I was going to write up Mike Huckabee’s visit to UMD, but Ariel Alexovich than I would have. Plus, her article has a photo that might plausibly have me in it (the second guy on the rent-a-cop’s shoulder).
(Photo: Chris Maddaloni for The New York Times)
Okay, a few comments below the fold.
All in all, it wasn’t a bad appearance. He didn’t say anything obviously batshit crazy. He stressed the importance of education, not only math and science, but music and art, which is good. Of course, he stayed away from the topic of evolution, and only mentioned God and religion a handful of times.
Of course, one of those times was when he said that his advisors told him that mathematically, it was going to be difficult for him to win, and he said “I didn’t major in math. I majored in miracles.” Hey, Mike, guess which of those two has a good track record.
He also opened by addressing the crowded ballroom with, “And they told me there weren’t any Republicans in Maryland!” Of course, Barack Obama will be visiting campus on Monday; he was originally booked for Cole Field House, a basketball arena, before being moved to the Comcast Center, a mega-huge arena down the road. Still, it was gracious of Huckabee to say that, even if he didn’t mean it.
He also pushed FairTax; AIUI the idea is to get rid of federal income and payroll tax and just tax consumption. It looks good on paper, but it’s a rather radical move, and I’d like to see a critique by someone better versed in economics than I am before I decide that it’s a Good Thing.
(Update, Feb. 11, 2008: Added photo credit.)
Epsilon Clue 
This is a reasonable explanation of some of the issues surrounding the Fair Tax. At least it’s not straight-up regressive like the flat tax, though I still wonder if all those people cheering him would still be cheering him if it turns out that they’d pay more than they currently are paying. (I’m guessing that for middle-class folks and below, that would be the case.) Is that worth it for less paperwork once a year? What I’d really like to see are some studies of any country or area that moved to a similar program, and what it did to/with their economy. Precedent isn’t a perfect predictor, but it would be interesting.
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Cool. Thanks!
Well, for one thing, it would mean higher retail prices to make up for the lack of federal revenue from other taxes.
Yes, exactly what I was thinking. There’s a big distance between theory and implementation, and trying something out in real life can highlight a lot of problems in the theory.
I’m sure that the current tax code has a lot of bloat, but I suspect it also contains a lot of stuff to deal with known problems. Kind of like how code that takes 10 lines on paper swells to over 100 when you put in all the error-checking and whatnot.
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I don’t have a problem with “radical” ideas like completely throwing away our current tax code and starting again with a simpler one. Continuing with your software analogy, there are times when code just gets so unbelievably crufty that you’re more likely to make a robust system by starting over than you are by refactoring and bolting on fixes.
The problem I have with any sort of pure consumption tax is that it puts a very serious limit on how progressive you can make the tax system. Yes, the Fair Tax has its “prebate” system, but the reality is that money, like everything else, has a diminishing marginal utility, and a progressive income tax is really the only way to reflect that. Of course, it doesn’t help that the Fair Tax proponents have a huge and vocal support base of the economically illiterate and people who like to play games with numbers (like calculating the tax rate as tax/(price + tax) rather than tax / price).
What I haven’t seen from any consumption tax proponent is how they can make the system simpler (or make it work better) than simply going to a simple progressive income tax without exceptions. Dump the corporate income tax for all I care. Get rid of all of the deductions and tricks. Just put your income into a simple progressive tax function and get your percentage of tax back out. How is the Fair Tax simpler, and how is it more economically viable?
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It’s not the “throwing away the old system” that bothers me. But what assurance is there that the proposed system works any better. Or, indeed, works at all? As Raven said, it’d be nice if it had been tested on a small scale somewhere.
Like the Alternative Minimum Tax, you mean? As I understand it, the rationale behind the AMT is “if you make more than $X, you’re rich enough to hire accountants who’ll find you every possible tax dodge. Then again, if you make that much, you can also afford to pay taxes, no matter what your losses are or how much you’ve donated to charity.
Oh, and I should point out that I am one of those economic illiterates. I’m not proud of it, but at least I know it.
The other thing that bothers me is motivation. Currently, if you work for a company, it seems to me that your employer doesn’t really have any motivation to lie to the IRS about how much you make (on your W-2), or to withhold less than the legal amount (plus, that amount is on your paycheck, and you have an incentive to make sure they withhold the right amount). So the IRS can at least estimate how much you owe and see whether you’re wildly out of line compared to other people in your income bracket.
But with what amounts to a 30% sales tax, I as a shopper have an incentive to try to circumvent that tax. The seller might have an incentive to circumvent it as well, since I’m more likely to buy from someone who’ll in effect give me a 30% discount. Plus, how easy is the system to audit?
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I think that the problem with the AMT is not that it takes away a bunch of deductions but rather that the value X you refer to isn’t properly indexed for inflation. A simple progressive system should work just fine as long as your curve that describes who is “rich” is shaped in a sensible way. The AMT is not simple, and it definitely does a poor job of defining sensible wealth brackets.
These are very good points. Something I would add is that it may very well lead to a decline in retail sales in general as “black market” second hand sales suddenly have a strong competitive disadvantage. I’m not sure whether that’s a good thing or a bad thing (beyond the fact that it would clearly be tax evasion), but it would definitely have an impact on how we do business.
Anyway, I’m deeply suspicious of any tax movement whose proponents often refer to it as “lowering taxes” and “revenue neurtal” at the same time.
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One thing Huckabee said is that some ridiculous amount of money goes toward making sure one is in compliance: auditing companies and processes to make sure they conform to the rules, paying people to fill out the appropriate forms, and so forth (both in governmend and in the private sector). I don’t know whether this is true, but it might be that they figure FairTax will lower taxes without affecting revenue by reducing waste.
Here’s a hypothetical scenario: I buy 1000 iPhones from Apple at, say, $300 apiece. Since this is for resale, the $300,000 I spend isn’t taxed. I then sell them to you at the good-buddy price of $1, plus $0.30 tax. The next day, you remember that you don’t actually want an iPhone, let alone a thousand of them, and sell them second-hand, “like new”, for $350 apiece. Since you’re in a good mood and like me so much, you give me $325,000 of the $350,000 you just made. Next week, we trade places and do it again.
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Well, Intuit’s TurboTax alone costs our economy over $1/3B per year, and that’s for people who, presumably, have an “easy” enough tax situation to do it themselves. I can only imagine what the deadweight loss from the entire tax industry is. It’s hard to believe that our taxation system–something that every citizen needs to be fully compliant with–is so complicated that most people can’t comply with it without hiring a class of experts to do it for them.
I like to think that I’m a reasonably capable guy. I took an accounting class in college. I can do math. I have an economics degree and I’m not bad with money. Further, I have a very simple living arrangement: one spouse, no children, no mortgage, no business. Even so, every year, I can’t help but feel a little bit of doubt when I stick my paperwork in the mail. Did I do it right? Did I miss something important? Did I screw myself out of a lot of money? The fact is that I don’t have the first clue how to do taxes beyond answering the basic questions my tax software asks me. Considering how much money (and jail time) is involved, that’s beyond scary.
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I’ve often thought the same thing. My proposed solution is simple: require that every legislator do his or her taxes him- or herself, on paper. Heck, I’ll even allow a four-function calculator.
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