(1) Reducing Sales Tax, The Republican Way
There are Republican governors in 22 states. Why are all these politicians not availing themselves of the opportunity, that is obviously made to order for Republican politicians, to cut their sales tax rate without reducing revenue? This is not voodoo economics, it is incontrovertible mathematical fact. Even truth-telling academic economists will agree that revenue is not reduced at all.
For example, Jim Douglas of Vermont literally has to just wave a magic wand to reduce his state’s sales tax rate from 6% to 5.66% (which, it turns out, also reduces the tax rate by 5.66%! Scary, huh?). And then he has this singular triumph on his political resume for all time. That he reduced tax rates without affecting tax collections. And no one will dispute his claim. It doesn’t get any better than that in Republican politics, does it?
See, when you buy goods worth $100, under the state of Vermont’s 6% sales tax rate, you will be charged $6 in tax. So you pay $106, out of which $6 is tax; anyone who graduated high school can see that the tax rate is really 5.66% (6/106) and not 6%. And I had nothing up my sleeves the whole time.
If you’re skeptical about my argument, you shouldn’t be. This is what the NYT is
selling telling. And the NYT, of course, is a lot more credible than me. In fact, the NYT is pretty much always right, isn’t it?
Here’s the NYT‘s Tom Redburn on Huckabee‘s so called Fair Tax:
Supporters, including a handful of tax experts like Laurence J. Kotlikoff, an economist at Boston University, contend that a rate of about 23 percent, applied across the board, would bring in just as much money to the Treasury as all the taxes the federal government now collects.
It is not the same as a normal sales tax, however. Under the proposal, the tax is included first. That means a $100 item would cost $130, or 30 percent more. The planâ€™s supporters say that works out as a 23 percent rate because $30 is 23 percent of $130.
The Redburn apology-for-a-journalist, mind you, presents this argument without one single word to point out that calling this a 23% tax rate is unmitigated hogwash. And hogwash, in case you weren’t aware, is not the diluted bath-water of hogs, it’s the “garbage fed to hogs“. It’s not clear whether Redburn ingests it himself. But he sure as hell hath no compunctions about serving it up to the public with a sunny smile.
(2) Getting Rich, The American Way
Try this as an experiment. Say your salary is $60,000 a year. One day your boss, with a huge grin, hands you a memo saying that you’re going to get a 10% raise. Much to your surprise, they try and stiff you by paying you only $66,000 next year.
Take the slimy bastards to court. Point out that the raise they gave you is only $6,000 out of $66,000, or 9.09%. Call Redburn as an expert witness. And the editors of the NYT.
Don’t forget to mail me a 1% finder’s fee when you win a huge punitive damages judgment.
(3) Double Or Nothing
Or, if you prefer, a thought experiment, instead. Posit a conservative think-tank’s nightmare of a world in which there’s a 100% sales tax rate.
Under pre-Fair-Tax thinking, this means that when something has a price tag of $100, the evil-incarnate state government walks away with a cool $100 too, and the consumer is stiffed for a total of $200.
Under the Huckabee-Redburn Fair-Tax taxonomy (if you’ll pardon the term), when a consumer pays $200, a 100% sales tax means that the poor retailer gets nothing at all, the distilled-essence-of-evil-incarnate state government walking away with all $200.
(4) Democrats Strike Back
Most of you would have recognized that Democrats would exploit the astonishing insight represented by the Huckabee-Redburn Fair-Tax taxonomy a little differently from Republicans.
Republicans, as argued above, would go for reducing tax rates without reducing revenue. They would change nothing but their rhetoric, and claim (in the Vermont 6% tax rate example) that they are actually charging less tax than anyone realized, only 5.66%.
Democrats, on the other hand, would jump at the chance to increase revenue without raising tax rates. They would argue that since a consumer paying $106 for a $100 price-tag item translates only into a 5.66% sales tax, the consumer really needs to pay $106.38. $6.38 out of $106.38 would then be exactly 6%, and order and symmetry would be restored to the universe (not to mention transparency).
And that, boys and girls, is the most succinct demonstration you will ever see of the difference in the tax philosophy of Republicans and Democrats.
(5) A Conditional Prediction
I believe this means that if Obama ever became Governor of Vermont, the new tax regime would require consumers to be charged $106.20 for $100 items.
It’s the classic Obama recipe: Split the difference between $106 and $106.38, and then round it off. $106.20 permits much more magnificent rhetoric than $106.19 (which sounds like a shyster at work).
(6) Role Models for The NYT
It’s really not that hard to get it right. Bruce Bartlett may well have had one hand tied behind his back when he wrote this for The Boston Globe:
When people hear about a 23 percent national sales tax, they naturally equate it to the state sales taxes they are familiar with. If a state sales tax is 5 percent, then this means that if someone buys something for $1 they will pay $1.05 at the checkout. Thus they assume that the FairTax would cause a $1 product to cost $1.23 if it were to be enacted.
In fact, the rate is not 23 percent, but 30 percent. The 23 percent rate is arrived at by treating the tax as if it were already part of the price instead of being on top. Thus if a product were to sell for $1 and the FairTax added 30 percent, the 30-cent tax comes to 23 percent of $1.30. This is how a 30 percent rate is deceptively turned into a 23 percent rate.
Imagine that! Huckabee is deliberately misrepresenting the tax rate we would suffer under the Fair Tax proposal he’s unreservedly signed on to. Deliberately misrepresenting it in order to sell us a bill of goods. Who could have imagined that!
And that’s not an isolated example either. Amity Shlaes of Bloomberg didn’t have much trouble either:
To be sure, FairTax advocates tout the plan with a 23 percent rate. But this is beyond disingenuous. The 23 percent rate is “inclusive,” meaning that for every dollar you pay, 23 cents is tax. That translates to a 30 percent tax on a 77-cent expenditure.