Report: Libertarian Johnson tax plan would cost Americans more than even Hillary Clinton’s
Gary Johnson, the so called free market, small government libertarian, who’s Vice Presidential nominee advocates for gun control, and who backs #BlackLivesMatter, has been exposed as a cheat.
Johnson’s “Fair Tax” would cost the average American even more money than Hillary Clinton in taxes.
Why?
Johnson proposes a “FAIRTAX,” which is the repeal of the Income Tax altogether. His campaign rhetoric focuses on the 0% income tax, but it doesn’t mention that all sorts of shockingly high new taxes will replace it.
It would be like removing your mortgage for a Time Share Agreement, and you cannot get out of it, ever.
The problem is that very high-income households spend only a fraction of their income, while low- and middle-income people spend all or most of what they make. A sales tax, by design, exempts a large share of income at the top. If it includes a prebate to protect people at the bottom and doesn’t add to the deficit, then it must raise taxes on people in the middle.
The latest data on spending as a share of income published by the Bureau of Labor Statistics show that lower-income households spend more than they earn—presumably aided by tax credits and other cash transfers, gifts from family members and friends, and borrowing (see chart). People earning over $150,000 spend only half of their income (and the share continues to fall as incomes rise, although it’s not shown in the summary statistics). Compared with a broad-based income tax, the proposal effectively allows a 50% deduction for the average high-income household. Because it is also a flat rate tax, it would be especially regressive, especially compared with the current income tax where rates rise with incomes.
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A decade ago, President George W. Bush’s Tax Reform Panel considered a sales tax as a revenue-neutral replacement for the income tax. It rejected the idea after concluding that the rates would have to be much higher than promised by the FairTax people. It also calculated the tax would be very regressive as the figure below shows.
The Panel also found that the prebate would be extremely expensive, hard for taxpayers to manage, and complex for the IRS to administer. In addition, the panel was concerned a federal retail sales tax rate of 30 percent or more would result in widespread evasion and create real problems for states that rely heavily on their own sales taxes.
FairTax advocates counter that their proposal would also replace regressive payroll and excise taxes (as well as highly progressive estate taxes), but the bottom line is that tax burdens on middle-income households would surely rise while high-income families would get a big tax cut.
Some people might call that an UnfairTax.
The FairTax: Is It Regressive?
Sometimes sales taxes are called regressive, meaning that the poorest pay higher rates than the wealthy. Strictly speaking, sales taxes are flat, since everyone pays the same rate. But because the poor tend to spend a high percentage of their income on basic consumer goods such as food and clothing, sales taxes do require the poor to pay a higher percentage of their income in taxes.
The FairTax plan, however, helps to alleviate this difficulty by exempting sales taxes on all income up to the poverty level. Taxpayers would receive a “prebate,” which Edwards calculates to be about $5,600 annually. The Treasury Department estimates that the prebate program would cost between $600 billion and $700 billion annually, making it the largest category of federal spending. Americans for Fair Taxation disputes the Treasury Department numbers, claiming that the actual cost would be closer to $485 billion per year. The Treasury Department has so far refused to release its methodology, making it difficult to determine whose estimate is correct.
Who Really Pays?
With the prebate program in effect, 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 FairTax 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. The chart below compares the share of the federal tax burden for different income groups under the current system and under the FairTax. Those in the highest and the lowest brackets will see their share decrease, while everyone else will see their share of taxes increase.
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