The so-called “Fair Tax”, or “Flat Tax”, once thought dead on
arrival, is back on the front burner. This
idiotic idea has for years been simmering below the surface rising, once again, like pond scum, or some hideous creature from Mariana trench of conservative depravity.
The following is from a post written in these columns from March 2008
when the scheme last saw the light of day the only change is that
instead of 23 per cent sales tax, the swine now propose a 30 per cent
sales tax. Such is the cost of allowing the rich to walk away from the table:
Why
is it that every time one sees a fundamentalist preacher turned
politician campaigning for the Presidency he has the Bible in his
left hand, his right index finger in your face and a tax cut for the
rich in his back pocket? It is difficult to say, perhaps overweening
ambition, perhaps the reluctance or the inability to understand
something as complex as economics, perhaps intellectual laziness,
perhaps a simple willingness to be a shill for wealth. But in any
case we are now presented with another such spectacle this time in
the form of Mike Huckabee, our very own Elmer Gantry.
He
arrived late to the Presidential sweepstakes and took up the twin
causes of God and good government in an effort to gin up the support
of the fundamentalist wrong that heretofore were seen to have
controlled the proceedings. Initially his message was a welcome
variant from the old standard in which Christ was seen not as the
apostle of greed but became, briefly in the hands of the Reverend
Mike, once again the God of compassion. Accordingly Mike spoke
eloquently, if only briefly, of our collective need to tend to the
least among us. But his campaign, after Iowa, gained little traction
with victories limited by religious and sectional boundaries. In
order to breathe new life into his flagging effort, the Huckster has
now transformed himself into a full-throated champion of the so
called “Fair Tax”, not so much to win the nomination but to pick
up the broken petard of Pat Robertson and become the new Champion of
the idiot right.
Accordingly
he is now out canvassing the country saying that “in Arkansas if it
can’t be fixed with duct tape it cannot be fixed, and the tax code
and the IRS cannot be fixed with duct tape”. There you have it in a
‘nut’ shell. If it cannot be fixed with duct tape it must go.
Well Mike, I hate to break the news but you cannot fix the schools
with duct tape, you cannot fix the military with duct tape, you
cannot fix the roads with duct tape…..shall we get rid of those
too? Talk to any heating and cooling contractor and you will learn
that in fact one cannot fix anything with duct tape, not even
ductwork. But it is by these standards that the Huckster wages his
war to rid us of the onerous Internal Revenue Service.
No
one, especially a progressive, is about to defend the present system
of how we tax ourselves in these United States. The present tax code
is as close to a ‘flat’ tax as we have seen in generations, with
nearly all the progressivity having been taken out of it. But the
problem of taxation in America is not that we are being taxed too
much, for we rank near the bottom in overall taxation among
industrial countries. It is that the near elimination of the
graduated income tax of our forefathers has produced a society that
has increasingly become more bifurcated between great wealth and the
struggling rest of us. This tax proposal, coming as it does on the
abject failure of a straight out ‘flat’ tax proposed by the likes
of Pierre DuPont in his Presidential campaigns, is even more
regressive. It would move the tax burden increasingly from the
wealthy unto the backs of the working middle and lower classes;
increasing the taxation on work while nearly eliminating the taxation
of wealth.
When
our forefathers introduced the graduated income tax they understood,
as the ‘boomers’ apparently do not, that it is better to tax
wealth than tax work. Reasoning from the tenets of Adam Smith, the
founder of modern free-market capitalism, that work produces wealth,
our forefathers rightly concluded that it would be counterproductive
to tax work since it was through work that all wealth originates.
Better, they said, to tax wealth at a higher rate. By taxing wealth
at higher rates it leaves work with a relatively lighter share of the
overall burden, freeing it to generate more wealth. This reasoning
took the form of the distinction, in the terminology of our
ancestors, between what was called “earned” and “unearned”
income. Better they said to tax at higher rates unearned income
(income from rents, interest and profits), than earned income (income
from wages). Accordingly heavier taxes were laid upon the upper
income tax bracket (in the 90% range), capital gains and estate
taxes. The result was a more egalitarian society, one in which the
fruits of our collective labor were generally shared, a society in
which we witnessed the explosive growth of a large industrial middle
class.
But
the ‘Boomers’, the grand recipients of our forefathers collective
wisdom, saw nothing in the lessons taught that we felt obliged to
learn. Accordingly we have followed the siren song of greed
introducing one tax ‘reform’ after another from the tax
limitation craze set off by Howard Jarvis in California in the late
‘70s, to Ronald Reagan and the Republican assault on the graduated
income tax, to the several flat tax proposals, and efforts to
eliminate outright the capital gains and estate taxes. Let us take a
brief look at the latest entry in the tax ‘reform’ craze put
forward by the conservative stink tanks. The effort, such as it is,
requires more from us than it deserves.
