Can Huckabee Kill IRS, Will Bush Tax Cuts Survive?
CSM:
WASHINGTON - Tax reform is a perennial issue in presidential politics, and it may yet emerge as a key topic in the 2008 race.
So far, healthcare arguably has been the top domestic issue of the campaign, particularly on the Democratic side. But recession worries are beginning to push economic issues to the top of the list of voter concerns.
In addition, President Bush’s tax cuts expire in 2010, and the eventual GOP and Democratic nominees are likely to sharply disagree as to whether they should be extended. And this election cycle features two candidates – Republicans Mike Huckabee and Ron Paul – who propose to eliminate the federal income tax.
“I’d like you to join me in the best ‘going-out-of-business sale’ I can imagine – one held by the Internal Revenue Service,” says Mr. Huckabee on his campaign website.
Candidates’ tax proposals – like all their line-by-line issue papers – can be seen as symbols of the image they want to project, as much as serious ideas about governing.
Huckabee and Mr. Paul have both positioned themselves as outsiders unbeholden to the powers in their own party. Elimination of the income and payroll taxes, and their replacement with a national retail “Fair Tax,” would be a radical step, say experts.
Some economists have long held that a national sales tax would be a more economically efficient way of financing US activities. It would encourage savings, and discourage spending, for instance. It would eliminate deductions that skew the tax code.
But other economists point out that some of those deductions, such as the one for interest paid on home mortgages, are enormously popular. Sales taxes are regressive – that is, they affect the poor, who must spend a higher percentage of their income to live, more than the rich.
And there is debate over whether a 23 percent national sales tax, as called for by Huckabee, would raise enough money to replace the taxes lost. Some economists say the rate would have to approach 50 percent, particularly as Huckabee’s plan also calls for a “prebate” cash subsidy for poor taxpayers.
The tax proposals of the other major Republican candidates are all generally GOP mainstream. All would make the Bush tax cuts permanent, for instance. All express interest in cutting taxes.
Mitt Romney, for one, would lower the corporate income-tax rate, in the name of making US firms more competitive in the world economy. He would also eliminate all taxes on interest, dividends, and capital gains for those with incomes below $200,000.
Rudolph Giuliani says he would lower corporate tax rates to 25 percent and introduce a permanent child tax credit and a $7,500-per-taxpayer credit for health insurance. John McCain says he would cut the estate tax rate to 15 percent and require a three-fifths vote of Congress for tax increases. Fred Thompson would cut rates enough to save every family at least $600, according to his website.
As a group, the Democratic candidates differ sharply with their Republican counterparts.
All say they would repeal the Bush tax cuts, for instance. For a Democrat, such a statement is the political equivalent of a no-brainer – it offers an easy way to break with the policies of the past and project an image of change.
But there are differences in their repeal proposals. Hillary Rodham Clinton and Barack Obama would both end the Bush cuts for households that earn more than $250,000 a year. John Edwards, who has positioned himself slightly to the left of the two front-runners, would set the bar lower, repealing them for households with incomes of more than $200,000.
Mr. Edwards says he would also raise the rate on capital gains taxes to 28 percent, so as to “reverse the war on work” and set the taxation of interest income level with that of middle-class earned income, according to his website.
Senator Clinton, meanwhile, would favor a number of targeted tax cuts similar to those her husband employed during his time in the Oval Office. She would offer, among others, new tax cuts for healthcare, college, and retirement. She would expand the Earned Income Tax Credit and the child-care tax credit.
Senator Obama says he would establish a new tax credit of up to $1,000 per household to offset the payroll taxes that fund Social Security and Medicare. He also proposes that the IRS use information that it already gets from banks and employers to give taxpayers the option of simply signing and returning tax forms that are filled in by the government.
His website claims this would save Americans $2 billion in tax preparation fees and up to “200 million total hours of work and aggravation.”
Congress would have a big say in any of these proposals. And passage of major tax reform is fraught with obstacles.
