Leading Conservatives: Saxby Chambliss’ Tax Plans Are Crazy
Back during the dark ages of the 2008 GOP Presidential primary, there was a brief boom of support for Mike Huckabee that was swatted down furiously by the conservative establishment. They had some bad reasons for doing this, but also some good ones. Noteworthy in the annals of problems with Mike Huckabee was his embrace of something called the Fair Tax. What’s the Fair Tax? Well, as Jon Chait explained at the time:
It is difficult for me to find the words to explain just how crazy this idea is. The national sales tax is crazier, by an order of magnitude, than any other crazy idea I’ve seen at the national level. It’s so crazy that even really crazy right-wingers think it’s pretty crazy.
The crux of the Fair Tax plan is to eliminate all federal income taxes, and replace them with a 30 percent national retail sales tax, but then call the 30 percent tax a 23 percent tax. This is a real feature of the plan. They want to say that a tax that raises the price of goods from $1 to $1.30 is a 23 percent tax because $0.30 is 23 percent of $1.30 even though nobody calculates taxes this way. Anyways, yes, lots of conservatives think this is a crazy idea.
Examples!
– David Frum: “Economists and tax experts virtually unanimously agree that the plan is beyond unworkable — that it is downright absurd.”
– Ross Douthat: “Huckabee’s Fair Tax zeal and Paul’s anti-Fed enthusiasm are genuinely foolish.”
– Rich Lowry:
Mike Huckabee is not running a substance-free campaign based on biography and applause lines. No, the former Arkansas governor has the distinction of advocating the most radical — and politically unsalable and substantively daft — proposal of any major presidential candidate of either party.It is the so-called FairTax. It would eliminate the income and payroll taxes and replace them with a (supposedly) 23-percent national sales tax. Not given to rhetorical understatement, Huckabee says, “When the FairTax becomes law, it will be like waving a magic wand releasing us from pain and unfairness.” Waving a magic wand is about right — since the FairTax is a bedtime story for IRS-hating conservatives.
– John Podhoretz: Fair tax is a “wild notion.”
One could go on. Suffice it to say that this is a truly crazy idea, and once upon a time the leading voices of American conservatism weren’t afraid to call it a crazy idea. And then there’s Saxby Chambliss who thinks the FairTax is great:
[Saxby] Chambliss reiterated his support of the sales tax. He said it lets consumers determine their tax rate based on their consumption levels.
“The fair tax is what is says it is — it’s fair,” Chambliss said.
I look forward to the aforementioned conservative thought-leaders weighing in on Chambliss’ endorsement of fantasyland policymaking.
51 Responses to “Leading Conservatives: Saxby Chambliss’ Tax Plans Are Crazy”
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October 20th, 2008 at 2:51 pm
Why don’t they call it a 1% tax, because the sales tax price for 1 unit of purchase only represents 1% of what you buy if you calculate it on buying 30X those units. (Right?)
October 20th, 2008 at 2:56 pm
Matt, there’s an emerging poli-sci literature that says if we change the tax code to look more like Sweden’s (more indirect taxation, less personal income taxation) we become more likely to get a welfare state that looks like Sweden’s. It sells differently if it’s regarded as social insurance (those who the taxes hit the hardest also mainly benefit) than as redistribution.
October 20th, 2008 at 3:08 pm
if mccain and the rest of the conservatives are against progressive taxation then ipso facto they are for a fair, or flat, tax. if not then by the standards of the right they are socialists. what the right is really for is tax cuts for the wealthy which do not (and never have) pay for themselves, and that must be paid for by successive generations. that is the wealth distribution championed by so-called conservatives.
October 20th, 2008 at 3:09 pm
I look forward to the aforementioned conservative thought-leaders weighing in on Chambliss’ endorsement of fantasyland policymaking.
And yet the EU has a VAT and is apparently not a fantasyland…
The daft part of Huckabee’s plan was proposing we do it all at once while eliminating the IRS. A gradual move in direction of VAT would be a pretty sensible thing to do.
October 20th, 2008 at 3:12 pm
“Nobody calculates taxes that way.”
Except everybody calculates INCOME taxes that way. If there were a 23% income tax that would mean that for every dollar I take home, my employer would be paying out $1.30.
So you kind of need to do something like this or it’s not a fair comparison.
