GOP Fair Tax Helps Rich at the Expense of the Middle Class

Jun 04 2011 Published by under Uncategorized

Senator Richard G. Lugar (R-IN)

On June 2, Senator Dick Lugar (R-IN) sent an email to his supporters asking them to go along with his plan to utterly bankrupt the U.S. government. It’s called the “Fair Tax.”

In 1995, while running for President, I called for scrapping the income tax and the IRS and putting in its place a national consumption tax on the final sales of goods and services.

With the election of a Republican House, and hopes in 2012 to gain Republican control of the Senate and an election of a Republican President, I believe we have another chance to fundamentally change our tax code. This is extremely important because our current low growth era is accompanied by high deficits.  We need to think creatively about achieving dynamic growth while simultaneously exercising fiscal restraint.  A pro-growth tax code is the first and best step toward doing so.

Last night, I announced on YouTube my cosponsorship of the FairTax. You may watch the video and share with your friends and family by clicking below.

Even President Bush, who flirted with the idea in 2005, had the good sense to push this idea aside in 2005 when his advisors brought it up.  It was first introduced in the House by Republican John Linder in 1999, and in the Senate by Republican Saxy Chambliss. It has received no support from Democrats. Bush’s advisory panel had some problems with the Fair Tax, noting that it was uncertain how much revenue would be generated – arguing that the tax rate would have to be 30% (not 23% as claimed) – as well as worries about enforcement and administration.

The current FairTax bill is supported by 60 members in the House, including Dan Burton, Marlin Stutzman, and announced Gubernatorial Candidate Congressman Mike Pence.  In the Senate, the bill is supported by Senators Chambliss, Burr, Coburn, Cornyn, DeMint, Isakson, and Moran.

Our current tax code warps household and business decisions, discourages investment, is constantly evaded, is arduous to enforce, and is disconnected from economic realities. In short, it is big government spending punching the life out of our economy.

Many Hoosiers fear our country is going bankrupt and will lose our preeminent position in the world. This does not need to be so, and will not be, if we adopt the FairTax and end our inherently flawed federal income tax system.

The problem is that the Fair Tax is – and this may not surprise you at all – is aimed primarily at those making $200,000 a year, as FactCheck.org has pointed out. I know you’re all shocked that the Republicans would come out with a tax plan that would help only rich people.

Yes, using something called a “prebate” aimed at people at the poverty level, FactCheck.org says, “those earning less than $15,000 per year would see their share of the federal tax burden drop from -0.7 percent to -6.3 percent. Of course, if the poorest Americans are paying less under the Fair Tax plan, then someone else pays more. As it turns out, according to the Treasury Department, “someone else” is everybody earning between $15,000 and $200,000 per year.”

Which is most of us. As one blogger observed, doing some simple math using that 30% tax rate:

Someone earning $43,000 (the median wage) would pay $9,923 on the $33,077 spent with a 30 percent sales tax. The income tax on $43,000 could be $4,633, less than half of the “Fair Tax” amount! Just do the arithmetic on your calculator to learn the truth.

It’s important to point out too that everybody would receive this prebate – even rich people who obviously don’t need it.

FacCheck,org goes on to look at another critical difference:

By way of contrast, most states that have sales taxes have roughly a 50 percent tax base. With the FairTax’s 100 percent base, consumers would pay taxes on a great many things that may not intuitively seem like consumption. The list would include:

  • Purchases of new homes
  • Rent
  • Interest on credit cards, mortgages and car loans
  • Doctor bills
  • Utilities
  • Gasoline (30 percent in addition to current taxes, which would not be repealed)
  • Legal fees

At today’s prices, gasoline would cost almost $1 per gallon more. A $150,000 new home would run $195,000 – plus the 30 percent tax that the buyer would pay on the interest on the mortgage. In short, the FairTax taxes everything that one buys, with the one notable exception of education

FactCheck.org’s conclusion is this:

It will collect more money from those earning between $15,000 and $200,000 per year and less from those earning more than $200,000 per year. It is possible that the Fair Tax would make most people better off, but much of that gain would be a direct result of making the tax code less fair.

Nothing like fighting more wars to make the rich richer using our money. Essentially, there is nothing in this proposal that will benefit Hoosiers, or the rest of Americans. We have to fix on two of Lugar assumptions here:

Our current tax code warps household and business decisions, discourages investment, is constantly evaded, is arduous to enforce, and is disconnected from economic realities. In short, it is big government spending punching the life out of our economy.

Tax code aside, big government spending isn’t going to change. The Republicans in particular love to spend money. And our defense budget is other-worldly. What Bush did to the economy may have been an extreme example (most times we fight only one war at a time) it is not contradicted by normal Republican behavior: tax less, spend more.

Many Hoosiers fear our country is going bankrupt and will lose our preeminent position in the world. This does not need to be so, and will not be, if we adopt the FairTax and end our inherently flawed federal income tax system.

Lugar makes another assumption:

“Savings will increase and therefore individuals and American companies will have more money to invest in job creating growth, and companies around the global will rush to invest here, as well. This dynamic economic growth will expand federal revenue without an increased tax burden on Americans,” said Lugar.

Savings will indeed increase for those making over $200 a year but when are we going to stop direction our entire economy around the concerns of the rich? Companies do not invest in job growth – they lay workers off and give themselves fat bonuses, or ship the jobs overseas. But here again we see the Republican Party where it is most comfortable: spinning myths and fantasies in the face of all evidence to the contrary.

Lugar presents the Fair Tax as the only solution to our nation’s problems. I would like to suggest that a better solution is for the Republican Party to get out of politics, and go into religion, where it seems more comfortable.

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