (Americans for Tax Reform 01/07/07), and a $5.25 per day bed-tax on private nursing home patients in 2001 (Arkansas New Bureau 03/01/01).
Again it should be noted that 90% of the state budget is spent on education, health, and human services. While the CFG are tax radicals that believe that such entitlements as education and highways should be done away with, most residents of Arkansas understand that taxes on gas are the way that revenue for road repair is generated.
In 2004, he allowed a 17% sales tax increase to become law (The Gurdon Times 03/02/04).
Notice the odd wording, "allowed…to become law"? Here is how the Cato Institute report describes it:
In response to a court order to increase spending on education, Huckabee proposed another sales tax increase, and the legislature sent to him a smaller sales tax increase with a corporate franchise tax to make up the difference. Hucakbee let it become law without his signature.
Complying with a court order is "allowing" something to happen?
He proposed another sales take hike in 2002 to fund education improvements
(Arkansas News Bureau 12/05/02).
He wanted to raise funds to improve education? What is he, a Democrat?
In Arkansas, 49% of the tax revenue comes from Sales/Use taxes. Such increases were required to meet the legal requirement to balance the budget. Now I'm sure the CFG believes that balanced budgets are a bad idea. But that is something they should blame on the citizens of Arkansas rather than on the Governor.
He opposed a congressional measure to ban internet taxes in 2003 (Arkansas News Bureau 11/21/03).
So he opposed a federal measure that prevented the states from collecting taxes owed to them? Obviously, the CFG doesn’t have much use for the concept of federalism.
By the end of his ten-year tenure, Governor Huckabee was responsible for a 37% higher sales tax in Arkansas, 16% higher motor fuel taxes, and 103% higher cigarette taxes according to Americans for Tax Reform (01/07/07),…
A 37% increase annualized over 10 years is close to, if not less than, the annual rate of inflation. Why does the CFG not point that out. Are they intentionally being misleading? As Chris L. points out in the comments, this is a sales tax and thus not adjusted for inflation. I apologize for that error. I thought the CFG was using the percentages to be misleading, it didn't occur to me just how misleading they were willing to be. The CFG doesn’t provide the baseline tax rate so let's go with the current rate of 6%. If Huckabee increased the rate by 36%, then he raised the sales tax .0384 cents during his ten years in office. By using the percentage rather than the actual total increase, they are able to make it sound much more nefarious.
Also, a governor cuts income and capital gains taxes and they whine because he increased sin taxes in order to balance the budget?
…garnering a lifetime grade of D from the free-market Cato Institute.
I'm not sure exactly why fiscal conservatives should care how a libertarian think tank grades a candidate. Perhaps the CFG couldn’t find a conservative group that would aid them in their hit piece. Unfortunately, Cato's analysis is as weak as CFG's:
Thanks to a final term grade of F, Huckabee earns an overall grade of D for his entire governorship. Like many Republicans, his grades dropped the longer he stayed in office. In his first few years, he fought hard for a sweeping $70 million tax cut package that was the first broad-based tax cut in the state in more than 20 years. He even signed a bill to cut the state's 6 percent capital gains tax-a significant progrowth accomplishment. But nine days after being reelected in 2002, he proposed a sales tax increase to cover a budget deficit caused partly by large spending increases that he proposed and approved, including an expansion in Medicare eligibility that Huckabee made a centerpiece of his 1997 agenda. He agreed to a 3 percent income tax "surcharge" and a 25-cent cigarette tax increase. In response to a court order to increase spending on education, Huckabee proposed another sales tax increase.
After praising his accomplishments, Cato bashes Huckabee for proposing a sales tax to "cover a budget deficit caused partly by large spending increases that he proposed and approved…" Again, 90% of the Arkansas state budget is on education, health, and human services. I realize that the libertarians at Cato consider it blasphemous to have the state funding schools or paying the medical bills of the poor. But complying with state law in order to balance the budget and pay for such entitlements does not make a politician a "big-government conservative." (And they wonder why we don't put the libertarians in charge?)
The CFG then moves on to "spending":
Under Governor Huckabee's watch, state spending increased a whopping 65.3% from 1996 to 2004, three times the rate of inflation (Americans for Tax Reform 01/07/07).
That's odd. This week CFG president Pat Toomey claimed in an article at NRO, "…on his watch, and frequently at his behest, state spending increased by 50 percent, more than double the rate of inflation,…" Perhaps Toomey's ghost writer recalculated since his organization's last hit piece so let's use the latest figure. When Toomey says spending increased by 50%, that's 4.1%. Toomey notes that it was twice the rate of inflation, but ignores population growth (13.7% from 1990 to 2000). An increase in population means that there are more people who require--once again--education, health, and human services.
The number of state government workers rose 20% during his tenure (Arkansas Leader 04/15/06),…
CFG fails to note that the population also increased during that time. Someone has to teach the 449,000 public school children in kindergarten through grade 12 and the 100,000 students in college. Should the number of government workers--including teachers--decrease as the population increases?
…and the state's general obligation debt shot up by almost $1 billion, according to Americans for Tax Reform.
Let's put that claim in perspective: Arkansas spent $1.9 billion this year on public schools. An additional billion dollars could be accounted for in a 10% annual increase in the education budget. Considering that the population increased by 13%, that number seems remarkably low. Even if all other categories didn't increase at all, we should expect the education funding to increase by that amount.
The massive increase in government spending is due in part to the number of new programs and expansion of already existing programs initiated by Governor Huckabee, including ARKids First, a multimillion-dollar government program to provide health coverage for thousands of Arkansas' children (Arkansas News Bureau 04/13/06).
The ArKids First program provides health care coverage of Arkansas' uninsured low income children. If conservatives want to ensure that the Democrats remain in power for the next decade, let's publicly bash any politician that wants to provide health care for indigent children.
Ironically, CFG includes a section on School Choice in which they claim that, "More competition in education can only lead to higher quality and lower costs." How can they support state funded education when they complain about complying with court-mandated tax raises to pay for said funding? How do they expect to pay for education when they oppose all taxes? And wouldn't increased quality require increasing the number, if not the pay, of the subset of government workers known as teachers? Does the CFG have any internally consistent logic when it comes to their critiques?
(In order to limit the length of this post, I'll refrain from commenting on the Free Trade, Entitlement Reform, Regulation, Political Free Speech, and Tort Reform sections. They are either positive about him in those areas or having niggling concerns.)
I'm embarrassed that I initially relied on Andrew Roth's white paper when I formed my first impression of Gov. Huckabee. I'm even more embarrassed that others that have read this sloppy analysis believe it is a damning indictment. I've always considered The Club for Growth to be a respectable conservative organization. But their attempts to deceive their fellow conservatives by misrepresenting Huckabee's record have proven they are unworthy of such trust. Pat Toomey and his organization owe Governor Huckabee--and the rest of us--an apology for their attempted deception.
"a $5.25 per day bed-tax on private nursing home patients in 2001"
Jim Cooper of the Arkansas Health care association defends this claim:
http://www.mikehuckabee.com/index.cfm?FuseAction=Blogs.View&Blog_id=563
October 13, 2007
With all due respect to my fellow fiscal conservative advocates, as President of the Arkansas Health Care Association during Governor Huckabee’s tenure, I wish to dispel criticisms of the provider tax that was initiated for the Arkansas nursing home program.
Governor Huckabee’s position should be considered as one that saved Arkansans from huge tax increases. Let me put the situation in perspective.
For over 20 years prior to the governor’s tenure, Arkansas paid for its nursing home program through a "negotiated" illegal class rate. The hammer was coming down on the entire program. Federal law requires a nexus between the rate and the cost of the care. Arkansas’ state government is required to operate with a balanced budget. For over 20 years the nursing home program survived with minuscule rate increases based largely on how much money could be negotiated in the final state budget. To compound the problem our class rate for nursing home care had fallen to an average of less than $64.00 per patient day which created a short fall of over $12.00 per patient day. Governor Huckabee’s administration, legislators, consumer advocates, and nursing home owners all agreed that care was sub-par, jeopardizing the entire Medicaid program.