October 20th, 2008 at 3:22 pm
While you’re free to disagree with the FairTax, don’t misrepresent it. It’s not just getting rid of the income tax and it is not a tax that “raises the price of goods from $1 to $1.30…”
It is a tax that replaces ALL federal taxes - including the taxes you don’t see in those “goods.” A loaf of bread that costs $2.50 contains a LOT of hidden taxes as part of its price - probably around the same amount that the FairTax represents.
In other words, when all those hidden taxes are eliminated, the price of your loaf of bread would be probably around $250.
I agree, however, that it would be extremely difficult to implement because you would never get the states on board.
October 20th, 2008 at 3:23 pm
Yeah, fortunately Martin’s been running commercials hitting this tax in very clear terms.
Then I saw one of Saxby’s ads. I had the tv muted, but it quoted a supposed newspaper headline: “Governor dumps Martin after children die”. Jesus. Then the end was just huge red letters: “YOU CAN’T TRUST JIM MARTIN”.
I almost want to win this one as much as the presidency.
October 20th, 2008 at 3:26 pm
Matt, there’s an emerging poli-sci literature that says if we change the tax code to look more like Sweden’s (more indirect taxation, less personal income taxation) we become more likely to get a welfare state that looks like Sweden’s.
I’d personally love to see our tax code look a lot more like Sweden’s, but it’s news to me their code is characterized by “less personal income taxation.” I had thought that the Nordics in general tax both personal consumption and income fairly heavily (albeit in a highly progressive fashion, combined with a highly progressive set of benefits) and tax business activity quite lightly. In other words, although a person earning $40K p.a. is likely to have a higher after tax/after benefit income in Sweden than in the US, the opposite is true for someone earning say, $300K. I could be wrong.
October 20th, 2008 at 3:30 pm
Oh, and FWIW, I campaign a bit for Jim Martin, so I’m definitely NOT a Saxby Chambliss defender. I actually find him quite despicable.
October 20th, 2008 at 3:32 pm
I remember at the time that there were several progressive bloggers (including Ezra, unless I’m mistaken) who wrote very well argued pieces on the idea that you could do a progressive consumption tax if you wanted to. Of course, Huck’s plan was not at all progressive, but the idea of a consumption tax in and of itself is not necessarily a bad one, assuming it’s sufficiently progressive.
October 20th, 2008 at 3:37 pm
A consumption tax demands a hefty estate tax as a defense against Aristocracy.
October 20th, 2008 at 3:43 pm
If Frum, Douthat, Lowry and Podhoretz all say it’s bad, maybe it’s a policy worth looking into.
October 20th, 2008 at 3:48 pm
Look, if I buy $10 worth of items and the store says I have to pay $13 then I had to pay 30% more then the actual “price” of the items. If this is a sales tax then it would be called a 30% tax. If the store offers to pay me $13 an hour but my tax home pay is only $10 per hour then I lost 23% of my wages. If this is due to taxes it is a 23% tax. The way we calculate percentage change has to do with mathematics, and if Huckabee or Chambliss want to say it is really the other amount (”well, you could be getting $13/hour from your employer, and $13 is really 30% of $10, so it’s a 3o% tax”) they are imply lying. One is a 23% cut, the other is a 30% increase. It turns out that if you have a 30% increase and a 23% cut you end up with the same amount, but there is no real confusion on what side of things gets what nomenclature.
In any case, we could talk until we are all blue in the face about this, and ultimately what this means isn’t a 30% tax or a 23% tax, but an anti-Robin-Hood or “rob-from-the-poor and give-to-the-rich” tax. First of all, even if the wealthy and poor are taxed at the actual same rate we don’t consider this a good thing (well, aside from a few greedy assholes) because everyone recognizes that if one person makes $15,000 a year and ends up with $12,000 after taxes and another person makes $15,000,000 per year and ends up with $12,000,000 after taxes, you’re not being fair to mister $12k.
Basic needs to survive cost a certain amount (let’s arbitrarily call it $10k per year, so mister $12k is really left with $2k per year if he is frugal whereas if Mr $12 million is equally frugal he basically has $12 million per year left.
So a flat tax is grossly unfair to begin with, but then we’re going to make it a sales tax, so what happens is that Mr. $12k really takes home all $15k, but then has to pay out $13k just for enough goods to survive, so he ends up with $2k, the same amount as before. On the other hand, Mr. $12 million who now pays no income taxes ends up with $15 million minus the $13k for essential goods and services is still about $15 million (ok, technically $14,987,000), so what you have really accomplished is to make wealthy people vastly wealthier.
