Thursday, February 13, 2003

The Age of the Tax Barons

So long, progressive taxation. Welcome to the Empire of the Rich. Abandon all hope, ye mere working stiffs who live here.

While everyone is busy talking about the impending war with Iraq, the Bush regime has quietly trotted out probably its most radical economic proposal yet:

Eliminating the income tax. And replacing it with a national sales tax.

Amid a week's worth of terrorism alerts, the regime ran it up the flagpole last week in a Washington Post story:

Bush Report Hints At New Tax System

Though its thrust was not exactly clear in the text:
The document also departs from the staid, academic tone of past reports to detail what amounts to an endorsement of a simpler tax system aimed at taxing consumption while leaving savings and investment to accrue interest tax-free.

Well, at least George Will was kind enough yesterday to provide us with a brief translation, sort of:
And in a budget-related document, the administration floats the idea of scrapping individual and corporate income taxes in favor of a consumption tax.

What is a consumption tax? It's Newspeak for a national sales tax.

Of course, no story on a Bush initiative would be complete without the obligatory description:
"This one is more daring" than past reports, said Daniel J. Mitchell, an economist at the conservative Heritage Foundation. "But that's because the president's agenda is really rather bold in terms of tax reform."

[See this post for our handy translation of this particular bit of Newspeak.]

Where is this proposal emanating from? Its primary proponents are an outfit called Americans for Fair Taxation. Their chief champion in Congress is a Georgia Republican named John Linder, who introduced a so-called 'Fair Tax' bill on the first day of this year's session.

Note that the group boasts that its proposals are viewed seriously by the White House:
Key lawmakers and activists who support fundamental tax reform and specific tax replacement initiatives are watching a consumption tax plan being reviewed behind closed doors by the Bush administration.

Judging by events of the past week, this boast is not idle.

Two years ago -- in a piece that likewise roasted the Bush campaign's tax proposals -- Robert McIntyre debunked the "Fair Tax" in unmistakable terms:
The wackiest witness of all had to have been Leo Linbeck, Jr., Texas multimillionaire and head of a group called Americans for Fair Taxation, which wants to replace all income taxes, estate taxes, and payroll taxes with a national sales tax. Linbeck claims that he can do all this, and provide rebates to the poor to boot, with a sales tax rate of only 23 percent.

Baloney. That 23 percent tax rate is both dishonest and impossible. For one thing, when Linbeck says 23 percent, he actually means 30 percent. He came up with the 23 percent figure by dividing the sales tax by the cost of a purchase plus the tax. So if the tax on a $100 purchase is $30, Linbeck prefers to call it a 23 percent "tax inclusive rate" ($30 divided by $130).

And that's only the beginning of Linbeck's credibility problems. Almost a third of his sales tax revenues are supposed to come from taxes the government will pay to itself. For instance, build a road, and pay yourself a tax. Buy some planes, and pay yourself some more. That's silly. So is his idea that we could draw a quarter of the remaining sales tax revenue from taxes paid on things like church services, free care at veterans' hospitals, and a variety of hard-to-tax financial services like free checking accounts.


More to the point, of course, is that a sales tax is the most regressive kind of tax, while an income tax can be at least reasonably progressive. The supposed "fair tax" actually will shift the majority of the tax burden almost completely off the shoulders of the wealthy and onto the backs of the middle class and poor.

Well, at least someone at the Post is paying attention, even if his first name isn't Howard.

Finding the Warts In Bush's Tax Plan
Had Bush run on a platform to eliminate all taxes on investment income and to make America safe for inherited wealth, we'd be discussing the budget proposals presented last week by President Gore. But by turning up the heat slowly, Bush has gotten the inheritance tax all but eliminated and has a good chance to get Congress to enact the rest of his program.

They say frog legs taste like chicken.

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