Most suggested the old tax and spend philosophy. Raise income or sales taxes to fix the problem. Growth was not an option because there is a finite number of nursing homes and nursing home patients. A soft drink tax had been passed a few years before to prop up the Medicaid program.
The industry and key legislators brought the provider tax concept forth. It was agreed on by the Huckabee administration only after assurances were made for accountability and an entirely new payment methodology was implemented. The tax was placed on total receipts for nursing homes. I could explain in greater detail if asked.
Out of 228 nursing homes in Arkansas only 3 are private pay (that is, they refuse to admit patients who receive federal or state subsidies). These homes were opposed to the provider tax because Federal Law requires all providers be taxed the same. A wide-ranging group of legislators and Governor Huckabee agreed to raise additional Medicaid dollars with the provider tax increasing the matching 3 to 1 federal dollars for nursing homes. Without this solution we would have been faced with huge tax increases for the entire state of Arkansas or the entire Medicaid program in Arkansas could have been decertified.
I would be happy to answer any questions.
Sincerely,
Jim Cooper
President
Arkansas Health Care Association
A 37% increase annualized over 10 years is close to, if not less than, the annual rate of inflation. Why does the CFG not point that out. Are they intentionally being misleading?
Joe, by default, sales taxes move with the rate of inflation. A 5% sales tax on a $100 widget is going to get the state $5. If inflation raises the price of the widget to $105, then the state gets $5.25. I believe the CFG is saying he raised the sales tax to a higher percentage. Inflation has nothing to do with raising the sales tax. Gas taxes are flat, so inflation can play a part.
Anyways, I'm more concerned over Huckabee's weak immigration stance which he has tried to make sound tougher since he's decided to run. Also, the man throws around anti-Christian, etc. when he's opposed on these items.
Thank you for such an honest piece! It's high time we had some PRINCIPLED reporting that easily trumps partisan loyalties. What a ridiculous report from the CFG. Thanks for setting the record straight.
This is why it is INCUMBENT upon every American to do due diligence before forming opinions on candidates.
Great post, I'm glad someone capable went through the CFG attacks and enlightened conservatives on their deceptive tactics.
It seems we need a defense for immigration as well. He has answered the immigration question time after time yet people still think he was weak on it as governor, he has the same stance now as he did as governor.
Chris Lutz, check these links out and maybe you will be satisfied on Mike's immigration stance.
http://www.redstate.com/blogs/radicalconservative/2007/oct/23/huckabee_on_immigration_setting_the_record_straight
http://www.arkansasnews.com/archive/2005/02/03/News/316813.html
http://www.nwaonline.net/articles/2005/08/13/opinion/18editorial.txt
Should we point out that Governor Huckabee became governor after following a tenure of Bill Clinton and a crook named Tucker? No. However, there had to be some strange reason for the Court to step out of their structured authority to order increased spending on education. Also how difficult can it be for a fiscal conservative to operate in a democrat congress when this type congress is for spending liberally on many fronts?
As to Gov. Huckabee's stance on immigration, I don't see this change. As a State Governor, he had to deal with the shortcomings of the federal government not protecting his state from the huge influx of illegal immigrants. He did what had to be done for the children of these foreigners. What needed to be done everyone gave it lip service to federally since Ronald Reagan had the immigration law changed to enforce employers to not hire illegal but this nation did not enforce the law(which is further corrupting this nation by such ignorance of law). Had the federal government did as Huckabee is proposing, we would not have had a lot of the fiscal crisis that we have had. Huckabee wants to cut off the flow of foreigners into this land.
Fiscally, Gov. Huckabee has the best platform out there of all candidates. Check it out. He is in agreement with a so far(hint) total of 67 federal representatives who have co-signed the FairTax plan. He has called for improving our homeland security by becoming energy independent in ten years through the abandoned passion that was seen in the Kennedy space race.
What is not being observed is how the import of our wealth will be reduced to zero by eliminating import of energy and exports will be expanding greatly on the FairTax repeal of hidden taxes in manufactured products. His platform is setting the stage for the greatest economic expansion ever in world history. Now that is fiscal responsibility at it's best and if we do not elect MIke, we will then have more of the same, beltway Republican & Democrat alike, that is sending the USA and it's Constitution to it's grave.
You can play all sorts of games with numbers, but here's the bottom line:
When Bill Clinton left the governor's office in 1992 (after having dramatically increased teacher salaries), the overall state tax burden in Arkansas was at 9.8%, giving Arkansas the 39th highest state tax taxes in the nation.
When Mike Huckabee left office in 2006, the state tax burden was 11.1%, making Arkansas #13 for high taxes.
We may still be 49th in per capita income (thank god for Mississippi), but at least Huckabee moved us up on one scale!
You can verify my figures at taxfoundation . org
Mike H is an admirable guy in a lot of ways, but a governor whose tenure resuilts in hid state haxing a higher tax burden than it did under Bill Clinton (!) isn't going anywhere in the GOP primaries.
Next candidate, please!
Mike H is an admirable guy in a lot of ways, but a governor whose tenure resuilts in his state having a higher tax burden than it did under Bill Clinton (!) isn't going anywhere in the GOP primaries.
Next candidate, please!
Ex Preacher,
Were you not paying attention to the roads and education services in Arkansas? Bill Clinton's record for the state was abyssmal. Surely you do not want to defend Jim Guy Tucker. When you make a mess somebody has to clean it up. I have family in Arkansas and drove through several times in the 90's, the roads were atrocious. I am a fiscal conservative to the hilt, but I would have voted for the tax increase to fix the roads.
Mike Huckabee is the real deal.
If we want to see real tax reform, vote for Mike and the Fair tax.
Should have left the Clinton dynasty out of this. So let's just let it go, for I would imagine a lot of the ills of Arkansas came from years prior to Gov. Huckabee's term. Just look at what he had to deal with in his first term. As to being the forty nine in state capita, wonder why that is? If term limits had not held Huckabee from returning, that number may have changed, but then we would not be Blessed with his challenging a higher mountain.
Dan, maybe you should look at some of his comments.
http://www.betterimmigration.com/candidates/2006/HuckabeePres08.html
Basically, he supported the travesty that the Senate tried to pass this past spring. He is a repeat of Bush on this issue. Bush mouths the same things about we need security at the border. Also, he'll continue the disastrous policy of importing large numbers of foreign workers.
Dream on, ChrisLutz.
Again, having a record on taxes worse than Clinton's, with tax hikes ad infinitum, and a higher resulting chunk of the state's economy going to government, makes Huck a non-starter.
The truth is, Huck's a moderate pretending to be conservative. The man's heart is in the right place, but Romney's got the ideologically fuzzy niche all wrapped up.
I meant, dream on, Dunn. Sorry.
Chris
Joe, by default, sales taxes move with the rate of inflation. A 5% sales tax on a $100 widget is going to get the state $5. If inflation raises the price of the widget to $105, then the state gets $5.25. I believe the CFG is saying he raised the sales tax to a higher percentage. Inflation has nothing to do with raising the sales tax. Gas taxes are flat, so inflation can play a part.
Good point, sales and income taxes are also pegged to population in a rough way. If you have more people that means more stops to the shopping mall and more paychecks.
RGeorge
However, there had to be some strange reason for the Court to step out of their structured authority to order increased spending on education
Actually it happens a lot. Property tax based funding for education creates a situtation where communities with lots of expensive houses or lots of rateables (like office parks that pay property tax but don't send any kids to the local school) end up with more funds to spend on education than poorer communities. Many state constitutions have provisions requiring the gov't to guarantee that every kid have access to a decent public school...which inevitably leads to court challenges to property tax based funding.
Most of the criticisms the CFG makes are accurate. Joe may feel it was justified to increase taxes on tobacco or on internet sales but the fact remains that is advocating a tax increase. The problem Joe does not address is the ideological idiocy of the right that reduces all economics to 'cut taxes'. Most of the substance of the CFG's attack is nonsense but so are almost all 'position papers' like this. For example, when you read something like "Cut the state's capital gains tax by 25%.", that almost always means cherry picked numbers. I will bet you that the actual cut was probably something like from 4% to 3% (1 point being 25%). Likewise when you see just before a hard number rather than a % (as in "Pushed through a Democrat legislature an $80 million tax cut package. ") that probably means a very small percentage in terms of actual revenue raised.