John
Kenneth Galbraith once termed economics the ‘dismal science’, and
although he was referring to the writings of Smith, Malthus and
Ricardo, he can also be read to understand that approaching a study
of economic theory or practice is like going to the dentist.
Accordingly one approaches the study of the “Fair Tax” with all
the enthusiasm of facing root canal work.
The
idea came out of the bowels of Americans for Fair Taxation as a
simple shell game in which the tax burden would be shifted from
income taxes on profits and wages to what is, in effect, a national
sales tax. Now even a flat rate tax of say 10 or 12%, as our friend
Pierre DuPont proposed, has at least the appearance of
‘progressivity’ inasmuch as that the more one makes the more
taxes one pays. But the so called “Fair Tax” proposes a 23% sales
tax on all goods and services. It would eliminate taxes on savings
and investments, all estate taxes, and virtually every other form of
taxation. The result is that the tax burden would be shifted entirely
onto consumption. What this means is that there becomes an inverse
relation between income and the effective level of taxation. That is
the lower your income the higher the percentage of your income to
taxation. Those at the lowest levels, required as they are to spend
virtually every cent on necessities, would pay the going rate. The
higher one’s income the more can be put aside for saving and
investment which, under this scheme, is shielded from taxation. Yes
say the proponents but when it is withdrawn it is spent and taxes are
paid on it. No say we critics because the interest on this money is
earned and compounded while in the bank and is not subject to
taxation. “Unearned” income, which is income nonetheless, is not
subject to taxation unless and until it is spent. Suppose it is not
spent, suppose it is left to constantly multiply itself over a period
of time. Yes when it finally is withdrawn from the bank to make some
purchases it is taxed but in the meantime it is tax free. Wages are
not so lucky. One is presented then with the spectacle of the worker
being taxed at every turn while the investor merely clips his coupons
and watches his money grow.
What
the inventors of this scheme have done is take the entire cost of
government and raise the money by levying a consumption or sales tax.
The proposal, with the requisite misleading moniker of ‘Fair Tax’
has the appearance, like the flat tax, of fairness. Everyone pays the
same tax, right? Wrong. Everyone pays the same tax, as now, at the
checkout counter, but not everyone pays the same effective tax. Whole
parts of the economy, principally the investment community, earn
money but are exempt from taxation. So for instance, the poor slob
earning $15,000. a year pays an effective tax at the going rate of
23% while the billionaire, because so much of his money is off
earning income at compounded rates tax free, pays an effective rate
of less than 2%.
What
makes this shell game so appealing is the deceptively simple
complexity of it. It reminds me, in a perverse way, of the objections
modern Republicans raise to the idea of returning to a graduated
income tax. “The rich already pay the lion’s share of income
taxes”, they point out parroting the talking points of the
Republican National Committee. The Rich do pay nearly two thirds of
all income tax in this country. But that is precisely the problem.
The fact that the upper ten percent carry such a burden is not due to
the unfairness of the present system or to the horrors of re
instituting the tax code of John Kennedy or even Jimmy Carter. It is
due, quite simply, to the fact that the wealthy now own such a large
share of the economic pie. No the answer is not to lower taxes on the
all too heavily burdened upper classes, it is instead to raise those
taxes and return a greater share of the wealth to those who labored
to produce it in the first place. What is needed is a candidate for
President to look the American people in the eye and tell them that
what we want to see is the middle class paying 80% of the income
taxes, because under this administration the middle class will
control 80% of the wealth.
There
are other problems with this so-called "fair tax"
proposal:
There
is the question of the effective tax rate. Proponents say that it is
23% but for the scheme to be income neutral—that is for it to
generate as much money into the federal treasury as the current
system—the effective tax on goods and services would be at least
30% and, according to the President’s Advisory Panel on Tax Reform,
as much as a 34% in order to fund government at present levels. In
fact according to economist William Gale of the Brookings Institution
taxation at the 23% rate would blow a 7 trillion dollar hole in the
budget over 10 years and he projects a more realistic rate of 31% or
higher in order to reach present levels of
funding.(seehttp://money.cnn.com/2005/09/06/pf/taxes/consumptiontax_0510/index.htm)
This new tax would be levied at time of purchase on new homes, rent,
interest on credit cards, mortgages and car loans, doctor bills,
utilities, gasoline (current taxes would not be repealed) legal fees,
ad nauseum.
Conservative
radio talk-show host Neil Boortz contends that there will be a 22%
reduction in prices as companies will be able to produce and sell
goods and services cheaper because they would no longer be required
to withhold taxes. This is a blanket admission, by one of the
scheme’s principal proponents, that by passing the savings on to
the consumer wages will in effect be cut by at least 22%. In other
words the money now being withheld would not be returned to the
worker but would instead be passed on to the consumer who would then
realize the savings when the product is purchased. For the worker, on
the other hand, the tax burden remains but must now be paid at the
check out counter. The tax must be paid, albeit at the reduced price,
not with one’s old ‘gross’ income but with one’s old ‘net
income’ that is what was previously left after the old IRS got done
with it. Assuming that all of the savings are passed on to the
consumer this is at best a simple economic wash. No real savings
emerges.
