Fixing the Fair Tax

Let me state at the outset that I am a Huckabee supporter. Readers of my Christian Libertarian Party blog will know why. It is not because of the Fair Tax. I have no fear, however, that the Governor, if elected President, will be able to enact the Fair Tax as written and I am pretty sure he knows that. The Presidency is a bully pulpit, but so is the Chairmanship of the House Ways and Means Committee – and Charlie Rangel is not going anywhere. The purpose of this essay is to lay out how the Fair Tax proposals can be altered to counter some of their flaws. My hopes are that the Governor’s people will see this essay and use it accordingly and that those who might support him save for the problems of the Fair Tax can see that with modifications such a tax can be salutary for the Republic.

What is the main attraction of the Fair Tax to most people? It doesn’t take a rocket to answer this one, especially during tax season. Except for those truly twisted souls that enjoy filling out and sharing with the Government forms regarding their personal financial status, the Income Tax is seen as an onerous burden to be done away with at the first available opportunity. Indeed, abolishing the IRS is touted as its main attraction (although the agency will be replaced by something else, so the likely effect will be to change the nameplate on the building, nothing more).

The Fair Tax has its problems, although these can be resolved in negotiations with Congress, which will likely be Democratic after the election. Let me address a few of these and their likely solutions.

The Fair Tax, as proposed, taxes government purchases. This will lead to drastic cuts in government services. What will happen instead is an increase in the Fair Tax rate to enable agencies to buy the same amount of hardware or the gutting of the non-entitlement, non-defense budget in order to pay for much needed weapon systems for the War in Iraq – or else a continued scarcity of much needed equipment.

Perhaps there needs to be an exemption for weapons – however any exemption will require a higher tax rate, so this is no help for the Fair Tax purists. The more likely scenario is the dropping of this part of the strategy, which will increase the Fair Tax Rate to 50% of the base cost of goods and services (up from the current 30% estimate – the touted 23% rate is the share of the tax as the total purchase price).

At this rate, there will be a large industry in tax avoidance. Soon, everyone will be buying wholesale – of course buying wholesale won’t be the answer for long, since wholesale buyers must then file Fair Tax returns on their retail sales. If they have none they will be caught by whatever agency succeeds the IRS. Clearly we have a problem here.

The way the Fair Tax impacts housing raises eyebrows. Not only will the deduction for mortgages go away, but rent and some new houses will be taxable, while investment and used houses will not be. As a result, the price of new housing will go down unless it is clearly earmarked for rental while the cost of used and investment homes will go up as these properties will be more attractive to home buyers and past renters. Some renters who cannot afford to buy a house will pay the tax, although their incomes will be higher due to the lack of an income tax and the payment of a Prebate. Rental rates will go down as well, as these currently include the income tax on rent. Making this cost explicit will lower the base rent but leave the monthly cost the same. These effects are not entirely unwelcome, except to the home lending and building industries, which prefer to build new homes and upper income apartments and who benefit from the subsidy paid to borrowers. The hew and cry over these provisions may kill the Fair Tax or lead to the carving of an exemption in the law. Such an exemption would make the Fair Tax rate on the remaining economy so high that it could not be passed. Another possible solution is to treat the purchase of a home on credit as a wholesale transaction and apply the tax to the Principal as the loan balance is paid off.

Another problem with the Fair Tax is that it forecloses the possibility of Personal Accounts for Social Security. These can only come about if there is a payroll tax to be diverted. If the payroll tax is abolished Social Security is an entirely governmental affair. To add insult to injury, employers will still be required to report incomes to Social Security, so the vaunted paperwork savings will not take place.

Excluding the retirement savings and redistribution portion of payroll taxes from conversion to the Fair Tax allows the creation and expansion of Personal Accounts until they eventually replace government provided Social Security for most workers. Frequent readers of my blog already know the details I propose. For others, a simple search will reveal them. Taking this step will decrease the Fair Tax required by 11% (preserving a payroll tax rate of 10% of income, of which 4% will be transferred to Personal Accounts - the impact on the 23% rate is about 8%, leaving a Fair Tax rate of 15% before governmental purchases are added back).

