Sunday, December 16, 2007

The Scariest Candidate for President: Ron Paul

If you listen to National Public Radio like I do, you probably heard a lot this week about GOP presidential candidate Mike Huckabee. Among my favorite sound bites, there was the description of how jut a few weeks ago Huckabee was in a tight race with Margin of Error. Now he seems to have gotten the part in the Conservative play that Fred Thompson was trying out for.

No one really knows what he'd really stand for as President. He took a soft view of immigration as governor and is now promoting a hard line on the issue. He wants to cut taxes as President (don't they all?), but his GOP rivals want to make him out to be a tax-and-spend liberal while governor. And then there's religion...

As tempting as it is to talk about Huckabee at the moment, the most frightening candidate on the campaign trail today is not Mike Huckabee. Its GOP candidate Ron Paul. His political positions are both extreme and dichotomous:
  • He would overturn Roe v. Wade, paving the way for states to outlaw abortion.
  • He would abolish the U.S. Department of Education (along with a large number of other federal agencies).
  • He would work to legalize marijuana.
  • He would pull U.S. troops out of Iraq (the only GOP candidate to make that claim).
  • He would do away with Medicare and Medicaid.
  • He would have America withdraw from both the United Nations and NATO.
His positions are dichotomous to such an extent that it would easy to call him schizophrenic. But that's not really true. He may draw from both the far left and far right, but he holds his positions with unwavering consistency.

Who is Ron Paul? Think of Barry Goldwater having a child with Frank Zappa: that's Ron Paul.

The 10-term Texas Congressman and obstetrician has been on the November ballot for President once before. He beat Zappa for the Libertarian Party's nomination in 1988.

The guiding principal of Ron Paul's political philosophy is simple. If the U.S. Constitution doesn't expressly grant the federal government the right or responsibility to dabble in something, then it should get out.

That philosophy has earned him the nickname "Dr. No" because he casts a no vote on almost so many issues, like appropriations bills for the Departments of Labor, Health and Human Services, Education, and Related Agencies. He voted "no" on the Children's Health Insurance Program Reauthorization Act of 2007. He voted "no" on implementing the recommendations of the 9/11 Commission. You get the idea...

Time to make another pot...Paul has been criticized (perhaps ridiculed would be a better word) for his position on the economy and on monetary policy. In his view, the government shouldn't be involved in either. Ron Paul would close the Federal Reserve. Most other countries (and all of our main competitors in the world market) would have central banks that could manipulate their currencies and set monetary policies; America would not.

Ron Paul's position on taxation is not unique to him. But he would close the IRS, eliminate income taxes for individuals and corporations, and create a federal sales tax that (to start) would be about 23%. A recent NPR story on Huckabee examines some of the flaws of that "fair tax" plan. Their conclusion was that the poor in America would be a little better off under the plan (provided the "pre-bate" provision of the plan actually worked), but that the rich would be much better off and the big losers would be America's middle class.

So picture an America where much of the work of the federal government simply stopped. Welfare, education, health laws, etc. would differ greatly from one state to the next and the federal government would have almost no power. No one could whine about FEMA doing a bad job after the next hurricane because FEMA wouldn't come at all. And while it might be legal to smoke marijuana to relieve the pain associated with your chemotherapy, Medicare wouldn't pay for it (or anything else) because Medicare wouldn't exist.

Not yet convinced that Ron Paul is the most frightening candidate? Go back 35 years and consider what the 1970's might have been like if Paul's suggestions now on NATO had been followed then. My bet is that we'd all be speaking Russian today, or at least trying to learn it so that we could get a job in our own country...


Ian said...

Huckabee's FairTax is visionary, and forms the basis of a return of power taken back in 1913. More...

Economist Dale Jorgensen, Harvard University, was commissioned to find out what portion of current prices were represented by costs for complying with the federal income tax code (i.e., embedded tax costs). He concluded that 22% (average) of every retail dollar, spent by consumers, constituted a price-embedded tax. Thus, in addition to individual income tax and FICA withholding, individuals are unwittingly paying these unseen, embedded business tax costs with every purchase of a new product, or service.

