Mike Huckabee and the FairTax: 23 percent or 30 percent?


FairTax Proposal Gets Unfair Reporting on CNN’s “Your $$$$$”

If it’s a new, popular GOP idea – it must be ‘spin’

Your Business Blogger is amused that differing opinions of the FairTax depend, as economics often does, on the point of view — and what number goes into the dominator.

“The first thing that I’d get rid of is the Internal Revenue Service,” said Mike Huckabee at the recent CNN YouTube GOP presidential debate. “Wild applause for axing the IRS,” said Christine Romans, co-host of CNN’s “Your $$$$$.” The Huckabee clip was the lede on the December first edition. Most people are thrilled at the thought of ending the IRS and making April 15th an ordinary spring day.

But perhaps not Pat Regnier, Senior Editor of Money Magazine who was interviewed on the IRS-ending proposal. Money Magazine is a sister company to CNN.

Huckabee is a champion of the FairTax plan where taxpayers would receive their entire paycheck – with no deductions. The Federal government would collect taxes on a percentage of sales and not on a percentage of income.

When CNN host Romans asked guest Regnier, “Wow, the Republicans in the crowd certainly liked the idea getting rid of the IRS and making a more simple tax system. What is the Fair Tax?”

It seemed that guest Regnier didn’t care for the tax reform title, ‘FairTax.’ “Let’s un-spin it,” he said, “And let’s just say what it actually is: It’s a national retail sales tax.” Pat Regnier implied that “Fair” coming from a conservative presidential candidate was simply spin. The segment was titled with a question mark: FAIR TAX?

Regnier continued on the FairTax, “It’s a 30 percent mark-up on basically every thing you buy.”

No, it is not.

FairTax proponents at FairTax.org use 23 percent per transaction rather than the 30 percent number. The two different percentages is a common mistake produced by using a different base number in calculating the tax rate.

The current federal tax rate and the FairTax proposal use a ‘tax-inclusive’ calculation, where the tax is included in the base. A simplified chart from FairTax.org, demonstrates the fallacy of multiplying percentages on two difference numbers.

For example, a worker earns $100 and pays $23 in taxes and is left with $77 in discretionary income. The tax-inclusive rate is 23 percent. (23 divided by 100.)

CNN guest Pat Regnier used a ‘tax-exclusive’ calculation, where the tax is not included in the base. Here the $23 for taxes is figured in the equation with the discretionary income spent on consumption, $77 and not on the total income of $100. In this example, the tax-exclusion rate is 30 percent. (23 divided by 77.)

This makes the percentage higher, on the smaller denominator.

The difference is one of calculating the tax as a percent of total income, vs. calculating the tax as a percent of spending or consumption.

Mr. Spear Lancaster is the Maryland State Director for Americans for Fair Taxation and says that this (mis)calculation is deliberate by the detractors. “The feds use the inclusive [formulation] to make people think they are paying less taxes.” The FairTax proposal uses the inclusive equation for an entirely different reason. The FairTax rate is applied to the cost of goods and services, not on income.

FairTax proponents use 23 percent number because the calculation more “correctly represents the tax burden compared to the current system” — not because the 23 percent number happens to be lower than the 30 percent number cited by cynics.

23 or 30 percent, abolishing the IRS is a truly progressive policy initiative. The only radical new ideas this election cycle may be coming from the Grand Old Party.


Thank you (foot)notes:

Jack Yoest, has written for National Review OnLine, the Business Monthly and is a freelancer for the Business & Media Institute. He is president of Management Training of DC, LLC and teaches business at the Northern Virginia Community College.

Full Disclosure: His wife is a paid senior adviser with the Mike Huckabee presidential campaign.


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6 Responses

  1. Bruce Barnes says:

    The Consumption Tax will replace personal taxes of 60 % of the budget and also another 40 % to raise enough revenue to cover the budget, plus 10 % to cover the rebate to everyone. The average taxpayer pays about 20% in federal taxes and will then pay over 30 % in sales tax.

  2. Bruce Barnes says:

    The proposed Net Worth Tax only taxes companies with a net worth over $1 million and millionaires. It raises more revenue than the present budget and is fair to all. It is the simplest to file, a balance sheet once a year, and the easiest and cheapest to oversee. It will reduce government assistance, lift people out of poverty, boost the economy, and raise the standard of living.

  3. Bruce Barnes says:

    Will the IRS really be gone? The IRS is uniquely qualified to administer the Fair Tax with people, computers, and facilities in every state and major city.

    The FairTax Act will phase out appropriations for the Internal Revenue Service and then spend billions recreating bureaus to administer the Fair Tax.

    The fair Tax Act will pay retailers to collect taxes and keep records for six years and pay states to collect from retailers. An administering state enters into a cooperative agreement with the U.S. Treasury Department governing the administration of the FairTax by such state.

    The Social Security Administration sends out the monthly rebates.

    The Secretary of the Treasury is given the authority to promulgate regulations, to provide guidelines, to assist states in administering the FairTax, to provide for uniformity in the administration of the tax, and to provide guidance to the general public.

