What does the "Fair Tax" plan of Mike Huckabee mean for the middle income family?

Answer 1

First of all, although Huckabee supports it, it isn't something he originated, it's been kicking around for ages.

For the middle income family it would mean an increase in total tax paid. Proponents say otherwise, but they have a lot of assumptions that don't hold up very well if you look at them closely.

Payroll deductions for taxes would end, but a consumption tax would be added to the items you buy, whether it's shoelaces or a house. The "plan" says it would be 23%, but is really more like 30.

Each family would get a monthly payment called a prebate that is to cover the tax on 1/12 of the poverty level, to supposedly protect people against paying the tax on the very basics. Proponents claim this prebate would be very clean to administer - look at the details, it isn't.

They also claim that the whole system wouldn't take much to administer. They are either kidding themselves or lying.

Say goodbye to the child tax credit, earned income credit, education credits, deductions for mortgage interest and real estate taxes, etc, etc, etc. Child care credit will be a thing of the past - oh, and you'll pay 30% more for the child care.

It's a bad deal all around except for the high earners - they'd make out real well.

Think about this for a minute. Today the top earners pay far more than their proportional share of taxes. If everybody spent every cent they earn, then the top earners would only pay their proportional share. Who's going to make up the difference? And to make things even worse, the lower income people tend to spend most of what they earn, while the wealthy tend not too, they invest more of their money. Sure, they'll pay more tax on their Ferrari than I do on my Honda - but as a percentage of their income, they'd do just fine under this plan.

"Fair", indeed.

There are some plusses to the plan. People now working under the table would be taxed along with everyone else.

Answer 2

On top of Judy's excellent response, consider what happens in areas with high taxes on certain goods like tobacco and liquor. Black marketing of those goods is a serious problem. (I've bought cartons of cigs out of the back of a pickup truck with SC tags in NYC on a couple of occasions myself in past years.) With a 30% tax on ALL goods and services that would spill out to pretty much anyting you could think about, especially among the poor and lower middle class. And we all know the types who run black market activities -- organized crime and criminal gangs.

To fight the black marketing activities, Congress would be forced to pass draconian new laws to protect the revenue stream. The IRS would become even more powerful and terrifying than it is today. Imagine teams of field agents decending on your neighborhood and rummaging through the trash looking for evidence of untaxed goods. Or worse yet, entering your home and rummaging through your underwear drawer looking for untaxed gruns.

Mike Huckabee and Ron Paul (one of the original sponsors of the misnamed "Fair Tax" bill) both sounded pretty good until that cat got out of the bag. It's classic neo-con "tax the poor and middle class and give the wealthy a break" rhetoric and effectively renders them un-electable. They'd lose to a potato peeler in the general election.