Friday, January 11, 2008

Steven Landsburg: The Case for a National Sales Tax

University of Rochester economist Steven E. Landsburg (author of Armchair Economics) comes out in support of Huckabee's national sales tax in his most recent column titled "Huckabee's Tax Plan Is Brilliant: So why is it getting trashed?":

A national sales tax is the exact equivalent of an income tax with a provision for unlimited IRA contributions (and no withdrawal penalties). The merits and demerits of the Huckabee tax plan are identical to the merits and demerits of a vastly liberalized IRA policy.

A lot of economists, myself included, think that there's a lot to be said for unlimited IRAs. Any conceivable tax system discourages work, which is unfortunate but unavoidable. But the current system also discourages saving, which is avoidable. A liberalized IRA policy—or, equivalently, a sales tax—eliminates that problem.

Bottom line: Unlimited IRAs, coupled with somewhat higher tax rates, have advantages and disadvantages, but the advantages are bigger. And whatever can be said about unlimited IRAs coupled with somewhat higher tax rates can equally be said of a national sales tax.


At 1/11/2008 10:43 AM, Anonymous Anonymous said...

Are you no longer supporting Ron Paul?

At 1/11/2008 11:41 AM, Blogger juandos said...

Well Steven Landsburg would be wrong...

No tax scam will solve the problem and Landsburg pimping for the Huckster's idiotic ideas that are berift of reality...

US's triple-A credit rating 'under threat'

The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moody's, the credit rating agency, said yesterday.

The warning over the future of the triple-A rating - granted to US government debt since it was first assessed in 1917 - reflects growing concerns over the country's ability to retain its financial and economic supremacy.

It could also put further pressure on candidates from both the Republican and Democratic parties to sharpen their focus on healthcare and pensions in the run-up to November's presidential election... (there is more)

Robert Samuelson also chimes in with something similer: Promises They Can't Keep

The big lie of campaign 2008 -- so far -- is that the presidential candidates, Democratic and Republican, will take care of our children. Listening to these politicians, you might think they will. Doing well by children has now passed motherhood and apple pie as an idol that all candidates must worship.

"We will do whatever it takes to make America a better country, to give our kids a better future," says Mike Huckabee, winner of the Republican Iowa caucuses.

"We will deliver for our children, our grandchildren and our great-grandchildren," claims Sen. Barack Obama, the Democratic winner in Iowa.

"We're going to reclaim the future for our children," says Democratic Sen. Hillary Clinton.

Actually, these are throwaway lines, completely disconnected from reality.

Our children face a future of rising taxes, squeezed -- and perhaps falling -- public services and aging -- perhaps deteriorating -- public infrastructure (roads, sewers, transit systems). Today's young workers and children are about to be engulfed by a massive income transfer from young to old that will perversely make it harder for them to afford their own children.

No major candidate of either party proposes to do much about this, even though the facts are well known.

Social Security, Medicare and Medicaid -- three programs that go overwhelmingly to older Americans -- already represent more than 40 percent of federal spending. A new report from the Congressional Budget Office projects that these programs could easily grow to about 70 percent of the budget by 2030. Without implausibly large deficits, the only way to preserve most other government programs would be huge tax increases (about 40 percent from today's levels). Avoiding the tax increases would require draconian cuts in other programs (about 60 percent). Workers and young families, not retirees, would bear the brunt of either higher taxes or degraded public services.(there is more)

At 1/11/2008 11:48 AM, Anonymous Anonymous said...

For 25 years we have been creating all types of tax exempt savings vehicles on the principle that it would lead to greater savings.

The results have been a collapse in the personal savings rate to essentially zero.

Why do economist want to continue this policy experiment that has obviously been a complete failure?

At 1/11/2008 1:51 PM, Anonymous Anonymous said...

Man, if I had saved my money all these years (and paid taxes on it first!) I'd be PISSED if they did this.

They'd be whackin' me for taxes TWICE.

At least they could feel good about not passing along the problem to their kids - THEY get to pay it! Haa!

At 1/11/2008 7:40 PM, Blogger juandos said...

"For 25 years we have been creating all types of tax exempt savings vehicles on the principle that it would lead to greater savings."...

Well Spencer these, "tax exempt savings vehicles" would work as advertised if we as a nation quit wasting money on worthless socialist programs...

Is U.S. in Slow Motion to Socialism?
Government Headed Toward 50% Control of Our Economy

Last week the House and Senate agreed on a $2.6-trillion budget for fiscal year 2006. There was much chest-thumping about the fiscal restraint imbedded in this budget blueprint--which was mystifying since federal outlays will grow by well over $100 billion in 2006 when the cost of the War in Iraq is added to the equation. Just the increase in the budget this year is equal to what it cost for NASA to put a man on the moon. Republicans in Congress have become so enamored with big government that they now celebrate a budget with a $100-billion increase as a sign of progress... (there is more)

At 1/12/2008 10:55 AM, Anonymous Anonymous said...

Total noob here but can someone explain how a 20% National Sales Tax could work without spawning another branch of government to enforce it?

I can foresee some minor challenges such as:

1. Smugglers buying goods in Canada or Mexico and then smuggling them into the U.S. for a quick profit.

2. Good American families taking day trips into Canada, purchasing "cheaper" goods there and then smuggling the goods into the U.S. without paying the 20% National Sales Tax.