Now it is true that wealthy people do still spend a lot more of their income on goods and services then poor people, and it is possible that as a result wealthy people may end up paying an equal, or even higher, percentage of their income in taxes, but this is a choice. The only choice the poor person faces is whether he wants to live by buying the necessary G&S for survival or not.
Moreover, from the point of view of the health of the country, tax money is kept in circulation by use, pretty much all the money poor people get will be kept in circulation by use, but when times are bad, a fair amount of money wealthy people get will be squirreled away somewhere where it won’t help our economy because they can afford all the luxuries they want and still not risk some of their cash. Do we want to increase the amount of money that is doing nothing in our economy?
October 20th, 2008 at 4:11 pm
Actually, it not a comparison at all. Comparing marginal tax rates of any kind is silly exercise (e.g. McCain comparing America’s marginal corporate tax rate with Ireland’s marginal corporate tax rate). To honestly compare the FairTax to the income tax, then we must compare “effective” tax rates–actual taxes paid as a percentage of income.
For most middle-class Americans, their effective tax rates would increase under the FairTax (prebate or no prebate). In addition, the middle class would pay more taxes (relative to their annual income) than the households near the top of the economic ladder. In essence, the result of the FairTax proposal would be to shift even more of the tax burden from the wealthy to the middle class.
I never could understand why somebody on the right who hates progressive taxes would favor regressive taxes as an alternative.
October 20th, 2008 at 4:57 pm
Matt left out that the 30% (aka “23%”) Fair Tax isn’t even fiscally neutral. My favorite fact on Fair Tax accounting: the Fair Tax requires the government to pay ‘fair taxes’ to the government on all of its purchases, and that money gets counted as new government revenue but not as new government expenses. The result is a huge hole in the federal budget. I suppose that you could still technically call it “revenue neutral” (never mind all the new expenses), but if that’s what you’re aiming for you might as well just have the government raise taxes on itself up to 100% and call it a day.
October 20th, 2008 at 4:58 pm
What’s really fun is that Huckabee spends half an hour pushing his Fair Tax on his talk show every Sunday. Last night he had a WSJ reporter on; he said that a Fair Tax would be “like rocket fuel” for our economy. Week before that, this unemployed guy asked how the Fair Tax would help him. Huckabee’s guest, a conservative radio show host, said, and I shit you not, that the Fair Tax would help him because it would make everything in the stores cheaper.
October 20th, 2008 at 5:00 pm
I think it’s hard for folks in the rest of the country to understand how popular the Fair Tax is with conservatives & libertarians in Georgia. I know a lot of otherwise thoughtful people who think this is a great idea. A popular Atlanta talk radio host has been pushing this idea hard for YEARS and has gotten a lot of traction.
Similarly, Huckabee endorsed the Fair Tax because it automatically gave him a constituency of supporters in Iowa. Between the Fair Taxers and the Evangelicals, it was fairly easy to get the largest percentage of support in the caucuses, as the rest of the voting was too splintered between a large number of folks. All that was left was to work to get the support of caucusers whose preferred candidate didn’t meet the 15% threshold.
October 20th, 2008 at 5:05 pm
Also a supporter of the FairTax? Joe the Plumber — Obama does a decent job of batting that down in his original Q&A with Joe.
October 20th, 2008 at 5:12 pm
“Also a supporter of the FairTax? Joe the Plumber — Obama does a decent job of batting that down in his original Q&A with Joe.”
In Joe’s case, I think Huckabee’s promise to impose a 30% tax and abolish the IRS sounds kind of like having everyone leave their car doors unlocked and abolishing the crime of grand theft auto. “Impose whatever tax you want, Huckabee, I’ll be rid of my tax evasion rap!”
October 20th, 2008 at 5:47 pm
“A popular Atlanta talk radio host has been pushing this idea hard for YEARS and has gotten a lot of traction.
”
The popular radio host referred to above is Neil Boortz, co-author of the FairTax book (along with Republican Congressman John Linder). Boortz is a race-baiter, serial liar and an all around hate-speech promulgator on par with Michael Savage, Limbaugh, Hannity and the rest.
Yes, the FairTax is popular in Georgia, but that’s primarily because this guy is on prime time (corporate) radio for four hours every day without any opposing voices to correct the steady stream of misrepresentations that Boortz spews about the workings and so-called benefits of this proposal.
The FairTax is a ridiculous idea promoted heavily by a ridiculous man.