Interesting to note that one of the reforms Joe cited was "Limited the increase in property taxes to 10% a year for individuals and 5% per taxing unit". How is that listed as a tax cut!? It sounds more like he supports pushing the mix of taxes away from income taxes and towards property taxes. I'm not sure that's a very good thing.
I'm also skeptical of treating tax increases on 'voluntary' things the same as overall tax increases. No one has to smoke tobacco so is it really sensible to get as upset over a 'regressive' smoking tax as one would a regressive income or property tax?
The best way to measure these things would be to ask how much did the average Arkansas person pay in total taxes during his reign each year adjusted for inflation. I say total taxes because at the end of the day taxes reduce your income regardless of what bucket they go to. So if the Fed. gov't is cutting taxes and the state gov't is raising them that simply is keeping the same size bucket but shifting who gets the water. Conservatives are free to argue that it is ideologically desirable to do that or they can argue that the state should keep taxes the same or cut them thereby making the bucket smaller overall.
Fiscally, Gov. Huckabee has the best platform out there of all candidates. Check it out. He is in agreement with a so far(hint) total of 67 federal representatives who have co-signed the FairTax plan. He has called for improving our homeland security by becoming energy independent in ten years through the abandoned passion that was seen in the Kennedy space race.
Energy independence is nonsense. The only sensible policy is to reduce energy consumption and/or move away from fossil fuels. "Energy independence", though, has long been a snake oil delusiion that members of both parties have been shilling for 40 years now!
Ky
Were you not paying attention to the roads and education services in Arkansas?
Ex is correct that he raised the tax burden. Ex didn't say that it the tax burden didn't need to be raised. After all if the state was 39th in taxes it probably was skimping a lot on things like schools and roads. The question then is as he moved the state up to #11 in taxes did he likewise move the state up an equal amount in terms of quality of roads, schools, education, nursing homes etc? Now that's an interesting debate!
Also sales tax on internet sales is not a clear cut issue of Federalism or unfairness to retail 'main street' businesses.
First the Constitution clearly says Congress may regulate interstate trade. So there is no 'right' for a state to apply sales taxes to internet sales.
Second dot coms are not clearly unfair to brick and morter businesses. Brick and morter businesses tap public resourses like roads, parking, and police protection. Internet businesses rarely require that level of public service. Perhaps there should be some type of sales tax on internet goods refunded back to the states but it should be at a rate a lot lower than the sales tax applied to brick and morter businesses.
I second Chris Lutz that CFG was saying Huckabee increased tax rates by those percentages, so the rate of inflation is irrelevant.
Mark me down as in the middle. I don't think Huckabee is nearly as bad as CFG said, but I don't think you can whitewash his record entirely either. Especially when you hear him say “CEOs get paid 500 times what the average worker does, but they are not necessarily 500 times smarter or harder-working, and that is wrong.” (link: http://www.politico.com/news/stories/0807/5317.html)
So let's be honest, Joe. Huck isn't the best economic conservative in the field. He's not horrible, but he's not amazing either.
Boonton - I think the point on the real estate taxes had to do with increase in actual taxed amount. Meaning that if someone's assessed property value goes up, that their tax burden (based on the same taxed percent) can only go up by 10% per individual and 5% per taxed unit (I assume that means businesses). It is a guard against what many people experience in a booming housing market - a wonderful growth in unrealized equity, while being unable to afford the increasing tax burden.
One other thing of note. To build and maintain infrastructure requires taxes and spending (the horror). Failing to provide adequate infrastructure is just about the worst thing you can do if you are trying to build the economy. Arkansas had poor infrastructure. So if you want to fix it you can either borrow, or raise taxes. Any real conservative would recognize that rebuilding infrastructure was a good thing. And that it puts the state in a better position. The CFG’s policy that ALL taxes are ALWAYS bad seems like it was written by a 5 year old with no grasp of economics. Yes we all know that taxes can distort markets. But adults know that in the real world we need some government, and we need that government to work. That requires money. Anything else is just demagoguery.
Boonton - I think the point on the real estate taxes had to do with increase in actual taxed amount. Meaning that if someone's assessed property value goes up, that their tax burden (based on the same taxed percent) can only go up by 10% per individual and 5% per taxed unit (I assume that means businesses). It is a guard against what many people experience in a booming housing market - a wonderful growth in unrealized equity, while being unable to afford the increasing tax burden.
Fair enough but property is not assessed every year. If a booming market inflates house prices a county can simply lower rates to keep the total revenue in line. In NJ I can tell you I'd rather see higher income or sales taxes and cuts in property taxes. Perhaps Ak is different.
The CFG’s policy that ALL taxes are ALWAYS bad seems like it was written by a 5 year old with no grasp of economics. Yes we all know that taxes can distort markets. But adults know that in the real world we need some government, and we need that government to work. That requires money. Anything else is just demagoguery
Welcome to the Republican Party. This is why the Democrats are doing very well.
I think CFG is out of proportion in their attacks on Huckabee, but I am more concerned with his Lou-Dobbs-like populist talk wrt economic issues and his support of the Fair Tax. The former betrays him as either being economically illiterate or a demagogue (all populists are one or the other).
The Fair Tax dooms him as unelectable. Regardless of its advantages, no candidate that supports this plan can win a general election.
All in all methinks Joe doth protest too much. I remember the endless "Clinton raised taxes 8000000 times" when he first ran from President, much of that analysis looked exactly like this or worse. This is a very old game that Republican think tanks have played, I'm not going to sob because now Joe's personal favorite has gotten burned by it.
I’m not sure why the Fair Tax dooms his chances of being elected. Unless you are convinced that we can never make a change for the better. We’ve got 67 cosponsors right now in the house, and I’m sure more will follow as people start to learn more about it. It’s a good idea whose time has come. In fact we were actually discussing it at my H&R Block tax class last night, and many of the tax professionals thought it would be a good idea as well. Even though it would eliminate doing tax’s as a source of income.
Instead of accepting that people won’t vote for something they don’t know about, we should be concentrating on educating people. Of course that does involve an informed and involved electorate, which might no longer be possible, but I for one remain hopeful.
The CFG attacks on Huckabee are just a little odd. It makes me wonder if there is something personal involved. Did Huckabee support Specter when Toomey challenged him in the primary?
Kroneborge wrote:
The CFG’s policy that ALL taxes are ALWAYS bad seems like it was written by a 5 year old with no grasp of economics. Yes we all know that taxes can distort markets. But adults know that in the real world we need some government, and we need that government to work. That requires money. Anything else is just demagoguery.
Boonton replied:
Welcome to the Republican Party. This is why the Democrats are doing very well.
Boonton:
You think the Democrats are immune to demagoguery? You're kidding yourself.
The Democrats are doing well, not because of any absence of demagoguery, but for two primary reasons:
- The Republicans led us into Iraq, and
- The Republicans threw the "fiscally conservative" plank away.
One big problem I have with a national sales tax (which I understand the 'fair tax' is) is that it's being sold as 'abolishing the IRS'. In reality it would do anything but...with sales tax rates approaching 30-40% you're going to have a massive incentive for under the table transactions. Your HR Block friends won't be out of work for long as just about every economic transaction will have to be reportable.
Income is actually a lot easier to tax in a less intrusive way. Since businesses do not want to pay more tax than they need, they have an incentive to report their wage expenses correctly. The IRS only receives summary information about you, whatever XYZ Corp says it paid you. You report to the IRS what is deductable. Every single transaction you engage in is not tracked. If $10K plops into your account because your brother loans it to you, it is not automatically questioned as income. Only if you're intensly audited does this sort of thing become a problem.
Once you get your income and pay taxes on it, the IRS doesn't care how you spend it.