3. Internet shoppers buying things from other countries and attempting to avoid paying the National Sales Tax on imported goods.

4. A brand new opportunity for brand new socialist programs to evolve to "protect" lower income families and individuals. Right now the lower income people hardly pay any tax at all but under Huckabee's plan they would be saddled with a decrease in purchasing power greater than the amount of taxes they currently pay.

5. The IRS would not disappear it's role would merely change (over time) to enforcement and collection of the 20% National Sales Tax.

6. Presumably the National Sales Tax would be collected by the seller or provider of services and that could spawn a larger problem where businesses do not submit the 20% National Sales Tax and instead pocket the money and run.

7. Existing tax laws and regulations having propelled the economy in one direction would be completely unraveled. People would be thrown out of work and long term financial plans of perhaps millions of Americans would be disrupted spawning another round of "expert" creation as industries would be created to "help" citizens through the transition.

Folks, it takes a certain amount of money to run a country regardless of who is in charge. Whether that money comes from an income tax or a value added tax is largely meaningless because in the end the money has to come from somewhere.

Changing the tax system might be a good idea but please do not confuse reorganization with progress.

At 1/12/2008 9:12 PM, Anonymous Anonymous said...

The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars – $358 billion more than the taxes it replaces. [BHKPT]

The FairTax has the broadest base and the lowest rate of any single-rate tax reform plan. [THBP]

Real wages are 10.3 percent, 9.5 percent, and 9.2 percent higher in years 1, 10, and 25, respectively than would otherwise be the case. [THBNP]

The economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the 10th year than it would otherwise be. [ALM]

Consumption benefits [ALM]:

• Disposable personal income is higher than if the current tax system remains in place: 1.7 percent in year 1, 8.7 percent in year 5, and 11.8 percent in year 10.

• Consumption increases by 2.4 percent more in the first year, which grows to 11.7 percent more by the tenth year than it would be if the current system were to remain in place.

• The increase in consumption is fueled by the 1.7 percent increase in disposable (after-tax) personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted.

• By the 10th year, consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income is up by 11.8 percent.

Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system. [KR]

Implementing the FairTax at a 23 percent rate gives the poorest members of the generation born in 1990 a 13.5 percent improvement in economic well-being; their middle class and rich contemporaries experience a 5 percent and 2 percent improvement, respectively. [JK]

Based on standard measures of tax burden, the FairTax is more progressive than the individual income tax, payroll tax, and the corporate income tax. [THBPN]

Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20. [THPDB]

On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base. [TBJ]

The FairTax provides the equivalent of a supercharged mortgage interest deduction, reducing the true cost of buying a home by 19 percent. [WM]


[ALM] Arduin, Laffer & Moore Econometrics, “A Macroeconomic Analysis of the FairTax Proposal,” July 2006.

[BHKPT] Bachman, Paul, Jonathan Haughton, Laurence J. Kotlikoff, Alfonso Sanchez-Penalver, and David G. Tuerck, “Taxing Sales under the FairTax: What Rate Works?” published in Tax Notes, November 13, 2006.

[JK] Jokisch, Sabine and Laurence J. Kotlikoff, “Simulating the Dynamic Macroeconomic and Microeconomic Effects of the FairTax,” National Tax Journal, June 2007.

[KR] Kotlikoff, Laurence J. and David Rapson, “Comparing Average and Marginal Tax Rates under the FairTax and the Current System of Federal Taxation,” NBER Working Paper No. 12533, revised October 2006.

[THBNP] Tuerck, David G., Jonathan Haughton, Keshab Bhattarai, Phuong Viet Ngo, and Alfonso Sanchez-Penalver, “The Economic Effects of the FairTax: Results from the Beacon Hill Institute CGE Model,” The Beacon Hill Institute at Suffolk University, February 2007.

[THBP] Tuerck, David G., Jonathan Haughton, Paul Bachman, and Alfonso Sanchez-Penalver, “A Comparison of the FairTax Base and Rate with Other National Tax Reform Proposals,” The Beacon Hill Institute at Suffolk University, February 2007.

[THBPN] Tuerck, David G., Jonathan Haughton, Paul Bachman, Alfonso Sanchez-Penalver, and Phuong Viet Ngo, “A Distributional Analysis of Adopting the FairTax: A Comparison of the Current Tax System and the FairTax Plan,” The Beacon Hill Institute at Suffolk University, February 2007.

[THPDB] Tuerck, David G., Jonathan Haughton, Alfonso Sanchez-Penalver, Sara Dinwoodie, and Paul Bachman, “The FairTax and Charitable Giving,” The Beacon Hill Institute at Suffolk University, February 2007.

[TBJ] Tuerck, David G., Paul Bachman, and Sylvia Jacob, “Fiscal Federalism: The National FairTax and the States,” The Beacon Hill Institute at Suffolk University, June 2007.

[WM] Walby, Karen, and Dan Mastromarco, “Promoting home ownership: How the FairTax’s benefits for homeowners exceed the mortgage interest deduction,” Americans For Fair Taxation White Paper, August 2006.


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