Huckabee tax plan raises eyebrows in US

UPDATE 1-Huckabee tax plan raises eyebrows in US
By Ed Stoddard

MANCHESTER, N.H., Jan 6 (Reuters) - .. Huckabee's plan to eliminate all income taxes and replace them with a flat consumption tax has the support of .. Chuck Norris but few economic analysts ...

"The FairTax will replace the Internal Revenue Code with a consumption tax ... All of us will get a monthly rebate that will reimburse us for taxes on purchases up to the poverty line ... That means people below the poverty line won't be taxed at all," says <Huckabee's> Web site.

"All our headaches and heartburn from tax stress will vanish. Instead we will have the FairTax, a simple tax based on wealth. When the FairTax becomes law, it will be like waving a magic wand releasing us from pain and unfairness," it says ...

http://www.reuters.com/article/bondsNews/idUSN0636604820080106

Huckabee’s Tax Plan Appeals, but Is It Fair?
By TOM REDBURN
Published: January 6, 2008

... Whatever the rate, critics say, a steep federal retail tax, piled on top of existing state sales taxes, would encourage widespread illegal tax evasion, black market transactions and other forms of cheating, creating a cycle that would require even higher tax rates ...

... But his campaign received much of its early backing from FairTax advocates who flocked to his banner and continue to fill seats at campaign rallies and provide financial support.

In May, at a rally in Columbia, S.C., about 10,000 supporters of the proposal turned out to hear Mr. Huckabee declare, “I realize that the FairTax organization does not endorse candidates, but let me be very clear: I endorse you.”

Supporters of the sales tax plan are particularly drawn to the feature that calls for repealing the 16th Amendment and abolishing the Internal Revenue Service ...

http://www.nytimes.com/2008/01/06/us/politics/06economy.html?_r=1&ref=us&oref=slogin

A tax upon your house, and everything else, too
The "FairTax" plan calls for a national retail sales tax to replace income and payroll taxes. Won't work, say experts.
By JONATHAN WEISMAN, Washington Post
Last update: January 5, 2008 - 4:09 PM

... But the biggest criticism is that the tax cannot be administered. Many economists say a black market would develop overnight, especially in the service sector.

"Under the FairTax, every time you purchase a service, you would probably get two prices -- one you can pay with a check or credit card that includes the FairTax, and one you can pay in cash and save 23 percent," conservative economist Bruce R. Bartlett wrote this week in the publication Tax Notes. "Because there would no longer be any audits of income, since the IRS would have been abolished ... massive evasion is inevitable."

At the same time, federal spending would shoot up because the government would have to pay sales taxes on purchases. To compensate, the sales tax rate would have to rise to more than 40 percent for the government to take in as much as it does now, said William G. Gale, a tax economist at the Brookings Institution. State and local governments, facing a new burden on purchases, would have to increase taxes to maintain current levels, as well ...

http://www.startribune.com/politics/13085471.html

What's foul about the FairTax
By Bruce Bartlett
January 5, 2008

The FairTax would apply to all government purchases at every level .... States would have to pay .. more on every highway and bridge they build, local governments would have to pay .. more for police and fire protection .... Taxes would have to be increased at the state and local level to pay the FairTax to the federal government ...

... FairTax supporters assume away many of the problems with their plan by asserting that prices will fall .. once all income taxes are abolished. Prices at the checkout would be about the same with the FairTax as they are now, they say, but everyone would come out ahead because their net wage will now equal their gross wage.

If this were so, it's hard to see why the rebate is needed, since there seems to be only winners and no losers under the FairTax. In reality, for prices to fall .., business costs would also have to fall .., which means that all workers would have to take a .. pay cut ...

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/01/05/whats_foul_about_the_fairtax/

The costs of the Fair Tax
Mickey Hepner
The Edmond Sun

... According to a 2006 study by five economists (“Taxing Sales Under the Fair Tax: What Rate Works?”) that often is cited by the Americans for Fair Taxation (the organization promoting the Fair Tax) the actual sales tax rate would need to be 31.27 percent in order to raise enough revenue to be revenue neutral for 2007. Yet, to arrive at this number the authors make three critical assumptions.

First, they assume the federal government will raise $250 billion annually from state and local governments when those governments make purchases. Second, they assume the federal government will collect $200 billion in sales taxes from itself. Since governments (at the federal, state, and local levels) must pay more because of these taxes, these governments will have to either reduce the level of government services they provide or raise other taxes.

Furthermore, the 2006 study assumes there is no evasion from the sales tax. Clearly though, individuals have an incentive to avoid paying taxes whether they be income or sales taxes. If the level of tax evasion is even one-half of the current level of tax evasion with the income tax there is an even greater revenue shortfall.

Using the numbers in that 2006 study, I compute that the Fair Tax rate would have to be 40 percent instead of 30 percent in order to raise enough money to keep the level of federal, state, and local government services constant.

Furthermore, making a conservative allowance for tax cheating means the tax rate must rise to 44.8 percent. Remember, this 44.8 percent sales tax would be on top of the nearly 8 percent state and local sales taxes we already pay in Edmond.

http://www.edmondsun.com/opinion/local_story_005224038.html?keyword=topstory