With a heavy sales tax, though, there's a huge incentive to dodge it. Every single transaction needs to be subject to scrutiny. Every sale that takes place may or may not be 'at market value'. I got a slight taste of this once when I brought a used car. In NJ you report on the title how much you paid for it and NJ charges you sales tax on it. Just about everyone reports a lot less than they really pay. Sure enough a year or two later I got a letter from NJ asking me to pay the difference between the reported amount and the Blue Book value OR submit receipts or documentation to show the car I brought was really worth a lot less than 'market value'. Now just imagine that for everything you buy or sell and imagine the revenue the IRS collects isn't just 7% of the sale but 20-40%!
The Democrats are doing well, not because of any absence of demagoguery, but for two primary reasons:
- The Republicans threw the "fiscally conservative" plank away.
They never had the plank, never. At best maybe you can say that about Bush I who had the ability to be a bit fiscally conservative with the peace dividend at the end of the cold war but that was about it. Remember Bush II ran on a plank of "we can't have a surplus, it must be given away as tax cuts ASAP" which became "we have a recession, we must have tax cuts" which became "we have a war, without tax cuts the economy will tank". If you wanted fiscal conservativism you should have appreciated it under Clinton.
Joe, your desperation has gone to your head. You call the CFG report dishonest, yet you failed to identify even one factual error in the CFG report. There are lots of areas of policy disagreements, but a policy disagreement and a lie are two entirely separate things.
Not only that, you go beyond that and flat-out lie about CFG: "While the CFG are tax radicals that believe that such entitlements as education and highways should be done away with." This is absolutely false.
Joe, what you've posted here is one long, drawn-out lie. You are dishonest about CFG's beliefs, and you are dishonest about the factual accuracy of the report. Disagree with CFG's policies if you want, but don't lie about what they say.
One other point: anybody who thinks Huckabee is a fiscal conservative is fooling themselves. If we're going to be big about honesty, then let's recognize the bottom-line reality: Huckabee is a social conservative and an economic populist. Opposing tax & spend policies has never been a priority for him; it didn't help that the Department of Finance & Administration, the state agency responsible for recommending budgets and tax policy, remained in the hands of hand-picked Clintonites for most of Huckabee's tenure, even though he could have replaced them anytime he wanted.
If you want to support an economic populist, fine; there's an argument to be made for that, and populism is on the rise within the Christian right. But don't try to fool the rest of us about the reality of Huckabee's policies.
One big problem I have with a national sales tax (which I understand the 'fair tax' is) is that it's being sold as 'abolishing the IRS'. In reality it would do anything but...with sales tax rates approaching 30-40% you're going to have a massive incentive for under the table transactions. Your HR Block friends won't be out of work for long as just about every economic transaction will have to be reportable.
I remember a Washington Post article (http://www.washingtonpost.com/wp-dyn/articles
/A23384-2004Jun7.html) discussing cigarette smuggling as being a source of terrorist funding. The reason this can work is because the high taxes on cigarettes makes this pretty lucrative. Imagine the potential for mischief when the high sales tax suddenly makes smuggling lucrative for everything. It could do for organized crime what Prohibition did in the 1920's and 1930's.
Boonton, you show you don't really understand the fair tax with your comments. You really should read the book about it by Neal Boortz. But I'll try to correct a few of your incorrect ideas about it.
First while the fair tax rate would be 23% (or 30% depending on how you count it) in reality the price of things wouldn't change much, because corporate taxes would be done away with. This would cause the prices of things to fall and the fair tax would return the cost of things to pretty much the same, perhaps slightly higher, but nothing like 30-40%.
Second, only new products are taxed. Used cars, used books, used whaterver are not. I doubt most buisinesses are going to risk cheating the government on taxes. Sales tax collection is hardly a new thing for governments and aside from situations you mention which are for used products which are tax-free under the fair tax I don't think the government is going to have a hard time checking on whether or not a buisiness is cheating them.
Third, of course the IRS isn't going to go completely away. However, unless you run a buisiness that collects sales tax you won't have to interact with them at all. There will be no personal income taxes. In addition there will be no corporate income taxes. I imagine this will drastically reduce the size of the IRS.
Boonton,
I don't think that real estate taxes are going to go away anytime soon. Concerning your response, even if assesments don't go up every year, capping annual growth at 10% could mean that a large assessment is spread out over multiple years. So if your tax burden would have jumped 40%, it will take 4 years to come up to the full amount. Lowering real estate taxes may not be feasible if you have a disparate growth in different areas. I don't think there is anything inhererntly unfair about real estate taxes, but it does make sense to do what you can to protect people from a sudden jump in what they are paying.
First while the fair tax rate would be 23% (or 30% depending on how you count it) in reality the price of things wouldn't change much, because corporate taxes would be done away with. This would cause the prices of things to fall and the fair tax would return the cost of things to pretty much the same, perhaps slightly higher, but nothing like 30-40%.
First while I haven't read the book I have read criticisms of sales tax schemes that argue the rates presented are not honestly revenue neutral. Many tax reform plans often end up assuming a different revenue level than the current system thereby making themselves seem unjustly 'cheap' compared to the current system.
Second, does 23% factor in state sales taxes? NJ alone puts you at 30% or 37%.
Third, does 23% factor in all state income taxes? States that have income taxes use the data collected by the IRS. With the IRS out of the income business that data will become much harder for lone states to amass. No doubt they will move over towards the sales tax. Are you really sure the real rate isn't going to be closer to 40% than 20%?
You missed the point about avoidance. It doesn't matter if prices overall will stay the same or even fall. Saving 40% by doing the transaction off the books is a lot more tempting than saving 5-7%. A TV for $300 beats paying $500 even if the price would have been $550 under the current system.
I don't think the government is going to have a hard time checking on whether or not a buisiness is cheating them.
I'll accept your argument about 'new products' but states are cheated on sales tax all the time. Ever go out of state and shop at a place that has lower or no sales tax? You're supposed to add the difference on your state income tax return. How many people do this? Sales tax rates are generally low enough to keep the revenue coming in without having to be too dramatic with enforcement. Even at 23% you're talking a rate that is radically high compared to even the highest sales tax state in the US.
Third, of course the IRS isn't going to go completely away. However, unless you run a buisiness that collects sales tax you won't have to interact with them at all. There will be no personal income taxes. In addition there will be no corporate income taxes. I imagine this will drastically reduce the size of the IRS.
Again tracking all sales is more labor intensive than tracking income IMO. Income is an aggregate number but sales are not. Any transaction may be an attempt by the company, the customer or even a third party to dodge taxes.
Perhaps individuals would avoid interacting with the IRS but so what? In the last 15 years I maybe dealt with the IRS once on the phone to ask the status of a refund check. Other than that income tax is maybe a one hour distraction during the course of the year. Be honest, as an HR Block guy how many people do you see who are dropping one or two hundred dollars for you guys to fill out three or four boxes on their tax return because they are scared of how 'complicated' taxes are?
For the bulk of people there is little interaction with the IRS. Yes if you have a very complicated life your taxes will likely be complicated as well but that's probably because complication is making you money. Even people with complicated lives often know the rules that impact them very well (like depreciation, or the home office deduction) so even then the number of people who have to deal with the IRS a lot is modest.
Do I really think the IRS under your proposal wouldn't be interacting with non-business owners? Hardly since individual spending is going to be the primary demand for tax fraud I suspect everyone who spends money would have to consider themselves at risk for an intrusive audit.
As someone who lives in Arkansas, I am a bit puzzled by Joe's claim that Huckabee "eliminated the income tax for families below the poverty line." The law enacting that reform was passed just this year under our new Democratic Governor Mike Beebe. Beebe also has cut the regressive sales tax on groceries, something that Huckabee refused to support. Beebe has cut the rate from 6% to 3% with plans to eliminate the grocery tax completely by next year.
From the Arkansas News Bureau March 6, 2007:
(arkansasnews . com)
- - - - -
LITTLE ROCK - Gov. Mike Beebe on Monday signed legislation that will remove Arkansans' lowest-earning taxpayers from state tax rolls.
