Responding to Anti-Fair Tax Statements

With Mike Huckabee supporting the fair tax, his opponents have been trying to scare up opposition. There have been 3 principal arguments that have been advanced to argue against the plan. I don’t expect the Huckabee campaign to issue effective responses, so why I don’t support Huck, I’ll respond to the arguments.

Argument #1: Someone will still have to collect the tax.

I’ve heard this argument used quite a few times, particularly in regards to Huckabee’s applause line of “getting rid of the IRS.” While it’s true that you’d need some Treasury Agents to insure the Tax was properly collected, the Fair Tax would not touch near as many people or be as cumbersome. Ask any state where Sales Tax is collected, it’s fairly routine. Americans would be able to stop saving receipts for decades on end, and the federal tax compliance would be an issue that 98% of the population would never have to deal with.

Argument #2: The High Rate  

The Fair Tax would have a rate of 23% tax inclusive (that is if the tax is added to the non-tax price of the good, the tax would be 23% of the total cost), however as Sales Tax is normally calculated this would be a 30% rate. How does the Fair Tax overcome this?

There are two ways. First of all, there’s the monthly tax prebate that every citizen would get which would insure that Americans living at a certain percentage of the poverty level would be unaffected by the tax.

The second point to consider is the issue of embedded taxes. It’s been said, “That corporations do not pay taxes, they collect it.” The cost of Corporate Taxes, the employer portion of the payroll taxes and all associated compliance costs are passed onto the consumer. So, thus every automobile, television, book, box of cereal comes with a series of embedded taxes. In some cases, there are multiple levels to this. The price of a box of cereal is going to be high enough to help defray the cost of corporate taxes, payroll taxes, and compliance costs for both the retailer and the company that makes the cereal.

These embedded taxes are why the United States gets slaughtered in the import/export market. Our exports to places like China or Europe come burdened down with these embedded taxes, while products from Europe and China do not come to the US with a series of their taxes included in the product.

Argument 3: What about the deductions? This statement by Rudy Giuliani prompted this piece:

“I think there are several tax deductions that are vital to our economy,” Giuliani said. “This would not be a good time — I don’t know if there would ever be a good time to do this — to advocate ending the home mortgage deduction. The home mortgage deduction is considered by many critical to the ability of people to buy a home and keep their home.”

Okay, let’s think about this seriously for just a moment. Under our current system, those who itemize get a Home Mortgage deduction. Most people (myself included) don’t itemize and therefore I’ve never taken advantage of that portion of the tax code.  I’d say it’s fair to say that most folks in trouble on their mortgage aren’t itemizing.  However, those who are able to take that deduction pay no taxes on the income they pay towards the interest on their home mortgage.

 Under the Fair Tax, all goods and services are taxed exactly once. If someone has purchased a house already and is paying on that, they’ll pay no tax on that income they’re paying towards their home, both principal and interest. The only time a home would be taxed is at the time its purchased the first time, which in the case of the current housing crunch would obviously have occurred before the passage of the Fair Tax.