Now
either prices increase or wages must fall. Either the employer
pockets the monies formerly withheld and passes the savings on to the
consumer in which case it is a dead wash—if, and it’s a big if,
all of said savings are recycled back to the worker as consumer. The
worker is then confronted with a giant leap in retail prices. If the
schemers allow us to keep all our earnings and we have all of our
former paycheck in hand then prices we will face will be as high as
34% greater. In any case the system, as presented, is a wash. The
proponents contend that it will raise as much money as the present
system. The question is why make the change?
The
answer lies in the hidden agendas. Remember these are the same folks
that have been toying with the tax code now for nearly a generation,
killing with a thousand cuts the golden goose given us by our
ancestors. It began at the 1976 Democratic National Convention when
Jimmy Carter, as he accepted his party’s nomination for the
Presidency, called the American tax code a “disgrace to the human
race.” The problem facing the nation at the time was that the tax
code as it had evolved in the postwar era had not been adjusted for
inflation. Greater numbers of working Americans were now lifted, by
the hyperinflation of the era, into higher tax brackets fueling a
nation-wide tax revolt. Carter in calling for reform gave voice and
legitimacy to this growing concern. Instead of simply adjusting the
tax code for inflation the Democrats stalled and it was left to
Ronald Reagan to do the reforming.
Posturing
as a progressive Reagan, much as ‘Ol Two-Cows would do two decades
later, put conservative stink tanks in overdrive spinning ‘tax
reform’ that had the veneer of being progressive but in effect
shifted the tax burden increasingly from wealth to work. Accordingly
they cut the highest tax brackets from 72% to 35%; they cut the
capital gains tax in half, made similar reductions in the estate tax.
They increased Social Security withholding taxes and cut federal
revenue sharing meaning that state and local governments, funded on
flat rate income or sales taxes, were left to make up the difference.
This had the effect of further shifting taxation over the entire
spectrum from the graduated income to more regressive forms of
taxation. To add insult to injury they eliminated the exemptions for
consumer loans, most medical bills, and other previous exemptions
that the middle class had enjoyed so as to raise the needed revenues.
The result, as has been noted by Republican turned independent Kevin
Phillips, is that there has been a growing gap between rich and poor
and the middle class, now owning a smaller share of the national
economy than at any time since before 1929, is shrinking relative to
the rest of the economy. The economic high tides of the 80’s and
90’s did not, as Reagan had promised, raise all boats; and under
the maladministration of ‘Ol Two-Cows, over 5 million have slipped
through the now tattered safety net into poverty. It is from
advocates such as these that the latest incarnation of ‘tax reform’
in the shape of the so called ‘fair tax’ comes. The question
poses itself: why trust them?
The
shell game gets complicated. The proposal calls for a “Prebate”
program in which those at the lowest levels will be reimbursed for
taxes paid giving the act a ‘populist’ veneer but this would
ensure, under a revenue neutral standard, that the middle class will
bear a greater share of the burden. And, to be fair, the proposal
does for the first time shift social security funding in such a way
as to make the rich belly up to the bar and pay more. But the fact
remains that this is perhaps the most regressive tax proposal to ever
have reached the national political debate since early in the
nineteenth century. It is a shell game in which wealth walks away
from the table nearly scot-free.
Nor
does the ‘Fair Tax’ eliminate the IRS as the Huckster would have
us believe. Some agency, however named, will have to collect the
taxes. Taxes, in the new form would simply be collected not by the
employer but by the merchant. How the retail industry will react to
this burden is unclear. This proposal, by their own admission, will
not cut the overall tax burden it will simply shift who will pay it.
To suggest otherwise is to hint at a hidden agenda in which the real
purposes are to simultaneously cut taxes on wealth and cut government
revenue so as to further savage governance. It gets harder to fund
the OSHA or the Consumer Protection Agency, when funding has gone
dry. Whatever the real intent, one smells a rat under the kitchen
sink.
It
is doubtful that neither the Huckster nor Neil Boortz has studied
Econ 101. If they had they would be able to recognize so obvious an
economic shell game. Let us give them the benefit of the doubt and
put this present misunderstanding down to a lack of proper schooling.
To assume otherwise is to understand that they have become mere
shills for great wealth, mere apologists for their corporate
paymasters, and mere pimps for the GOP-- the Grand Old
Prostitute.
In
the immortal words of ‘Ol Two-Cows’, fool me once shame on you,
fool me twice, shame on me, fool me three times, ‘won’t get
fooled again’. No! No!
For
another assessment of the impact of the “Fair Tax “proposal
see:
http://www.factcheck.org/taxes/unspinning_the_fairtax.html