Act 195 of 2007 will raise the minimum level at which Arkansans must pay state income taxes to the federal poverty level - $9,800 in annual income for an individual and $20,000 for a family of four.
The measure "will put more money in the pockets of working poor Arkansans and make our tax system less regressive and more fair, particularly to those people who struggle the most to be able to provide the basic necessities of life for their children," Beebe said at a signing ceremony at the state Capitol.
Beebe spokesman Matt DeCample said the legislation is expected to eliminate about 60,000 tax returns, affecting about 116,000 people. It is expected to cost the state about $32 million in revenue over the next two years.
Taxpayers whose income is between 100 and 133 percent of the federal poverty level will be eligible for tax credits under Act 195.
"By the use of tax credits, it phases in the tax liability, or eases it in, instead of (taxpayers) getting hit pretty hard ... once you cross the 100 percent threshold," said Rep. Keven Anderson R-Rogers, the lead sponsor of the legislation.
The federal poverty level has increased with inflation, but Arkansas' tax brackets have not, Anderson said in an interview. As a result, some people who did not have to pay taxes to the federal government did have to pay state income taxes.
The bill signed into law Monday "has an inflation index built into it so this won't happen again," he said.
The legislation is the third tax cut measure Beebe has signed since taking office in January. In February, he signed into law a bill reducing the state sales tax on food from 6 cents to 3 cents and a bill increasing the state's homestead property tax exemption by $50, from $300 to $350.
I do think it’s important to acknowledge that there will always be some type of black market where taxes are not collected. The question is whether or not the market will be bigger or smaller if we went from our current tax system to the Fair Tax. Under our current system there is still a good number of people that are paid under the table, including various construction, agricultural and other type of service workers. Plus of course all the people that make their living by illicit means. Which considering how large the illegal drug industry is, is quite a lot. I would posit that these people would now pay significantly higher taxes than before. For while it is true that an excessive tax on a particular item can create a black market for it, the relative prices both before and after the Fair Tax will be similar. Moreover, most people will not go out of their way to buy all their good on the black market when Wal Mart will still probably be cheaper. After all, you need a pretty high markup to make the black market worth while.
Let’s take that TV example a bit further, say the manufacturer of a TV sells TV’s for $100. Then standard retail pricing would sell it for around $200. Which would put an after tax cost of say $260. If a blackmarket wanted to import them an sell them under the table (say you could get them in Canada for $200), it wouldn’t take many middlemen to make it not worthwhile to try and sell TV”s. Plus TV”s are large and bulky which does not lend itself to blackmarket items. Most likely the only way that black marketers could undercut the merchants was if the good were stolen.
It should be noted that sales tax’s are not a new invention. Having business collect sales tax is a standard practice in many states and is not that difficult. And since there are less business than current tax payers, collection efforts would be less, not more. Those business in general would have no incentive to not collect those taxes, unlike our current system where business have large departments or employ accounting firms to specifically reduce tax liability.
Is the Fair Tax perfect? No. But it’s a lot better than our current system. I would suggest looking over the VERY detailed economic reports and analysis’s before passing judgment. Try not to take all the little sound bites out there at face value.
Another "big picture" way to assess Huckabee's effectiveness in the area of economic success is to look at the unemployment rate. Obviously, many factors are beyond a governor's control, especially the overall economic health of the nation. To make it a meaningful comparison, it is only fair to compare the state's unemployment rate to the nation's unemployment rate. So how did Arkansas do under Clinton as compared to Huckabee?
All of the following statistics are annual unemployment rates from the Bureau of Labor Services and the Arkansas Dept. of Workforce Services.
When Bill Clinton took office (for his second administration) during the Reagan recession in 1983, the national unemployment rate was at a staggering 9.6%. Arkansas's unemployment was slightly higher than that at 9.7%.
In 1993, as Clinton left the governorship and became president, the nation's unemployment rate stood at 6.9%. Arkansas's unemployment rate was significantly lower than that at 6.1%.
In 1996, when Huckabee became governor, the national unemployment rate was 5.4%. He inherited a state with a rate still below the national average at 5.1%.
In Huckabee's final year as governor in 2006, the national unemployment rate was 4.6%. And how had he done for Arkansas? The state's unemployment rate was 5.3%. During his tenure, the national rate dropped from 5.4% to 4.6%, but the state's unemployment rate jumped from 5.1% to 5.3%. How he managed to do this while the state's economic engines of Wal-Mart and Tyson were adding tens of thousands of jobs in Northwest Arkansas is unclear.
Under our current system there is still a good number of people that are paid under the table, including various construction, agricultural and other type of service workers. Plus of course all the people that make their living by illicit means.
I agree but I would say this is not very common. How many upper class or middle class people do you know who make their income under the table? Even among lower income people unemployment benefits, the earned income tax credit and Social Security are incentives to work above the table, or at least partly above the table.
Also most of the people you mention are not making much money so they wouldn't be taxed anyway under the 'Fair Tax' so what has been gained?
Which considering how large the illegal drug industry is, is quite a lot. I would posit that these people would now pay significantly higher taxes than before.
The drug industry is populated by vaste numbers of low level street dealers who make next to nothing...hence they wouldn't be taxed. There are few, very few, high level people who make serious money (and by serious I mean maybe 6 figures...not anything to make the doctor or lawyer regret his career choice). Either way drug dealers aren't going to charge and pay sales tax are they?
For while it is true that an excessive tax on a particular item can create a black market for it, the relative prices both before and after the Fair Tax will be similar.
I'll say it again what counts is not the price of the item but the benefit gained by dodging the tax.
Let’s take that TV example a bit further, say the manufacturer of a TV sells TV’s for $100. Then standard retail pricing would sell it for around $200. Which would put an after tax cost of say $260. If a blackmarket wanted to import them an sell them under the table (say you could get them in Canada for $200), it wouldn’t take many middlemen to make it not worthwhile to try and sell TV”s
Here's how you would do it. If you walked into the store and paid by credit card the cost is $260, including $60 'fair tax'. If you pay cash the price is $230. You save $30 and the retailer pockets $30. That extra $30 represents a nice 30% extra profit on his sale. The TV is not recorded as sold and sits on the books as 'inventory' for a year or two and then written off as damaged, stolen or obsolete. Alternatively the retailer reports the TV as sold for $153.84 with $46.15 'fair tax'. "Boy that customer was a hard negotiator! I had to discount the thing pretty deep to make room on my shelf!"
Now the IRS has to find this out by taking a physical inventory of the TV's in the store, comparing that to sales and purchase records. Now of course a big company like Wal-Mart probably would try to avoid such games but how about all those mom & pop outfits struggling against Wal-Mart? Adding 30% to their true bottom lines helps a lot doesn't it? I suppose the IRS could send in an undercover agent to make a purchase but what would that prove? $30 in tax cheating? They'd have to make lots of purchases to make a significant 'bust'. Or they would have to get very very nosy and start poking around in the business of not only the store but all its customers.
Plus TV”s are large and bulky which does not lend itself to blackmarket items. Most likely the only way that black marketers could undercut the merchants was if the good were stolen.
As big and bulky as cars? Remember I told you about sales tax fraud with used cars in NJ? Cars are a lot bigger than TV's and you don't have to register them with the state to use them!
It should be noted that sales tax’s are not a new invention. Having business collect sales tax is a standard practice in many states and is not that difficult. And since there are less business than current tax payers, collection efforts would be less, not more. Those business in general would have no incentive to not collect those taxes, unlike our current system where business have large departments or employ accounting firms to specifically reduce tax liability.
I'm not so sure. You're still taxing people you're just enlisting the store to do the work for you. What's the incentive to comply? Police action that will result in sanctions, fines etc. What's the incentive to cheat? Lots of money. That still sounds to me like you'll need lots of manpower to enforce the the sanction side of things.
With income taxes there's incentives on both sides to comply. If I'm a business, not reporting my true expenses will cause my income to appear higher. If I'm a person, my employer not reporting my income will make it hard for me to get a tax refund, collect unemployment or SSI. While cheating happens it's interesting that both sides might loose by tolerating cheating EVEN IF the IRS doesn't audit. It seems with the sales tax scheme both sides can win by cheating
If you wanted fiscal conservativism you should have appreciated it under Clinton.