    The Secretary of the Treasury is required to establish an Office of Revenue Allocation to arbitrate any disputes between states regarding the destination of sales for purposes of allocating sales tax revenue among the states.

    The Secretary of the Treasury and each state sales tax administering authority may employ persons as necessary for the administration of the FairTax and may delegate to employees the authority to conduct hearings, prescribe rules and regulations, and perform other such duties.

    Following due process of law, the tax administering authority can seize property, garnish wages, and file liens to collect FairTax amounts due. Each sales tax administering authority must establish, maintain, and adequately staff an effective, independent Problem Resolution Office to protect citizens from abusive administration.

    The sales tax administering authority must establish and maintain an appeals process that provides a full and fair hearing of any dispute regarding tax liability.

    The Treasury Department may use FairTax data in preparing economic or financial forecasts, projections, analyses, or estimates.

    The fair Tax Act establishes an Excise Tax Bureau within the Treasury Department to administer those excise taxes not administered by the Bureau of Alcohol, Tobacco and Firearms.

    It also establishes a Sales Tax Bureau to administer the national sales tax in those states where the federal government directly administers the tax and to discharge other federal duties and powers relating to the FairTax.

    Does a rose by any other name still smell as sweet?

  4. reinkefj says:

    Huckabee advancing the “fair tax” is in itself spin. He’s late to the party on that issue.

    The “fair tax” is a turkey. A bunch of issues just jump out. Let’s just tackle two big ones: (1) Unless the 16th is REPEALED, we will wind up with both. We all know how trustworthy politicians are. (2) How does the “fair tax” justify itself when I send money saved under the old tax system? I paid income tax on it before I saved it; now I get to pay the “fair tax” on it. Can we say double taxation?

    To me, the “fair tax” ain’t fair. And any candidate championing it gets “tagged” with the same label.


  5. Jim Custer says:


    This may be the most direct manner to get a message to you and to emphasize to all who read your BLOG one of the key points I see with the FAIRTAX and the coming Social Security Crisis.

    If nothing changes with the SSTx system then the teens, twenty, and thirty something’s will be hit with one of the largest tax increases in history, while the Baby Boom, etc generations will be hit with benefit reductions, thus I see a pending revenue crisis in about 10-18 years.

    Replacing the current tax system with the FAIRTAX system will generate tax revenue from people not currently paying in to the Ponzi system we call Social Security, thereby negating any need to increase the tax stress on the younger generations as well as putting off or eliminating the need to radically cut benefits for current and future recipients.

    Thus, anyone and everyone who would purchase a retail product, be they legal, illegal, tourist, non- resident alien, law abider or law breaker would be paying into our tax system as a whole, and in to our social security system in particular.

    If Mike would emphasize this additional benefit of the FAIRTAX, he would gain the attention of younger, first time voters.

    It would also get the attention of thoughtful retirees and those nearing retirement as a way of securing their income stream, since that would be one way of dealing with the status co crowd.

    There is more to expand on this area, but you can see where my thinking is going. So like your Uncle K, I share the ideas, and you take them from there.

    Also, we need to know who to contact in the Georgia campaign to add a few additional volunteers.

    Blessings and safe travels.

    Jim Custer, MAS

  6. Bruce Barnes says:

    I found this comment on http://robertreich.blogspot.com/ regarding economic issues.

    MONDAY, JANUARY 28, 2008

    The Real Recession Problem: Consumers Are at the End of Their Ropes

    Perhaps the silliest part of an already silly stimulus bill is a provision giving corporations big tax deductions this year on the costs of new machinery, instead of spreading those deductions over several years, as is normally the case. The idea is to get businesses to invest in more machinery, which will stimulate the economy.

    But accelerated depreciation, as it’s called, doesn’t work. Almost the same tax break was enacted in 2002 and studies show just about no increase in business investment as a result. Why? Because companies won’t invest in more machines when demand is dropping for the stuff the machines make. And right now, demand is dropping for just about everything.

    This tax break exemplifies the illogic of what’s called supply-side economics. If you reduce the cost of investing, so the thinking goes, you’ll get more investment. What’s left out is the demand side of the equation. Without consumers who want to buy a product, there’s no point in making it, regardless of how many tax breaks go into it.

    Which gets us to the real problem. Most consumers are at the end of their ropes and can’t buy more. Real incomes are no higher than they were in 2000, while food and energy and health care costs are all rising faster than inflation. And home values are dropping, which means an end to home equity loans and refinancing.

    Most of what’s being earned in America is going to the richest 5 percent, but the rich devote a smaller percent of their earnings to buying things than the rest of us because, after all, they’re rich — which means they already have most of what they want. Instead of buying, the rich invest most of their earnings wherever around the world they can get the highest return.

    Add all this together and there’s just not enough consumer demand out there to keep the American economy going. We’re finally reaping the whirlwind of widening inequality and ever more concentrated wealth. Supply-siders who want to cut taxes on corporations and the rich just don’t get it. Neither does most of official Washington.