Under FairTax, prices would fall, due to removal of embedded business tax-related costs. Concurrently, wages may rise due to a mix of factors, including reversion of withheld pay (or some portion thereof) to employees, advancement opportunities due to business expansion resulting from retained earnings, and/or increased demand for labor accompanying increased competition (from that expansion). Where profits (or wages) appear lucrative, competition will move into the market space, driving out excesses (immediately present after FairTax is enacted), arriving at new "market-adjusted" prices.

For FairTax to constitute 23% of new transaction cost (i.e., "market-adjusted" price plus FairTax), a mark-up of 29.9% (tax exclusive rate) on the new "market-adjusted" price is necessary. (Before balking, consider what we're paying now if income tax rates are converted to tax-exclusive sales tax rates on net income instead of percentage of gross income. The following figures can be compared to the 29.9% FairTax mark-up: Fifteen pct bracket = 17.6%, twenty-five pct bracket = 33.3%, twenty-eight pct bracket = 38.9% (! really), and thirty-five pct bracket = 53.8% (! that's how bad it is).

In order to make FairTax a progressive consumption tax (such as that recently called for by Warren Buffett), all citizen-families are simply sent a monthly consumption [tax] allowance, called a "prebate." This prebate is intended to reimburse taxes on necessities for every citizen family without need for record-keeping or reporting. Moreover, the direct payment bypasses the creation of a tax code specifying exempted products and services around which a lobbyist industry could grow. The amount is variable, based on family size, and is equal to the FairTax rate on poverty-level spending, as defined by the Dept. of Commerce. At present, a family of one would receive ~$200/month, a family of four, ~$500/month. Thus, the "effective" FairTax rate paid by citizens, will *never* equal the full 23%. Of course, U.S. visitors (legal, and illegal) will pay the full FairTax when they purchase anything new, at retail (used are not taxed again). Under FairTax, working families will have their whole paychecks (minus any state or local income tax withholding) plus their monthly family prebate.

Additionally, citizens will no longer have to spend the average 50 hours per year preparing their federal tax returns. Having more monthly income may result in using credit less, and saving more. Larger savings will make it easier to purchase a home, at a lower interest rate and monthly payment. (Thus, mortgage deductions are no longer applicable when income is not the basis for taxation).

But is FairTax actually "fairer"? To provide substantive answers, Prof.'s Kotlikoff and Rapson (10/06) have concluded,

"...the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.

"Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax."

Further, per Jokischa and Kotlikoff (2005) ...

"...once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there's a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent."

The current income-based tax system is also more expensive to run, because of the manner in which the tax code is gamed by politicians and lobbyists. Politicians realize great power, and attract constituencies for support, by granting tax favors (i.e., credits, deductions, exemptions) through lobbyists. Fully, fifty-three percent of Washington lobbyists are there because of the tax code! The tax code is continually changing, making it more complex - more difficult to understand. And, the salaries and costs of tax lawyers and lobbyists end up in higher prices of the products and services we buy. Additionally, the time and money required to keep records, file returns, report for audits, retain accounting and legal help, pay IRS penalties and interest, is time and money lost for other productive, or recreational, activities. Depriving us of the use of withheld wages increases our expenses through zero-interest withholding, inflation, return preparation time, and interest paid on credit cards and loans that otherwise may not have been necessary. Summed up, the cost of tax compliance, nationally, has been estimated to range anywhere from $265 billion to twice that amount, depending on the extent to which tax-avoidance consultation is sought and utilized. These expenses constitute a substantial hidden tax which is incomprehensible to the average working American. And the FairTax gets rid of all of it for most Americans, and most of it for business owners.

