« Easy Answers | Main | Romney and the Anxious » Cui Bono?16 Jan 2008 12:15 pm
Who wins under Mike Huckabee's plan to replace the income tax with a hefty national retail sales tax? It seems that the very rich would get most of the gains, plus the very, very poor. Of course, the elderly in particular get hammered here which I assume makes this a non-starters in real world politics, though thus far Huckabee has been remarkably adept at avoiding the real world. Comments (21)
Maybe also relevant. A very good interview (audio available) with David Cay Johnston on how much of sales tax policy is used to subsidize the rich, including quite directly the current Preznit but then money-losing business-ruining George W. Bush Jr.
Johnston describes how in many communities, our localized planning system means that one community "bids" for a Wal-Mart or whatever by promising to revoke their local sales tax payment even while the consumer is still charged the same tax, using government monopoly to make the big guys keep another 3-5% of profit over the conservatives' supposedly beloved small business entrepreneurs. Unfortunately I have to quote this from Reason:
Huckabee's plan to replace the income tax with a hefty national retail sales tax? But this is, of course, completely false. Huckabee's plan is to replace all federal taxes with the sales tax. I would have hoped it would be obvious to Matthew that income taxes are not the same as all federal taxes, but I guess not.
So if ALL federal taxes are replaced with the sales tax, the very wealthy (and idle) few who would be liable for ginormous estate tax bills - would get to keep their multi-multi-millions tax-free on the backs of the poor and middle class. Yeah, that sounds *real* good.
Would the super-rich have to pay sales tax on all the politicians they buy?
Of course not!!! That's just free speech!
I believe that chart significantly understates the regressiveness of Huckabee's proposal, because it assumes that the "Fair Tax" would not change consumer behavior. The poor and working class, who spend most of their net income on essential goods and services, will of course keep their spending about the same. As a result, their tax burden will go up. But the middle class and the rich will likely tamp down their discretionary spending in the US significantly. The middle class will likely just cut back their spending. The rich will likely just move it to other countries. So in order to capture lost revenue, the tax rates would have to go up even more, putting more of the tax burden on the working class and the poor. Also, this proposal would be disastrous in its effects on the US economy. It would discourage consumption in the US, and would drive consumption among the wealthy abroad. It will kill the economy, basically give the wealthiest 0.5% a 0% tax rate, and dramatically raise taxes on those who are forced to spend a high proportion of their income in the US.
Wonder if Indian Reservations will be subject to a national sales tax; they usually don't pay state sales taxes.
The chart is very misleading because it shows only the share of total taxes paid by each income group. Since the sizes of the income groups vary enormously, it doesn't tell us anything meaningful about the impact on individual households by income. Since the vast majority of households are in the middle-income groups, the tax increase for each of those households will be vastly smaller than the chart implies. Similarly, the tax decrease for poor households will be much greater.
Jason, your post doesn't make any sense. Size of each income group would be factored into the averages of the income group tax burden, duh. As I posted above, I think this chart is flawed because it assumes consumption patterns will remain static, when rational behavior analysis would dictate otherwise. Basically, unless Huckabee decides to exempt essential goods and services (food, shelter, heating, gas, medical services, etc.) from his "Fair Tax" plan, it will be extremely regressive, and rich people will pay basically a 0% tax rate in this country. And if Huckabee decides to exempt essential consumption, then the tax rate would have to rise much higher than is projected. Either way, his plan will kill consumption spending in the U.S., and pretty much kill the economy, while also giving huge tax breaks to the rich. Which I guess is the goal of the Republican Party these days: take from the poor, give to the rich, borrow from the future, and kill America's economy.
Wowas, They're not averages, they're share of tax burden by income group. If two income groups pay the same share of the total tax burden, and that share is doubled for each group under the new tax scheme, the chart above would show the same increase in share for each group, but the increase in share per household would be smaller for the group with more households.
So Jason, just like when were told how great the Bush tax cut was because it would put $350 bucks back into our pockets every year, we should then be pleased as punch when after this passes we end up paying $400 a year more in taxes? After years of being told how horrible taxes are by the right how am I supposed to swallow this? I could almost understand why someone might be happy with their measly $350 tax savings while the rich guy gets $50,000 in tax savings, but how will it play when the little guy sees his taxes have gone up $400 and the rich guy is getting another $50,000 in tax savings? The Republicans have done a great job in selling us that taxes are bad, but when this policy's end results are known do the Republicans finally fess up and admit they were really just about making sure the rich get richer after all?
Ricky, You seem to have confused me with someone else. My point is that the chart above is grossly misleading, because it doesn't account for the different numbers of households in each income group. In particular, it is grossly misleading on the effects of the proposed tax reform on middle-income households.
Jason, I guess as someone who lives paycheck to paycheck, it galls me to think my taxes are going to go up while the richest Americans pay even lower taxes. I don't think my taxes going up even by a $100 is grossly misleading, it would suck! The huge tax cuts for the rich have been rationalized by some as small since $50,000 to a millionaire is chump change. That's more than I f*cking make in a year. What is grossly misleading is trying to suggest that this plan is fair. These numbers are quite revealing and not misleading at all.
I get it, Ricky. You don't like the tax plan. You don't need to keep telling me that. Do you have a response to my point?
Jason, I have a response to your point.
Wowsas: But I have no clue how you get away with saying that "The poor and working class, who spend most of their net income on essential goods and services, will of course keep their spending about the same. As a result, their tax burden will go up." Under the plan, a prebate equal to the tax liability at poverty level is fully refunded. Despite how much I dislike this plan, I can't see how the tax burden for the poor will rise. Please explain.
There's nothing wrong with a national sales/VAT tax. The fruitcake part is the "Fair" idea that it could be high enough to replace other taxes. But I am in favor of taxes on energy and on durable goods in proportion to the amount of energy to they consume, for example. A 90% tax on hummers? No problem. Your Tivo consumes 20 watts even when you're not using it. Why? Because nobody cares. A 50% tax would help fix that.
Jason, Whether my taxes go up $1 or $1000 my taxes are going up according to the graph while the guys in the top group are likely saving an amount that, while a pittance to them, likely represents more than I make in a year. The actual numbers mean squat in terms of perception unless, as it seems to me, you are trying to argue that a $100 tax increase for me is somehow small.
Assume that I am in the group earning 30k-40k annually. If I represent the average earner in that group, then my personal taxes just went up by the same amount that the entire demographic's taxes went up. But the more households in the demographic, the smaller that amount will be per household. Yet the chart above does not reflect that, because it shows only the total share for the demographic.
Ok, Jason, I think I get it, but perhaps what you should be saying is, 'So when you look at the last group, it is lowering its total tax burden by almost 8%, remember that number represents only 10% (is it even that high?) of Americans, so these people are going to be saving a huge chunk of change per capita.'
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Heads in the Sand
And let's not forget that "income taxes" is not the big tax burden for most Americans (minus the wealthy), "payroll taxes" are.
How often this gets left out of tax conversations.
Yes, Virginia, there is a difference and that difference makes this chart look almost kind to the lower end.
A national sales tax is goofy. It would have to be more than 30% and then the state/local sales taxes are 10% in many places making a 40% tax on purchases. Sounds like prime territory for black market and barter systems.
Not to mention enforcement and administration costs. Jesus wants to know something Mike, is this Biblical or Constitutional?
Posted by gonzone | January 16, 2008 12:27 PM