The U.S tax code, a continual source of posturing and conflict in the political sphere, is once again an important policy issue facing presidential candidates as they prepare for beginning of primary elections in January. The rhetoric has been especially strong among the Republican candidates, with the system being described as broken by the majority of the candidates. Senator Sam Brownback went so far as to call it manipulative, saying, “It’s Washington trying to direct people’s lives.”
Despite agreement on the problem, the G.O.P candidates differ on a possible solution. Former New York Mayor Rudy Giuliani remained vague on the issue in the Oct. 9 Republican debate, sticking to the standard Republican mantra of free trade and lower taxes, without outlining any particular structural changes that he would propose. This could further the criticism of Giuliani that he is running on a platform based largely on national security and his role as mayor of New York during 9/11. Giuliani himself stated in the debate, “A president can’t be an economic forecaster… So the reality is, a president has to work on the fundamentals… Keep taxes low. Keep regulations moderate. Keep spending under control.”
Several candidates, however, have put their support behind economic policies of a much more radical nature. Former Arkansas Governor Mike Huckabee is a strong proponent of what is currently known as the Fair Tax. First introduced as the Fair Tax Bill (H.R. 2525) by Rep. John Linder in 1999 (and every subsequent year), the bill would constitute a large reduction to the complexity of the existing tax code. Essentially, the existing code would be completely abandoned, and all forms of national taxes (income, estate, corporate, etc) would be replaced by a single national retail tax, and the I.R.S would cease to exist as a government body.
In the currently existing legislation, the tax rate would be 23 percent of the purchase price and would apply to nearly all expenditures: food, property, medical fees, legal fees, etc. Additionally, each household would receive a monthly rebate to cover basic expenses. The rebate would be based on family size and acts as an advanced rebate on all purchases made by the family up until the poverty level. Practically, this means that a family that expends at or below the poverty level would pay nothing in taxes, regardless of income.
The benefits attributed to the Fair Tax by its proponents are numerous and appeal to a wide range of current Republican concerns. As noted above, it would ideally streamline a tax code that has become a paradigm of governmental intrusion into private affairs.
Furthermore, Huckabee himself asserted in the debate that the Fair Tax would solve a growing problem in America; with the collapse of American industrial power, the working class has shifted to the lower-paying service industry, forcing many workers to take two or even three jobs. The premise, at least, seems logical; instead of excessive regulation of wages and expensive social programs, why not simply institute a tax code that allows the most modest of incomes to support a certain decent standard of living? As Governor Huckabee said, “I want to make sure people understand that for many people on this stage the economy’s doing terrifically well, but for a lot of Americans it’s not doing so well. The people who handle the bags and make the beds at our hotels and serve the food, many of them are having to work two jobs, and that’s barely paying the rent.”
Admittedly, there is something to be said about a simple approach: It increases transparency, closes loopholes, and generally streamlines the operation of the bureaucracy (always a worthwhile goal, to be sure). The problem Governor Huckabee outlined above is certainly real enough: I’m reminded of the 2001 expose “Nickel and Dimed,” in which journalist Barbara Ehrenreich endeavored to expose the unsustainable nature of a working class existence, multiple jobs, lack of any medical security, discrimination on housing, and countless other problems.
That being said, the possible failings of this plan are legion, and it smacks of a market so unregulated that the people it intends to stabilize will see very little change in quality of life while the wealthy continue to accumulate more and more capital. The U.S. economy is entirely dependant upon continuous consumption, and to eliminate estate and corporate taxes is to give capital the opportunity to accumulate in one place (the financial institutions) while slowly blurring the line between the middle and working classes. Proponents argue that by no longer taxing production, companies will be able to raise wages, further increasing productivity.
This would make economic sense circa 1950, however, the economy is no longer based on production per se. Globalization dictates outsourcing, and we must realize that the nature of the system that we have created is now coming back to bite us. Money in the U.S. is now controlled by the financial institutions, and to allow them to further hoard capital will only keep it out of circulation, while the rebate system will encourage the middle class to spend as little as possible in order to avoid the steep tax rate; consider that if medical expenses are taxed at this rate, a $20,000 medical bill would incur a further $4,600 in taxes. The possibility of such a situation could lead many lower-middle and working class families to avoid any frivolous expenses, further slowing our economy and ensuring its eventual collapse. The principle behind this bill is admirable; its faith in the free market, however, may be more than is warranted.
-All quotes were taken from the transcript of the Republican primary debate of Oct. 9, held in Dearborn, Mich. The transcript was posted by the New York Times on their Web site.
-Technical details of the Fair Tax bill were obtained from the Library of Congress.