Monday, December 17, 2007

and speaking of Boortz...

The Fair Tax is taking a lot of hits with every added bit of publicity (for those that don't know, the Fair Tax would replace all federal taxes with a 23% point-of-sale consumption tax on retail purchases). Huckabee recently gave a very simplistic reason for supporting it, and made a bit of a mistake in the process:

"You end the underground economy," Huckabee said at a recent luncheon for the Greater Concord Chamber of Commerce. "Illegals, prostitutes, pimps, gamblers, drug dealers - everybody pays taxes."

The WSJ editorial board, particularly James Taranto in his often entertaining Best of the Web today online column, jumped all over the claim. Taranto correctly pointed out that because no drug dealer or pimp will actually report the money he makes so as to pay the Fair Tax, such items and services would actually be purchased with pre-tax income! That's right, just like contributions to your 401k.

To be fair, while Huckabee's claim is way too far-reaching, the Fair Tax might do more to limit the tax-loss effects of the underground economy when it comes time for the drug dealers and pimps to purchase their own retail goods with the money they made from their illegal trade. Under our current system, their income would never be taxed directly. One could certainly argue that the Fair Tax would do more to tax nere-do-wells than our current system.

Instead of simply pointing out that the OpinionJournal crew were treating Huckabee a bit harshly for his gaffe, and merely pointing out what I just did in the above paragraph, Boortz (who co-authored the Fair Tax books with congressman John Linder) went into full-fledged defense mode. He began engaging Taranto & Co. in a semantical argument, in his typical snarky, self-satisfied manner:

So I've picked out three statements from the Wall Street Journal editorial to answer. Here we go:

"But while proponents use that 23% figure as an easier political sell, the rate is closer to 30% when it's calculated like any other sales tax, with the levy on top of the price."

We really do hate to break it to the editorial board at the Wall Street Journal, but the simple fact of the matter is that the FairTax is not calculated like other sales taxes. The FairTax is included in the price, not added on top of the price. Perhaps the board would be less inclined to misstate the terms of the FairTax if they actually read the book or H.R. 25, but we're patient people, so we'll explain this one more time:

(a) Current state sales taxes: You look at the item on the shelf. The item is priced at $100.00. You take that item to the cashier. The cashier adds the state sales tax to the $100. If that sales tax is 7 percent, you pay $107, take your receipt and walk out.

(b) FairTax: You look at the item on the shelf. The item is priced at $100. You take the item to the cashier. The cashier asks you for $100. You pay your $100, take your receipt and walk out. You look at the receipt. The receipt tells you that 23 percent of the $100 you paid for that item is the FairTax and will be forwarded to the federal government. You call upon your years of education and quickly calculate that $23 is 23 percent of $100.

This is really quite embarrassing when you examine it for more than a few seconds. The two books can't possibly the same item. A book that retailed at $100 under the current system would not magically cost 23% less in the Fair Tax. Whether the cost is $100 on the sticker, or $100 at the register, the retailer is only getting $77 in revenue by selling the item at $100 with the Fair Tax. Before he was getting $100. That assumes that the retailer is willing to eat the entire cost of the Fair Tax himself (minus whatever the savings in supply-side cost in the production of the book promised by the Fair Tax). That's simply not going to happen. Anytime a sales tax is levied on a retail purchase, the burden in a normal supply/demand market is shared to some degree by consumer and retailer (with the government getting a share, and with a share being lost as dead-weight loss). This is basic economics. Things WILL cost more at the register under the Fair Tax.

But that shouldn't be a problem for the Fair Tax supporters. With Americans controlling all of their income, they have more incentive to save money (one of the stated benefits of the Fair Tax), and have more purchasing power. This is not to mention the "prebate" given to all citizens in the form of a cash payout with the intention of covering all necessities.

It may sound like I am firmly against the Fair Tax. I'm not. I'm not exactly for it at this point either, but it's worth consideration. But right now the two most public faces are out their making ridiculous and unsupportable claims about their own position. Boortz was rightly called out on his own kind of voodoo economics (a term much more applicable here than when disingenuously used by the original iffy-conservative Republican, George H.W. Bush). Just today I heard him questioning the intellectual capacities of the WSJ editorial board. All this after he falls for the Huckabee magic as easily as Jim Gilchrist did. It's just not looking too good for him these days.

With friends like Huckabee and Boortz, the federal consumption tax idea might ponder the need for enemies.

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