The Economist misrepresents, butchers FairTax

My respect for The Economist has just decreased significantly after reading their assessment of "Mike Huckabee's tax plan". Here's what they write:
Mr. Huckabee's tax plan is as radical as it is ill-thought out. To achieve a populist goal - abolishing income tax - he proposes a federal sales tax. To make up for lost revenue, it would have to be a stiff one, and levied on practically everything. Mr Huckabee says a rate of 23% would suffice, but this is a sleight of hand. Calculated the way sales taxes usually are, the rate would have to be at least 30% and possibly much higher. This would be horribly regressive. Mr Huckabee says he can solve that problem by giving monthly rebate cheques to those who need them. But to track Americans' income month by month would require a bureaucracy nearly as intrusive as the one Mr Huckabee hopes to abolish by repealing the income tax. The plan is a non-starter.
Whoa. This is shoddy reporting. There is no mention that Mike Huckabee's tax plan is, in fact, the FairTax, and this summary is an awful misrepresentation of it.

The 23% FairTax rate is correct if you compare the FairTax to an income tax. Income taxes are inclusive: you get 100%, the fed takes 23%, you are left with 77%. Sales taxes are exclusive: you pay 100%, on top of that you pay the fed 30%, and your total payment is 130%. But both reflect the same reality. In the income tax case, the government takes 23% of your total income. In the sales tax case, the government takes 23% of your total spending. This is the correct way to compare an income and a sales tax.

Second, the refund mentioned in the article is given to all taxpayers, not just poor ones, and requires no tracking of anyone's income. All it requires is keeping track of what the poverty level is, which does not require tracking people's incomes, and does not at all require a bureaucracy even nearly as intrusive as the IRS.

The essential difference between FairTax and an income tax is that it doesn't tax that part of your income which you use for investment. Investment is crucial to economic growth, and economic growth is crucial to prosperity. Income taxes are levied on the principle of "let us take from those who have"; the more they have, the more progressively let's take from them. But income taxation ignores that most rich people's income is used on investment, not on spending. A rich person cannot stay rich if they immediately spend most of their income!

The strongest impact that income taxes have is that they take money which would have been used on investment, which would have increased productivity growth, which would have caused greater prosperity for everyone in the future, and they take that money and give it to people who spend it for their immediate consumption. This is literally stealing a lot from the future to enjoy a little today. It retards economic growth significantly, which has a huge impact on the purchasing power of poor people in a couple of decades. Simultaneously it is sold as a measure that "helps the poor", which it does a little, today, but whom it actually hurts in the long run.

The FairTax, although being a 30% sales tax, is equal to a nation-wide income tax of 23%, except that all income that's (re)invested is untaxed; and furthermore, because of the FairTax refund, all poor people are taxed at 0%, and the effective tax percentage gradually approaches 23% as a person's spending grows larger.

The Economist published a correction in the following issue, which ends: "There are plenty of good reasons to oppose this plan, but none to misrepresent it." Good work, guys. Recognizing your error, but not your bias. Why don't you actually spend a minute educating yourselves first, and then tell us about all those supposed good reasons to oppose FairTax?


Popular posts from this blog

When monospace fonts aren't: The Unicode character width nightmare

Circumcision as an adult, part 1

Circumcision as an adult, part 2