We, as FairTax advocates, believe that government should serve We, the People, with a fair tax system that will not enable politicians to pit poor against rich (creating barriers to achieve wealth, adding tax penalty to the sacrifices made for personal success). Nor do we want politicians to continue using business as a tool to hide taxes from consumers, often villifying business, which discourages entrepreneuship, personal achievement, economic growth. Liberty and happiness depends on restoring the fruits of labor to those who produce them. We believe that the tax function should align with economic growth, not against it, that government should be paid for in the same manner as working Americans - when, and because, something is sold!

As things stand at present, the system primarily benefits politicans who cater to special interests through lobbyists who game the tax code. The politician seeks to capture them as constituent voting blocks, dependent on continued syphoning of taxpayer dollars to their members' benefit. This is increasingly repugnant to the average working American who often finds it difficult to meet the needs of his, or her, own family in an environment where federal and state business income taxes substantially contribute to trade inequities resulting in the loss of American jobs! Thus, the Sovereign are continually degraded by features of Congress's income tax policy. The most rapidly-growing needs-based "special interest" group has become the Citizens! You see? Congress has nearly all the power; and We, the People, have become We, the Serfs, robbed and enslaved. Getting the federal government's hands out of our family paychecks is the single most important reason to replace the income tax with a consumption tax, the FairTax.

Many of us have joined in order to build a national movement to free ourselves, our family pocketbooks, and our businesses from confiscation of income, and punishment of productivity. And this we say to our federal representatives,

"Either scrap the code and enact the FairTax, or we intend on replacing you with someone who will."

(May reproduce in whole or part. - Ian)

Greg_Cruey said...

Since this was originally a post about Ron Paul, let's first be clear and point out that Paul, Huckabee and sometimes Thompson (Tuesdays and Thursdays, I think) support the same so called "Fair Tax" - the bill currently in committee in the House. Otherwise, it sounds like you're trying to distinguish between Ron Paul's tax proposal and Huckabee's. Huckabee's proposal can't be better than Paul's when they're the same proposal...

You said that we "unwittingly" pay unseen, embedded business tax cost. I don't. I pay them pretty wittingly; that is to say that I have my wits well about me, and I know that the business where I shop pay taxes on their profits. You make it sound like most of America is too stupid to know that. Is that you're argument? You want to save us from our own stupidity?

Question: If I get paid money at work and I pay my taxes on it, and then I take some of my money and pay a 19-year-old to watch my child three days a week and the 19-year-old is honest enough to claim it as income because, hey, it is, and she uses some of what she has left to pay rent on a basement apartment in her uncle's home and he claims that as income because, hey, it is, has my money bee taxed three times? How is that different from corporations paying taxes? And if the government takes a percentage of it every time it moves (which, obviously, they do) why doesn't all money disappear eventually?

You say that under the Fair Tax proposal, prices would fall. In theory, right? That's the (untested) theory. And if this were a science classroom we'd call it a hypothesis. But since it hasn't been tested and involves a complex chain of human behaviors, we don't actually know what unforeseen consequences there'd be. And the federal sales tax people (like you) aren't actually offering guarantees; they're just insisting that they're right (imagine that in politics) and trying to make it sound academic to lend it a special air of credibility where none really exists.

I like the fact that you can find lots of people to quote. Of course, the problem is that I can find just as many people (probably more) who disagree with you. Take Bill Gale, director of economic studies at the Brookings Institution, quoted recently here. Hopefully my readers are smart enough to know that being able to use the tag for italics in HTML doesn't mean you're right.

You (and anyone else) can read why I don't think the "fair tax" is fair right here. But the short explanation is that the federal sales tax would mean that you don't have to pay taxes at all on money you're rich enough not to spend. I spend the vast majority of what I make just to live. Most people are in that boat. Warren Buffett is not; and under the system you propose, he'd make hundreds of thousands of dollars each year that he might never pay taxes on because he never spends it. I don't think that's fair.

Huckabee might be almost as scary as Ron Paul. Almost...