Revisionist history, Boonton. Clinton wanted to have piddling little cuts and then require his successor to have massive ones. This was 1993 or 1994, and the real cuts were going to kick in in 2001. This was widely viewed as shoving the problems off on Clinton's successor - even if Clinton had two terms (which wasn't certain at the time), the real pain would still have been under the next president.
It wasn't until the Republicans took control of Congress in 1994 (running on their "Contract with America" platform) that the budget got balanced.
So, yeah, it's true that it happened during Clinton's presidency. And I have to give you that it sure didn't happen under Bush II. But crediting it to Clinton is a complete misreading of what actually happened.
Revisionist history, Boonton. Clinton wanted to have piddling little cuts and then require his successor to have massive ones. This was 1993 or 1994, and the real cuts were going to kick in in 2001. This
Cuts always look like this. Suppose today you cut a program that spends $10m a year. The 'cut' you achieved for 2007 is $10m. The cut you achieve in 2015 is larger because that also includes all the interest you've cut by not borrowing $10m a year from 2007-2014. At 8% let's say that's $5.6m....
I'll give you credit for the Republican Congress in '93 but I'll also note that a lot of big spending ideas (like national healthcare) tanked under the Democratic Congress. The decision was made early in Clinton's years to focus on the deficit rather than big spending (and more than a few progressives were not happy about that). The Republican who deserves co-credit isn't the Congress but Greenspan who worked with Clinton by cutting interest rates as Clinton cut the deficit. Unfortunately Greenspan did the exact opposite with Bush.
No, cuts don't always look like that. Let's say I've got a program that spends $10m a year. The first year, I cut it back to $9.5m, the second year I leave it there, the third year I cut it to $9m, the fourth year I leave it there, the fifth year I cut it to $8.5m, the sixth year I cut it to $7m, and the seventh year I cut it to $5m. That's my recollection of what the Clinton cuts were scheduled to look like in 1993-94.
Now, I'll admit that I'm just running on memory here, and it's my recollection against Boonton's, which is a fairly uninteresting argument. Can anyone point to documentation (preferably unbiased, which is hard to come by about Clinton) that shows one way or the other?
So in year 7 your cut is $5M since if you left the program alone it would have been $10M. Needless to say year 7 also has interest expense cuts since you did less borrowing over years 1-6.
How he managed to do this while the state's economic engines of Wal-Mart and Tyson were adding tens of thousands of jobs in Northwest Arkansas is unclear.
Legal and illegal immigrant workers. Tyson is a major employer and it is estimated that approximately 40% of their workforce is immigrant workers.
It is interesting to me that the Club for Growth's White Paper was somewhat in agreement with comments that John Fund stated over at Opinion Journal.
http://opinionjournal.com/diary/?id=110010782
Not to necessarily echo Phyllis Schlafly but those who desire economically conservative principles and strong Christian principles need to look elsewhere. Gov. Huckabee is a good man who loves the Lord but he does not seem to be an economic conservative.
Clicked over from another site, I thought I'd post this article from the WSJ talking about the Fair Tax. It was written in August, 2007 before the John Fund piece.
http://www.opinionjournal.com/extra/?id=110010523&mod=RSS_Opinion_Journal&ojrss=frontpage
http://www.opinionjournal.com/extra/?id=110010523&mod=RSS_Opinion_Journal&ojrss=frontpage
Chris, I'd like to see your source on that, especially as it relates to Tyson plants in Arkansas.
Here's a good quote from Huckabee:
"In a 2007 interview, Huckabee argued against job loss caused by illegal immigration saying, "You know, when people say, 'they're taking our jobs' -- I used to hear that as Governor -- and I started asking this question, 'can you name me any person, give me their name, who can't get a job plucking a chicken or picking a tomato or tarring a roof that would like to do that work?' ....I never, ever, had a person who could come up with the name of a person who could not get a job because an illegal immigrant had stepped in front of them because it was either a job that person didn't want to do or didn't exist."" (go the wikipedia article on Huckabee for the link)
Chris, I'd like to see your source on that, especially as it relates to Tyson plants in Arkansas.
Here's a good quote from Huckabee:
"In a 2007 interview, Huckabee argued against job loss caused by illegal immigration saying, "You know, when people say, 'they're taking our jobs' -- I used to hear that as Governor -- and I started asking this question, 'can you name me any person, give me their name, who can't get a job plucking a chicken or picking a tomato or tarring a roof that would like to do that work?' ....I never, ever, had a person who could come up with the name of a person who could not get a job because an illegal immigrant had stepped in front of them because it was either a job that person didn't want to do or didn't exist."" (go the wikipedia article on Huckabee for the link)
Truthfully I would like a "Fair Tax" to work, but I see a couple of big problems. The first is that some of its proponents are being a little dishonest; that is where we get the confusion about whether it requires a 23% or 30% rate. The "Fair Tax" as presented requires a 30% sales tax, the way you get to 23% is by using an unconventional formula for calculating rate. The conventional way of calculating sales tax is the tax rate is the amount you add to the purchase price to calculate final cost; for example, a 5% tax rates means you add 5% of the purchase price to the sale price to get the final cost. Some "Fair Tax" proponents go backwards to calculate the rate. In other words, the new national sales tax rate will be 30%, meaning that the final cost of a product is 130% of the sale prices. To get to the 23% rate, what you do is back out the 30%, i.e. 30% (sales tax rate) is 23% of 130% (final cost). Now it is mathematically correct, but it is dishonest because it does not use the accepted convention, rather it uses an alternate one designed to make the tax look better than it is.
The second problem is some of the assumptions proponents makes. I remember listening to Boortz explain the "Fair Tax" plan when his book first came out. One of the things he stated was that compliance costs with federal taxes cost several hundred billion dollars per year. I accept his numbers, but he assumes that with the implementation of the "Fair Tax", these costs will largely go away. I don't accept that assumption. Many of the costs associated with complying with the Federal tax code are also associated the state tax codes, so companies and individuals will still have to comply with many of these costs. If I really wanted to do an in-depth study of the "Fair Tax", I bet I could find other assumptions that don't make sense.
Got a longer post caught in Joe's filter but just wanted to address this:
Let’s take that TV example a bit further, say the manufacturer of a TV sells TV’s for $100. Then standard retail pricing would sell it for around $200. Which would put an after tax cost of say $260. If a blackmarket wanted to import them an sell them under the table (say you could get them in Canada for $200), it wouldn’t take many middlemen to make it not worthwhile to try and sell TV”s. Plus TV”s are large and bulky which does not lend itself to blackmarket items. Most likely the only way that black marketers could undercut the merchants was if the good were stolen.
Here's how it may work:
1. Retailer buys a Tv wholesale for $100
2. If you pay with a credit card, the price is $260 ($200 price plus $30 fair tax @ 30%)
2.1 If you pay cash the price is $230.
The retailer can do two things. One he can not record the sale and claim the TV remains in inventory for a year or two when it is then written off as damaged, stolen, or obsolete. Alternatively the retailer can book the sale for, say $150 claiming the sale price was $115 and the balance is tax. Both customer and retailer win in dodging the 'fair tax'.
Now how does the IRS discover this? Audit their books? Well since you don't have to report income anymore the business doesn't have to keep books or if they do they can use any bookkeeping style they want, not just GAAP.
If the retailer is keeping accurate books he can take the 'unreported' cash balance and record it as some type of non-taxable sale (say for repair service or maybe extended warranty). Perhaps a big outlet like Wal-Mart wouldn't do such a thing (although individual stores, with tough quotas from headquarters, might be tempted to do this without telling upper management) but this would be a no-brainer for smaller mom & pop stores.
Either way it seems like the IRS would have to require pretty intense bookkeeping and audits to get good compliance. Income has the advantage in that you can do a good job by just looking at aggregate numbers. If you see revenue going in and expenses going out you can get a good handle on income without having to watch every transaction. This is what you do with your own taxes, you report your income from the W9 and you report any deductions and presto you have income. You don't have to account for how every dollar was spent.
