Huckabee and the Fair Tax

First let me state that I am dead set against the Fair Tax in the manner that Mike Huckabee and most Fair Tax proponents propose it. They propose completely replacing all Federal taxes with the Fair Tax and eliminating the Internal Revenue Service (IRS). I wonder just how willing to compromise Mike Huckabee might be willing to be in order to get his proposal enacted.

I will admit that there are some advantages to the Fair Tax. Mike Huckabee has pointed out one not very controversial advantage, and there is at least one other strong advantage that would be rather controversial.

Mike Huckabee has pointed out that portions of the underground economy might be subjected to at least some taxation. Mike specifically pointed to profits from activities such as prostitution and illegal drug sales being forced to pay taxes when the recipients of the profits sought to spend the money. I think this is indeed a valid positive aspect. I would point out that the economic transactions made during illegal activity probably would not yield any tax revenue, however when those who gain from such activity attempt to spend their profits for legal merchandise, their expenditures woiuld be subject to tax just like everyone else. I am certain that a large majority of our citizens, including me, would agree that this would be a good thing. Little controversy here.

Now let us explore in some detail a more controversial advantage.

Lifting the tax burden from businesses and employers will make American made goods more competitive both domestically and within the general global economy. Removing the federal tax burden from business should yield, through lower production costs, cheaper prices for American made goods. Greater demand for American made goods should yield increased economic activity, higher employment rates, and higher wages for the American worker.

I state this is controversial because some will see any attempt to shift the tax burden from the supply side to the demand side as being a negative. Such people see taxes on business as being a freebie. As long as you do not directly tax them and only impose taxes on big, bad business for the services they want, they cheer. They do not realize the indirect costs on society through the suppression of wage potential of workers and outright job loss imposed on the domestic economy. Such people have strong allies. Extremely respected former Fed Chairman Alan Greenspan has stated that a Flat Tax only tax code would suppress demand for consumption (in Greenspan speak... you know he can't ever say something in common English) and he saw this shift as being undesirable for the economy. However I personally think that our financial guru just did not think it all through. Yes, there might be a difficult period while the economy adjusted, however in the long run, it should be beneficial.

While there might initially be some suppression of economic activity due to increased costs for goods, remember the global economy. At times it seems that just about everything bought in America is made somewhere else. Perhaps foreign manufacturers have the most to fear from the Fair Tax. In the long run, goods made in America, due to the elimination of the tax burden, should be more competitive both internally and externally. This should result in increased demand for the now more cheaply produced goods "Made in America". With increased demand for domestic production capacity will come increased competition for able employees and increased wages. Increased wages (after a period of adjustment) will replace the lost demand, however now an increased portion of the demand will now be met from domestically produced goods. Increased foreign demand for the now cheaper American made goods will help reduce (I do not have the courage to say eliminate) the trade imbalance.

Now comes the aspects of compromise that Fair Tax advocates must agree to in order to win my complete support.

First, I will not let you destroy the American Way. If you want a flat tax, move to Russia. It is my understanding that Vladimir Putin is experimenting with a flat tax. Please go join his experiment if you want to do it the Russian Way. Personally, I think Vladimir is flirting with a peasant revolt, but hey, maybe an autocratic form of government can impose what I would describe as an unjust tax system on the masses. If you want a flat tax, move to Russia. How does the saying go? "America, love it or leave it." If you want a flat tax, move to Russia and see how you fare. You might become fabulously wealthy as a result... until the peasants revolt and strip you of everything. Perhaps you will escape with your life.

The Flat Tax will result an increased tax burden on the middle class. I look at these increased tax payments as an opportunity. If we can get all of the Fair Tax advocates to pay increased taxes to balance the budget, this should also yield a positive impact for our society. A balanced federal budget will yield many positive benefits to our society.

However I am unwilling to turn my back on the American Way. I guess I should define my definition of the American Way. My Daddy's generation came back from World War II and threw their weight behind a system that I will go to my grave supporting. The poor pay little in taxes. The middle class pays some. The wealthy pay more. Effort and ability were rewarded, but with increased rewards came a responsibility to support the society that provided the wealth.

I am getting around to my compromise. Before I get to my proposal, let me point out a serious negative aspect of the Fair Tax. An unadulterated enactment of the Fair Tax would allow foreign investors to invest in and profit from the American economy without paying any taxes at all. Do we want wealthy foreign investors to escape unscathed? Should foreign investors be able to profit from American know how and American labor without paying anything into the society that supports the cash cow? I say HELL NO.

I do not object to the small time foreign investor escaping taxes. However the reality is that investment in the American economy is a big time player game. If the wealthy foreign investor is going to profit, the foreign investor should have to pay his share of the freight.

Profits (income) received from the American economy beyond that which I would define as "reasonable" should be subject to additional taxes beyond the Fair Tax. If someone is going to get rich off of my society, I want to ensure he/she contributes to that which makes the economy possible.

So what would I propose? I would suggest that the continuation of the IRS is necessary to keep honest people honest. There are too many loopholes in the fair tax without someone looking over our shoulders. Decreased demand on keeping the "average citizen" honest by the Fair Tax will enable the existing IRS manpower to increase revenue through tightened enforcement on the decreased pool of claimed exempt economic activity. Increased chances of getting caught will result in increased honesty.

I also demand that after a reasonable level of wealth, that wealth would still be subject to income tax. I do not desire to kill the goose that laid the golden egg. I do not desire to motivate a peasant revolt within America. Hard work should be rewarded. Flagrant wealth should be taxed. We peasants live in America. Thanks to the beauty of the American Way our citizens can revolt at the voting booth without taking up arms.

I love America. I love the American Way. I am appreciative that I am offered the opportunity to change (or object to the change of) things without having to kill anyone.


Blogger Cory said...

Arguing you over the premise of the fair tax and its results is no longer an argument I wish to engage in.

However, I would like to challenge your "definition" of the American way, which is inherently UNDEFINED, and loosely bound by the constraints of the Constitution.

I would just like to point out that the taxation system in the US is no more the "American Way", then a flat tax is the Russian or any other possible combination you can come of with.

The same goes for almost any other philosophy you want to label "American" to drum up some false sense of patriotic support for your ideals. You sound like someone trying to label any one who opposes Iraq as un-American because killing "darkies" and war profiteering is the "American way".

You also are butchering the meaning of "America, love it or leave it". I do not believe the meaning of this EVER was intended to be that if you arent complacent with how something is, you need to leave. The whole system of government was constructed to BE living, adaptive, and to have the possibility of change. That is why there are a couple dozen amendments.

Last time I checked, there was no specific method of taxation supported in the constitution, which means it is free to changed, and THAT is the American way my friend.

2/07/2008 03:18:00 PM  
Blogger Little David said...

Most people seem to think that, in fact, there is an American Way. Even the old Superman television program included how Superman defended "Truth, justice and the American Way".

Now, having said that, perhaps your own definition of the American Way does not match mine. Its still a free country and you are not forced to agree with me.

2/09/2008 03:54:00 PM  

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