The Detroit News: Fair Tax sounds like hocus-pocus

[Amerigo Vespucci]

Friday, January 11, 2008
Brian J. O'Connor: Commentary
O'Connor: Fair Tax sounds like hocus-pocus
Huckabee's plan to get rid of current system, impose 30% sales tariff sounds good but reform isn't that simple.

http://www.detnews.com/apps/pbcs.dll/article?AID=/20080111/OPINION03/801110348

Economists from the libertarian Cato Institute, the independent Brookings Institute, the liberal Urban Institute and the bipartisan President's Advisory Panel on Federal Tax Reform all conclude that the Fair Tax is nothing but a fairy tale.

"It took me almost a month to understand this crackpot proposal," says Bruce Bartlett, a Treasury official in the administration of George H.W. Bush.

"They make really outrageous assertions about their proposal that are at the least untrue and more likely just plain lies," Bartlett says. "There's a lot of kooky stuff in there."

The Fair Tax is the product of 10 years of effort by Americans For Fair Taxation. It's backed not only by Huckabee, but also by fellow Republican primary candidates Ron Paul and Duncan Hunter and, on the Democratic side, Mike Gravel. The Fair Tax Act of 2007 has even been introduced in the House.

It's a convoluted and confusing plan, and analysis of it gets technical and even more confusing. But a few frightening ideas do come through.

• First, Fair Taxers claim the sales tax is "only" 23 percent, even though it would cost you 30 cents on each dollar. You can get the lower figure by calculating 30 cents as a percentage of $1.30 (the "inclusive" rate). Sales taxes, however, are calculated "exclusively."

In Michigan, figuring our 6 percent sales tax inclusively produces a rate of 5.6 percent. That sounds better, but you're still paying six cents on each dollar of goods you buy. And under the Fair Tax, it's an extra 30 cents, not 23.

• Even at 30 percent, the tax won't replace current federal tax revenue. Critics point out that the Fair Tax proposal assumes 100 percent compliance and taxes everything new, from food and medicine to cars and houses.

But 15 percent of taxpayers already cheat the system at lower rates and a 30 percent sales tax is a big incentive to do business in cash in what would be a booming black market. Plus, the Fair Tax assumes all government purchases would be taxed too, creating a huge increase in government spending.

According to the Brookings Institute, to replace federal taxes, the sales tax would need to be close to 40 percent.

• You'd be paying that tax on a lot of items that don't generally get taxed at checkout. According to an analysis from the Annenberg Public Policy Center, the Fair Tax would have us paying sales tax on new homes, rent, loan interest, doctor bills, gasoline (on top of current gas taxes), utilities and legal fees.

We could make exceptions, of course, and you can imagine what kind of special interests would carve out their own exemptions. But each one would mean raising the sales tax rate to make up for the lost tax revenue.

• The idea that the "magic wand" would lower prices doesn't add up. To wring 22 percent out of the price of goods, businesses would have to cut all costs, not just taxes.

"Corporate taxes are maybe 10 percent of total revenue," says Bartlett. "The largest cost is labor. Every single worker would have to take a pay cut for the argument to even begin to be true."

• Not everyone saves with the Fair Tax, either. When the Treasury Deptartment ran the numbers under the 2006 tax law, people making $50,000 saw their tax burden rise by 36 percent. But taxpayers making more than $200,000 saw their share of running the country drop by 14 percent.

[wilt the stilt]

1. Neal Boortz pushes it

and if anyone knows Boortz, they would know that it only benefits the rich and him personally