This morning at Slate, I was greeted with the following headline: Huckabee's tax plan is brilliant. I'm not generally a fan of advocacy journalism, especially when it comes to politics, but this was especially surprising. (On a side note, I've noticed Slate trending rightward lately. I think Hitchens snuck in on the strength of his accent and since then he's been poisoning the coffee.) I thought Huckabee's plan was a national sales tax (a.k.a. "flat tax") a regressive concept that should have died with the Forbes campaign.
And it is. Huckabee's "FairTax" would replace federal income taxes with a 23% sales tax, with an exemption for those living under the poverty line. The poverty exemption makes this only slightly less regressive, considering that the poverty line for a single person in 2007 was $10,210. It's not rocket science to figure out that if you take the current graduated system and replace it with a single bracket (for those above the poverty line,) that's a tax increase for those at the bottom, and a tax cut for those at the top.
Oddly, Huckabee claims that this would actually mean lower taxes for everyone:
Expert analyses have shown that the FairTax lowers the lifetime tax burden of all of us: single or married; working or retired; rich, poor or middle class.We're left to guess who the experts in question might be. Simply lowering everyone's taxes doesn't even pass the straight-face test.
But I digress, this is not about illogical Presidential candidates. It's about illogical Slate correspondents. Here is the central argument of Landsberg's article:
With an income tax, you pay up front. Earn a dollar in 2008, and you'll pay 20 cents tax in 2008. (Actually, you'll pay more, of course; I'm assuming a 20 percent tax rate for the sake of illustration.) With a sales tax, that 20 cents sits in your bank account earning interest until the day you spend your earnings.In other words, wouldn't it be nice if we didn't have to pay tax on all the money we make from interest and capitol gains? Of course it would--if you make most of your money by having money. Landsberg is especially devious here, because he implies that you get more money (by holding onto your money longer so you can invest it) while at the same time implying that this is not a tax cut:
A sales tax is the exact equivalent of an income tax with a provision for unlimited IRA contributions (and no withdrawal penalties.)But it is a tax cut. The weasel phrase here is "equivalent of an income tax." The sales tax would be equivalent if the sales tax rate was the same as the marginal income tax rate. However the proposal is for a 23% rate when any money earned over $31,850 is already taxed at 25%, and so on up the scale. The more you make, the more you save with a sales tax.
That's not even the real deception. Huckabee is not proposing to replace the income tax with a sales tax. He's proposing to get rid of the capitol gains tax as well. When you figure that in, it's a huge benefit for those who invest their income, rather than spend it.
Some might argue that since a growing proportion of American households now own some form of stock, this would bring the middle class into the investing class. According to this report from the non-partisan Center on Budget and Policy Priorites, the top 10% of income earners hold 70% of taxable stock.
Landsberg finishes by saying that we can make this tax rate graduated (which is not what Huckabee proposes) simply by having the government monitor our every transaction.
There might be a way to design a graduated sales tax. Your credit-card providers have a pretty good idea how much you spend each year, and the government could in principle use that information to set your tax rate. Yes, there are a lot of details to be worked out, and yes, it's highly intrusive—but I'm not convinced it's any more intrusive than what we've got now.Since you're unclear, Yes, it is more intrusive. Right now the government knows how much income you're getting from certain sources. With this plan the government would know where and when you spend that money. It's not even close.