Many of the costs associated with complying with the Federal tax code are also associated the state tax codes, so companies and individuals will still have to comply with many of these costs.
This is the other problem, states that have income taxes share data with the IRS. If the IRS is no longer collecting income data, it would be almost impossible for them to maintain income taxes on their own. They would have to switch to a sales tax too which means your rate will almost certainly be higher than 30%. Remember, the higher the rate the more tempting it is to cheat on it. It doesn't matter if overall prices remain the same due to corporate taxes being abolished, the fact is you save 30-40% by cheating and people will jump at that.
The motivations you’ve noted are no different than what currently happens, although IMO, less so. For example, you are a construction worker, and you do some side jobs, you should technically report all the income. Most likely you don’t. Most people who are in business for themselves though, pay their taxes just like everyone else. Is the incentive their to cheat, sure. But most don’t want to bother. The majority of retail sales though happens in stores, and in particular big box stores. You’re not going to be slipping the cashier at Wal-mart a bit extra to avoid sales tax.
One final note, I actually handle the sales taxes at the business I work, It’s a fairly transparent and easy process. Certainly much easier than income taxes. And most states already have a system setup to collect them. I would further posit that the IRS could in many cases just let the states collect their revenue which would further reduce bureaucratic costs.
//SIGNED//
The motivations you’ve noted are no different than what currently happens,...most people who are in business for themselves though, pay their taxes just like everyone else. Is the incentive their to cheat, sure. But most don’t want to bother.
The motivation to avoid a 5-6% state sales tax is pretty low; when you are able to avoid a 35-40% sales tax, that motivation increases substantially.
The majority of retail sales though happens in stores, and in particular big box stores.
Maybe, but I have not seen any data to support this supposition.
Certainly much easier than income taxes. And most states already have a system setup to collect them. I would further posit that the IRS could in many cases just let the states collect their revenue which would further reduce bureaucratic costs.
You are making an assumption that the IRS really wants to reduce their bureaucratic costs. I doubt this is a valid assumption, but let's set that aside for the moment. No matter what the method for collecting taxes, the IRS still has to ensure compliance and is unlikely to want to turn that responsibility over to the states. Right now, the feds have to monitor the income of a few hundred million tax payers to ensure income tax compliance, with a national sales tax the government would suddenly have to keep track of several hundred billion sales transactions to ensure compliance. I don't see this as a recipe for reducing bureaucracy. This looks like another questionable assumption from "Fair Tax" advocates. Listen, I don't like doing this because I would like to see a simpler tax system; I am just not seeing the "Fair Tax" as the road to that system.
I am comparing the motivations to avoid the income tax and payroll tax with avoiding a national sales tax. Those percentages are much closer, and so should be fairly comparable. IE, the people that avoid paying income taxes now, would probably try to avoid paying sales taxes as well. But why should we assume that people that happily pay 25-30% of their pay in income taxes, now rebel against a sales tax?
Agreed, that the IRS probably doesn’t want to reduce bureaucratic costs. I’m sure the IRS doesn’t like the Fair Tax either. But that’s kind of the point though, is to take away some of the IRS’s power.
Finally, the IRS wouldn’t need to keep track of billions of transactions. You would basically just be keeping track of business sales, just like the IRS does now when determining business income. The difference is that regular people would no longer see it. If people want to avoid sales, or income taxes the strategy is the same, report less sales/income. But it’s easier to track sales because you no longer have to worry, about factoring in depreciation, COGS, or any other expense. You just need to look at sales.
Again, I do both sales tax for my company, and income taxes on the side. Sales taxes are WAY easier to do, manage, and audit.
Good job with setting the record straight. I posted an interesting response to one blog over here how to use vertical strategy to completely redefine the debate about Gov Huckabee's conservative fiscal policy ideas and motivate support. Please read my comments here:
http://arkansansforhuckabee.blogspot.com/2007/10/doing-my-part.html
and feel free to discuss over here:
http://forum.hucksarmy.com/viewtopic.php?t=117&start=15
That WSJ article is quite convincing on the unworkability of a gigantic national sales tax, not to mention the dishonest math of those promoting it.
It seems that many of the same people promoting this also oppose internet taxes. So wouldn't a large number of people avoid the tax by ordering evrything imaginable over the internet? Wouldn't people who live along the international borders start doing all their shopping in Mexico and Canada? I can easily foresee an enormous black market developing, especially for big ticket items like automobiles. I wonder how automakers in Detroit feel about this tax? It would raise the prices of new cars astronomically while not affecting used cars. Do you think any home owners and buyers would work out schemes to sell their houses without paying the tax?
Whereas the IRS deals primarily with income, just one or two sources for most people, the new Sales Tax Enforcement Agency would have to pry into every transaction made by every individual. Talk about giving huge power to the federal government.
The motivations you’ve noted are no different than what currently happens, although IMO, less so. For example, you are a construction worker, and you do some side jobs, you should technically report all the income. Most likely you don’t.
True but again how many people do you know make a middle class or better living entirely under the table? For that matter how about those who are working poor? There's an incentive on both sides to report income. For the employer, if he underbooks his expenses his income will seem higher causing him to pay unnneeded taxes. For the employee, unemployment, Social Security, income tax refunds and the earned income tax credit depend on his income being reported. Yes there are gaps where both may 'get together' and work 'under the table' but those gaps are not as big as I think they are under a massive sales tax.
The majority of retail sales though happens in stores, and in particular big box stores. You’re not going to be slipping the cashier at Wal-mart a bit extra to avoid sales tax.
You're being way too optimistic here. Even in larger businesses there will be creative ways to dodge this tax. I would imagine they would creatively sell items at deep discounts while packaging them with non-taxed items....such as 'service contracts' or even used items at a high price. 40% is a pretty big incentive for creative accountants to look for loopholes.
One final note, I actually handle the sales taxes at the business I work, It’s a fairly transparent and easy process. Certainly much easier than income taxes.
I worked at a company that was subjected to a sales tax audit. Combing through hundreds of photocopied receipts to 'prove' we paid the sales tax on thousands of purchases. Of course the state never does this to an individual person because if it did the outrage from voters would shut it down.
Also a big factor here is companies already keep good books because they need to for income tax purposes. If income tax is abolished there's no legal requirement to keep good books (except for publically traded companies). Will sales tax be so easy to enforce then when a huge number of companies are allowed to operate without accruate books? If the IRS demands that they keep books then you are in a situtation where you've failed to accomplish your goal of 'abolishing the IRS'.
I don't get your argument about the IRS turning over collection to the states? The fact is the tax is supposed to raise revenue for the gov't, why would the states have an incentive to collect on the gov'ts behalf? Again maybe the guy at the cash register in the big Wal-Mart won't be allowed to play games but the manager of the store might...especially if it helps him make his quotas for headquarters.
But why should we assume that people that happily pay 25-30% of their pay in income taxes, now rebel against a sales tax?
You have to look at the 'decision to rebel' economically. The fact is it isn't very easy for me to transform much, if any, of my income into 'under the table' income. My employer would not go along so to do so I'd either have to find a 2nd job to work after I've put in my 40 hours or I'd have to take a big pay cut. Like most people I work in one place for most of the week so there's not a lot of flexibility there in dodging income/payroll taxes.
I make dozens, maybe hundreds, of purchases in a month. Each one has the potential to be 'under the table'. Now the benefit-cost ratio of tax cheating has changed dramatically in favor of cheating. It's too simplistic to model this as a certain % of 'bad people' who like to cheat on taxes.
Finally, the IRS wouldn’t need to keep track of billions of transactions. You would basically just be keeping track of business sales, just like the IRS does now when determining business income.
Here's another problem, the tax is only collected on 'final sale'. So a person could purchase from a wholesaler and pay no tax. All he has to do is pretend he purchased inventory and just hasn't sold it yet. Here's how you can do it:
1. Call yourself an 'interior designer'
2. Buy a nice furniture/entertainment set from a wholesaler....you're purchasing it to sell to a 'client' who you will...of course...charge tax.