October 20th, 2008 at 5:54 pm
The biggest problem with the fair tax or the flat tax is that you can’t define ‘taxable income’.
I defy anyone to define ‘taxable income’ of a 23% or 30% ‘fair tax’ in under 10,000,000 words.
October 20th, 2008 at 6:15 pm
Neil
One no longer has to define ‘taxable income’ - Income is not taxable - transactions are
and
JMitzman
No matter what taxing schema; Life is not fair to Mr. 12K when compared to Mr. 12M. The only flat tax design that I have seen has a “survival” floor.
October 20th, 2008 at 7:18 pm
It’s depressing how solid of a foothold this dumb notion has gotten in Georgia, especially where I live (Cobb County)
October 20th, 2008 at 7:56 pm
One of the ironies of current conservative complaints against the progressive income tax: “It isn’t fair to take a higher percentage from one person than from another” - is that the reduced capital gains tax does that (when applied to short-term gain, since indexing issues clouds the issue for long-term turnovers.)
October 20th, 2008 at 8:29 pm
Brazil has relatively low Income taxes(I think that more than 80% of the population don´t pay any) and a very high national sales taxes. Most people try to cheat the sales tax(That´s why most of the GDP is in the informality), the country has relatively high welfare spending for a poor country(Tuition free universities, free milk to poor people, free health care AND health credit for anyone willing to go private, etc).
Sure, at least in Brazil the sales taxes for books and cigarettes aren´t the same, so, it´s not so bad as the Fair Tax idea. But everyone criticizes the Tax Code of Brazil. To me, the Brazilian experience shows that a High National Sales Tax of something higher than 20% is insane.
October 20th, 2008 at 9:27 pm
But Mike Gravel supports the Fair Tax, too!! That means it has bipartisan support! Also I think he calls it the FairTax, without the space.
October 20th, 2008 at 10:10 pm
One of the all-time great out-of-context quotes:
Mike Huckabee is not running a substance-free campaign–Rick Lowery
Exactly which substances were involved?
October 21st, 2008 at 1:11 am
Maybe it’s the time of night, but I am genuinely not sure what the hell you are talking about. Are you joking?
October 21st, 2008 at 8:28 am
My concern about Fair Tax is massive revenue shortages. The upper income earners pay the majority of income taxes as it is. When you reduce their taxes, plus eliminate all other taxes like estate and capital gains, this amounts to a massive reduction in tax revenue which would have to be made up by those in the lower income brackets.
I think we would soon find out the fair tax rate would have to be higher, and the middle class would be much worse off than we are today.
October 21st, 2008 at 9:11 am
This was a very threadbare analysis.
Other than fraudulent claims of how much tax is levied, why is it nuts?
I’d been intrigued by the notion of the Fair tax until I thought of the inevitability of loopholes that will be weaved into it, rendering it as complex as the income tax is today.
The simplicity is appealing, but temporary.
Corruption by paying under the table would be replaced by black market sales for the purposes of tax evasion.
Same problems as we have now, 10 years later.
Then some scrappy young fella will come along proposing a simple system based on how much we earn, and get rid of this wretched complicated Sales tax that was once called, comically, the “Fair Tax” which charges only 10% tax on yachts, diamonds, and BMW’s.
October 21st, 2008 at 9:19 am
I work in a business full of high-income earners, all of my colleagues earn at least mid/high six figures and many earn 7 or 8 figures. The notion that rich people spend as much of their income as middle class people is laughable. The fact of the matter is the average guy who makes a million per year spends a much lower percentage of his income than the guy who makes $50k per year. Most of a person’s normal expenses don’t change - gas, milk, food, movies, cable, internet, etc cost the same whether you’re rich or poor. The guy who makes a million might spend more on his clothes, and then again he might spend about the same. The “fair tax” is simply a great way to shift the tax burden on to the average person while giving a big tax cut to the rich. Let’s even say you want to look at it as a 23% tax instead of a 30% tax. Well 23% is just about what the effective tax rate on the top 1% is according to IRS data. Therefore a person in the top 1% would have to spend ALL of their income to pay the same in taxes, otherwise they are paying less. 23% is also about twice the effective tax rate of the median middle class person, so a middle class person would have to spend only half of their income or it to work out the same. If they spend more than half their income their taxes are increasing. Considering the savings rate is negative or zero for the middle class it means the average middle class person spends all or at least virtually all of their income. The “fair tax” would double their tax liability.
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