The biggest economic change that Republican presidential candidate Mike Huckabee, who finished third in New Hampshire's Republican primary yesterday, is vying for is the FairTax. He wants to see everyone taxed on consumption rather than the confusing taxation that goes on now through the IRS. In essence he wants to do away with the IRS, which obviously would be a major change to the current tax system. Some would say that anything that calls for the disbanding of the IRS can’t be all bad, but let's take a look at a couple opposing views.
On the subject of the FairTax plan, Huckabee’s website said, “Our current progressive tax system penalizes us for working harder and becoming more successful. As we climb the ladder, the government lurks on each rung, hungry for a bigger bite out of our earnings. The FairTax is also progressive, but it doesn't punish the American dream of success, or the old-fashioned virtues of hard work and thrift, it rewards and encourages them. The FairTax isn't intended to raise any more or less money for the federal government to spend - it is revenue neutral.
Expert analyses have shown that the FairTax lowers the lifetime tax burden of all of us: single or married; working or retired; rich, poor or middle class.”
On the other side of the debate, here is one of several potential problems, presented in a recent article in the Boston Globe:
“Prices will rise. Finally, FairTax supporters assume away many of the problems with their plan by asserting that prices will fall by 22 percent 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 by 22 percent, business costs would also have to fall by 22 percent, which means that all workers would have to take a 22 percent pay cut.
It's unlikely that workers would agree to this. It is far more likely that the FairTax will raise the price of everything by 30 percent. This has been the case in every country and every state with a sales tax. The idea that prices will fall is just a pipe dream.
The FairTax is unworkable. It is a fantasy to think otherwise.”
Will the FairTax really work, or is it just a pipe dream Huckabee is preaching? If Huckabee is elected president, maybe we will find out.