But whoever wins, they will have to do something on taxes within the first two years of their administration, notes Brookings Institution economist William Gale. They will either move to let the Bush tax cuts expire, or to extend them, or to change the whole tax system around.
“So it needs the attention of the new administration, basically from Day 1, because it takes a long time to figure out how to reform the tax code,” says Mr. Gale.
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Wow.
I actually agree with some of Edwards and Obama’s ideas.
I think Edwards is right on, “set the taxation of interest income level with that of middle-class earned income…”
I think Obama is right to discuss Social Security; it is an issue that must be discussed because it affects 15% of your income if you are not making over $70,000 .
Huckabee’s national tax would be a disaster at 23%. Adding local sales tax to that would have people screaming for his removal.
Romney clearly shows that he could care less about the middle class. American corporate taxes are much better than the rest of the world. Eliminating taxes on interest, dividends, and capital gains for those with incomes below $200,000 is sneaky. What he should say is that he will eliminate these for people how have less than $500,000 in ASSETS. Blue bloods who inherit their wealth, like Paris Hilton, get a free ride if he doesn’t.
Clinton has nothing new.
The #1 thing I want is to hear them say they will cut programs like the Department of Education (about $60 billion a year - NASA is only about $12 billion, which do think gets more done?). The states are responsible for public education not the federal government. Most don’t know this and this is just another example of our current education system. I think it’s time to cut, cut, and cut! It’s time for the federal government to shoulder some of the burden. If they won’t build a fence then do we really need Homeland Security?
January 6th, 2008 at 6:57 amGF what are you thinking?
January 6th, 2008 at 7:32 amWe have one of the highest corporate tax rates in the world,we can’t compete if taxes are raised, many US companies will move to another country, many have.
Education spending is a scam, the US spends more on education than any country in the world and we not getting our money’s worth.
Not a Huckabee fan,but Chile and Russia have established the Fair tax and their economy and tax collection is doing better than we our, get your socilaist head out of your ass and do some research.
How about taxing the trial laywers for ruining this country.
The US tax code is the most convoluted, complicated, and manipulative piece of junk ever created. Quit tweaking it and replace it. Why is our current tax law no different than economic slavery? If you had to pay your federal taxes in one lump sum at the end of the year, you’d realize how much the government owns your labor. And who gets all the loopholes - the rich congress that creates these laws. Our government is being bought by lobbyists who buy favorable tax treatment. The tax code as it now stands is a weapon of power by those in power. They won’t give it up easily. The FAIR TAX empowers YOU. IF you haven’t read the fair tax book, I suggest you do before you knock it. Or go to www.fairtax.org. Real change requires real solutions. If we don’t do something with the tax law, the only change you will see after the DIMs get done, is change from your paycheck!
January 6th, 2008 at 7:43 amRomney is right on. Corporations provide jobs. Jobs for corporations pay taxes. Of course government also provides jobs which pay taxes but those taxes are paid in circular money. Less government - ie indivdual paid tax preparers not government paid tax preparers (I have always managed to do my own so it can’t be that hard) - and more corporate jobs is a winner. Getting people who earn less than $200k to invest is also a big plus.
A regressive, repressive and stifling “Fair Tax” will kill our economy. Only the crazy and super rich would find it attractive.
January 6th, 2008 at 9:09 amThe Fair Tax is the only way to go (all taxes stink).
To all who think otherwise,….. I would never hire you as an accountant.
January 6th, 2008 at 9:32 amOld 11B - Just because I do my own taxes doesn’t mean I would do yours too. It does however provide me with insight that many people do not have, especially since I do them by hand, not with tax software. I started with nothing, have raised a family, been an investor for several decades and understand the entwining of tax code and investing decisions. Further I have experience as a principal in an international corporation. Put it together and conclude that I might have an idea of the implications of the so called “Fair Tax”. Believe me it will not be “Fair” or helpful.