3. Opppss, the 'client' changed his mind! Now you're 'stuck' with these goods until you can find a new client to sell them to. In the meantime they will be 'stored' in your house.
4. A few years later this 'inventory' can be sold at a deep, deep discount to some 'client'. After all it is now out of style and sadly has gotten 'damaged' as it sat in 'inventory'.
Expect a new business in 'personal living designers' who will buy weekly groceries and other minor things for 'clients'.
I believe the only ones that can avoid paying sales tax are resellers. So if you own a furniture store, you could buy wholesale and then apply the tax at your point of sale. A home designer etc would not be able to purchase at pretax prices. Just like a plumber etc can’t purchase at pretax prices now.
The costs/benefits of cheating would probably only be relevant when purchasing goods from people that might not have declared income anyway. For example, if you go down the farmers market, it’s quite possible that not all that income will be reported. But if you go to Vons etc, it will be.
Companies would still need to keep accurate sales totals, but most of them would have to do that anyway, and most would even if no tax was collected. I don’t know of any successful business that don’t keep track of costs and sales.
Also, the state collects sales taxes for counties, and then hands it back over to them, I fail to see why a similar system couldn’t work for the federal. I’m not saying it has too, but it could.
Finally again, large businesses have a lot more opportunity to game the system and try and avoid taxes in our current method than off a simple sales tax. Why do you think we have so many tax, and GAAP rules, but to make sure that income is reportedly correctly.
I believe the only ones that can avoid paying sales tax are resellers. So if you own a furniture store, you could buy wholesale and then apply the tax at your point of sale. A home designer etc would not be able to purchase at pretax prices. Just like a plumber etc can’t purchase at pretax prices now.
Actually a plumber can, he simply gets a certificate from the state that indicates he pays his own sales tax. He can, if he wants, walk into Home Depot and buy the supplies & not be charged sales tax. On the flip side, though, he must report and pay the tax when he sells to customers. BUT no one would do this trick when sales taxes are 6-7%. Too much work. But 40%?
I think we've shown that there's a lot more ways to game this plan than you've considered. Perhaps they could be closed but I'm not sure you've shown they could be closed while saving what supporters are selling as the main benefit, 'freedom' from the IRS.
Finally again, large businesses have a lot more opportunity to game the system and try and avoid taxes in our current method than off a simple sales tax. Why do you think we have so many tax, and GAAP rules, but to make sure that income is reportedly correctly.
This is indeed true but so what? It's a cost of the current system. Simply showing you've eliminated that one cost, though, does not justify the plan. For most people, taxes are not complicated but quite easy. Even for most people with 'complicated' taxes, their taxes are actually pretty simple because once you learn certain things like where to put a home mortgage interest deduction you don't have to learn it again. The few people who have truely complicated tax returns also are leading financially complicated lives and their 'complicated' tax returns are probably worth being complicated as using a 'simple' return would cause them to pay more in taxes.
True income can become somewhat fuzzy as a concept requiring subtle GAAP rules and other issues. True political groups game the system by having special provisions written into the law making the code more complicated. On the other hand income is a broader tax base allowing the pain to be spread around more than simply retail sales. Also income allows for progressive taxes while a sales tax does not. True you partially compensate by having everyone be entitled to a monthly stipend at the poverty level of income but the tax is still regressive. If you try to have a sliding scale stipend that gives low income people a larger handout you are back to the same problem of having people report income and having an IRS keep their reporting honest.
I think we've shown that there's a lot more ways to game this plan than you've considered. Perhaps they could be closed but I'm not sure you've shown they could be closed while saving what supporters are selling as the main benefit, 'freedom' from the IRS.
I agree here. Just to amplify this, one thing that is getting lost is that the "Fair Tax" also imposes a tax on services, not just goods. Many states don't tax services, so this is another area where the "Fair Tax" increases complexity and IRS intrusiveness.
I'm trying to find out when Mr. Huckabee latched on to the national sales tax idea. Does anybody know? I sure don't remember him ever saying anything about this when he was governor. I have a suspicion that he adopted this issue when he realized that it came with a small, but highly dedicated group of potential supporters. Plus, he knows that it won't turn off other potential supporters because they know it has exactly zero chance of actually becoming law.
I've posted a response to this piece. (I tried to send a trackback, but your server responds with a 500 error.)
In a nutshell: It's interesting that you don't really contradict CfG on their facts, only on the importance that those facts have. You don't see a problem with increasing the state's sales tax rate by 37%; fiscal conservatives do. You see rising government spending and a balanced budget requirement as sufficient justification for raising taxes, but the fiscally conservative way to make a budget balance is to control spending, not to raise taxes.
To the FairTax verses income tax, both depend on people being honest. The FairTax will bring the offshore money back to the Nation and the underground economy that now exists will bring forth tax fruit. Will there still be cheaters. Of course. But what is better, having the hidden tax in product removed to allow for cheaper price to the poor and the greater ability to export overseas or to continue down the dead-end road we are on.
As to a Governor in a congressionally democratic state following a democrat governor, what do you think happens and how do you think a governor will have to govern in order to keep the state viable? Should Huckabee have shut down the Arkansas government by not passing a budget? Do you think that the democ\ratic congress would have allowed that or do you think it wise for a governor to do so? We in Michigan just went through a similar budget crisis and have now taken a further dip of losing more jobs to higher taxes. Don't you think that Gov. Huckabee did rather well considering the blocks he had to build with?
CFG has an agenda of supporting a candidate not being Gov. Huckabee. It seems to fit the same mold as Gar Baurer and CFR. This will not sustain in any way. To try to shut off the fiscal conservatives in order to make it look to the social conservatives that Huckabee don't have a chance, need to start looking at the polls. Huckabee's campaign is just now getting the funding needed to push past those who have tapped out their constitutes and as they pry for more, many will start seeing the truth and look elsewhere for the f
better candidate and from both sides of the equation, they will be choosing Mike. Top this off with the minorities finding Huckabee the one to vote for and what will you have? Yup, President Huckabee in 2009.
As to the energy plan being independent in 10 years, oh ye of little faith. Scares you that Huckabee has such a great plank that we Americans are very capable of meeting. Makes me wonder if you work for the oil companies.
This link http://www.redstate.com/blogs/anteater/2007/oct/30/huckabees_fiscal_record_is_fine by Anteater at the RedState web site has a good sumation on this thread:
Here, I would like to make the case that Mike Huckabee's fiscal record, while not perfect, should be perfectly acceptable to conservatives. Should he receive the nomination, I believe that Huckabee will be able to unite the three major factions of the Republican party, with his acceptable fiscal record, his impeccable social conservatism, and his strong stance against Islamofascism.
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To the FairTax verses income tax, both depend on people being honest. The FairTax will bring the offshore money back to the Nation and the underground economy that now exists will bring forth tax fruit.
1. A good tax system needs to also depend on people being dishonest. As I pointed out, the income tax doesn't assume honesty but it does create an incentive to make it difficult to help others be dishonest. The employer who 'hides' your income is also hiding his expenses. A problem with this proposal is that is appears to replace this with a system where both benefit by helping each other be dishonest.
2. Yes some underground money will be captured here that is missed by the income tax. So what? Since different tax schemes will miss and capture different types of underground money any change will pick up some underground money while buring other money. Why not switch to a VAT, for example?
CFG has an agenda of supporting a candidate not being Gov. Huckabee.
Agreed but that's the problem with think tanks. When you hear something like "increasing the state's sales tax rate by 37%" you almost always are hearing more of an agneda than an analysis (hint, raising a sales tax from 3% to 4% is just about a 37% increase but it is still only a single percentage point raise).
As to the energy plan being independent in 10 years, oh ye of little faith. Scares you that Huckabee has such a great plank that we Americans are very capable of meeting. Makes me wonder if you work for the oil companies.
Now who is being silly here. The only plan that would actually achieve 'energy independence' would be massive depression and deindustrialization of the US. Perhaps we could import the Kumar Rouge from Cambodia to implement this plan.
The goal of energy independence is to be free o