Friday, June 16, 2006

Composition of Gravel, part 1:

Updates on the post are below:

For those of you that got here via Google and aren't going to find what you're looking for, click here.

Now, on to business.

One of Gravel's key campaign issues is actually typically proposed by Republicans, which explains its swank name, "The Fair Tax."

Here's the basic premise. We eliminate the income tax and the IRS altogether. What we replace it with is a 23% federal sales tax on all products, including food and other current tax-exempt items.

Yes, sales taxes are regressive. To negate this fact, the first $20,000 (Update: Gravel's actual number is $16,000, which lowers the prebate a fair amount) is tax free. But since sales tax is paid at the point of purchase, not annually, instead of an annual refund, one would have to create a "prebate." The prebate could be paid in any variety of fashions, but the easiest would be monthly or annual checks.

Here's the problem, though. For the sake of this argument, let's create 15 people, with the following assumptions:

A) Anyone making less than $50,000 is living hand-to-mouth, or spending everything they take in. This is probably a stretch, but certainly people who make over $50k save more (by percentage) than people who make less.
B) People making more than $50k do not spend 10% of their income (with one exception)

Let's see what happens:

IncomeExpensesFair TaxPrebateFair Tax Paid% PaidCurrent Tax% Paid

So, this tax plan has some merits. It's simple, for one. And it promotes saving money over consumption, which could very well save the environment. But I'm hoping you'll notice the problem.

Everyone is paying less. Overall, 40.6% less. I'm not sure how we'd cut government spending 40.6%, especially if we're going to pay for universal health care, properly funding education and fixing the environment.

Two parts remain:
Part 2: National Initiative
Part 3: Candidacy

I may post Part 2 tomorrow, if State Convention ends early enough.


UPDATE: I received two corrections on this post from Elliott, Gravel's Communications Director.

The first was the correction from $20,000 tax free to $16,000. This makes the plan come a little closer to balancing, but still significantly short.

The second was an assumption: It is assumed that the removal of the income tax would cause 10% economic growth. Since I'm paying $7.50 an hour to sit in an internet cafe and work on this post, I'm not tremendously eager to go through and re-calculate all my numbers to see if that would fill a 40% gap. I'm doubtful, though. And furthermore, even if the Fair Tax did create 10% economic growth, it certainly wouldn't happen overnight, meaning the government under the new tax structure would either have to borrow resources on a massive scale or dramatically cut spending while waiting for the economy to catch up. Neither of those concepts are something I'm comfortable with.


Nicolai Brown said...

Honest Dems couldn't say with a straight face that they would create a universal healthcare system with the current tax code. How could they with all their other programs -- Iraq war, military budgets, DHS, spying on everyone, and so on. Pipe dream.

The new one you share with us doesn't itself make a unversal healthcare system out of bounds. It already is.

Nicolai Brown said...

Yeah, I wanna add that it's still interesting. Gosh, I can be so nuanced sometimes. Haha.

But on-topic, for me personally, I don't see the value in taxation when it mostly just goes to the military and the prison system anyway.

It's complicated.