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A major part of our trade deficit is caused by taxes. Every
trade agreement is a unilateral disarmament of the U.S. We drop
our tariffs, they drop some tariffs (usually more slowly) and they
continue imposing a 17% tax on our exports to them. Read the CPA policy on value added - or consumption - taxes for more details.
Mike
Huckabee is proposing a national sales tax, dubbed a "Fair Tax".
It's getting more attention because Huckabee won Iowa. A New York Times article today has a good discussion about who is saying what about the proposal.
The
positives are that we can neutralize foreign VAT tariffs by having our
own. We can rebate it when our businesses export (just like other
countries do) and we can charge the tax when products are imported
(just like other countries do). Then the VAT tariffs are no
longer an issue.
But taxes are a partisan issue.
Partisanship is the kiss of death for most issues, especially in a
divided government. Some Republicans want to use a national sales
tax as a way to cut taxes. But the U.S. is not over-taxed in
comparison with other OECD countries. Many Democrats believe
taxing income is inherently fair because of progressivity. But a
national sales tax can be made just as progressive as the income tax,
I'm told.
The Times article points out other objections, which need to be addressed.
“The main weakness of the FairTax is its comprehensiveness,” said
Dale W. Jorgenson, an economist at Harvard who opposes the plan but
whose research into problems with the current system is sometimes cited
by supporters. “It tries to roll everything into one tax, which simply
can’t carry all that weight.”
I don't know if that is true, but I'll not mock him because I simply
don't know. And there is the "black market" incentive:
Whatever
the rate, critics say, a steep federal retail tax, piled on top of
existing state sales taxes, would encourage widespread illegal tax
evasion, black market transactions and other forms of cheating,
creating a cycle that would require even higher tax rates.
Tax
cheating exists now, and it will always exist. We could have a
"War on Tax Cheating" because the "War on..." is such an attractive
rallying cry for politicians. But the real issue is the marginal
difference between the types of tax cheating.
CPA will be doing more work on this issue during 2008.
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