January 6th, 2008 at 10:04 amGandalf :
Understanding the perks and pitfalls of corporate structure and tax codes is one thing, having to forfeit the capitol too a tax is another.
January 6th, 2008 at 10:14 amUnless you make less than $35,000 or more than $200,000 a year the flat tax is going to screw you. Huck says 23 percent but to be revenue neutral 50 percent is more likely.
If you make less than 123k now your marginal rate is 25 percent and your simple average rate is 23.8 percent. That is probably what Huck wants you to figure and why 23 percent with no forms sounds good. But if you make 100k your simple average rate is 18.1 percent. Suddenly 23 percent doesn’t sound so good. The kicker is that most folks in these income levels get 15 to 20k in deductions so their actual rates drop to less than 15 percent.
In addition the psycological impact of paying 25 to 50 percent (plus state sales tax) more at the store for everything will squash the economy. The $30,000 new car becomes 40 to 60k, the new TV, the new house, everything.
January 6th, 2008 at 11:05 amGandalf
Not true , you are totally ignoring the embedded taxes and are saying that states don’t receive funds from the national tax.
January 6th, 2008 at 11:15 amGandalf :
PS I don’t want huck as pres but I do want the Fair Tax
January 6th, 2008 at 11:19 amDave, I didn’t say raise the corporate tax. That said, I see, your point, that we have the highest corporate tax now. After doing some research, as you have suggested, I’ve noticed contries around the world have reduced their rates dramatically since 9/11. It kind of makes you wonder.
Anyway, my main point was about cutting federal spending, hardly socialistic.
DWD thanks for the link. The fair tax: “It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities.” That has helped clarify the issue for me and I like it. That said, I still think we got some cutting do to.
January 6th, 2008 at 11:30 amEverybody has to buy things. It seems to me at face value that a federal sales tax, if income tax is eliminated, is the way to go. Everyone would be paying taxes, including all those underground and under the table economies. I don’t know of states that tax food, except restaurant and prepared food, and clothing, so a sales tax wouldn’t effect the poor since necessities wouldn’t get taxed. Everybody has to buy something regardless of where they get their money. Might affect potatoe chip sales then their asses wouldn’t be so fat as they waddle up into the bus using their free bus passes. Oh, my God, illegal immigrants would be paying taxes.
January 6th, 2008 at 11:38 amLet me clear up a few more misconceptions about the FAIR TAX. First, the FAIR TAX is designed to be revenue neutral at the 23% rate. If our Congress continues it’s deficit spending, 23% won’t cover it. We still have to deal with runaway spending and earmarks. Second, it is a myth that corporations pay income tax. They don’t, that tax is buried in the cost of the product. Do you think a company pays their half of your social security tax (7.5%) out of their pocket. Dream on. It’s passed on to the consumer. THe whole premise of the FAIR TAX is that you get to control how much tax you pay by what you spend. You get your WHOLE paycheck each month, no deductions. It takes away the ability of the government to do it’s social engineering through the tax code. We are never going to elminate taxes, that’s entrenched in our system. The FAIR TAX puts control in your hands not Congress.
January 6th, 2008 at 12:19 pmIm not “rich”, nor an accountant, just an old guy from the old school who knows what 23% is. Most folks know, well maybe not anymore, that the big boys, business, the rich have all taxes factored into their product/investment or they will not be in business long and people get laid off. We at the other end know that, at least should.
Damn, you keep the bucks in your pocket, give the govt 23 %. when you buy crap—why is this so tuff?
You professional bean counters, get over it, yes there will be a shakeout period, get a new career.
What part of 23 is hard to understand? Damn.
This whole IRS crap from the top to the bottom feeding tax lawyers is like a damn kid squalling when their allowance (if lucky enough to have one, that is) is cut for being a jerk.
January 6th, 2008 at 5:16 pmThe IRS, 70 plus years of tradition, unhindered by progress. Damn tail waggin the dog here.