A main criticism of the Fair Tax is that it transfers the cost of payment to the middle class from the wealthy. The Prebate will keep the poor from paying tax, thus replacing the Earned Income Tax Credit; however those above the poverty line will be paying much more of their income in taxes while the wealthy will be paying much, much less in hope that they will invest it to grow the economy. This is the classic supply side argument, which ignores the very real fact that no productive investment in plant and equipment is ever made unless there is an underlying demand for the product produced. Shifting taxes to consumption will dampen the need for productive investment. When this occurs, speculative investment increases. Vehicles such as Real Estate Investment Trusts are created. We all know what happened with that. Eventually, the wealthy will be called upon to invest in public debt, since overseas investors must eventually stop buying it. When this happens, the economic logic for not taxing the same money being borrowed from the wealthy goes away, since these monies are taken out of the private economy and put into the public economy either way – the difference being that borrowed money must be paid back with interest – thus creating a privileged aristocracy of bond holders. My impression was that abolishing aristocracy was one of the reasons this nation was founded.

A way around this problem is to retain an Income Surtax on high income individuals (not high income families). This tax would fund overseas military adventures; net interest on the debt and debt retirement; the transition to Social Security, Civil Service and Military Retirement Private Accounts and the forgiveness of bad international debt held by the World Bank/IMF. After these items are fully funded, the surtax would be suspended. The higher this tax rate is, the faster the surtax is suspended. Excluding these items from the Fair Tax will drastically lower the Fair Tax rate to a somewhat more palatable level. Retaining the Surtax as an individual, rather than a business assessment also allows those who would pay the tax to keep this information private from their employers or investments. All personal income, including liquidated inheritances, would be subject to tax, although assets held would not be. All individual income under $100,000 would be included. Family income would not be taxed (so two earners making $90,000 each would have no liability to pay the Surtax).

To further lower the Fair Tax Rate, tax business income rather than retail transactions. Taxes would still be generated by sales, but it would not matter if the sale were retail or wholesale. Enforcement is also easier, since purchases by businesses would be exempt if reported to the IRS, with taxation on the Value Added. This tax could be explicit or included in the price of the item – or some combination of the two. The explicit VAT would be some minimum percentage required to fund direct government services and would satisfy the desire by libertarians to show the true cost of services provided by the government in the tax structure, thus providing an incentive to cut government.

The included portion could be used to fund the Prebate for employees, as well as other tax expenditures demanded by organized interests. A higher Prebate could be paid under this scheme on the order of a living wage of about $520 per dependent per month (or $120 per week). The Prebate would be paid to everyone working or participating in an educational program to overcome welfare dependency. As such it would be a pro-life measure. The reason that abortion rates go down in Democratic administrations is that they provide more generous benefits to such families. For the Republicans to truly call themselves Pro-Life, they must do the same. So that firms don’t fund their entire payroll using the Prebate, a higher taxable minimum wage of $12.00 per hour would also be instituted.

Deductions or credits could also be instituted in the Business Income Tax portion for health care or insurance costs and mortgage interest, as failing to do so will likely doom the package. Note that at the local level there would be a charitable contribution credit designated by the employees and paid to accredited social welfare and education agencies, such as Catholic Charities, Lutheran Social Services and parochial schools. This credit, which could be partially matched by a Federal credit, allows for the privatization of welfare, public education and even corrections (although corrections and mental health costs might be more effectively funded by a Land Value Tax or property taxes). If retiree health care is paid for explicitly or through a fund sponsored by the former employee’s house of worship, Medicare and Medicaid can be dispensed with, removing the government from the health sector as well.

To me, it makes much more sense to use the Fair Tax to actually shrink government rather than using it to anger taxpayers enough to demand that services be cut.

Privatization and the Fair Tax

The candidacies of Mike Huckabee and Ron Paul have raised the profile of the proposed Fair Tax, which would make up 23% of the purchase price on all new goods across the board, including those purchased by the government. Seen another way, it is a 30% tax on the base goods or services. As such, it would require a 30% cut in any taxed spending – or would require a higher rate to make up for the higher appropriation levels required to make the same purchases. If appropriations were not increased, then government contracting would decrease by 30%, forcing agencies to do more work in house. In other words, if the Fair Tax passes you can kiss all future and current privatization of government services goodbye.

You could call the Fair Tax the bureaucrat reemployment act.

UPDATE: I was wrong on this, as Federal Employee salaries are taxed in taxes paid to the state government. The federal government is, in effect, taxed twice since its employees are taxed by paying the Fair Tax, although their individual salaries would be higher, although there would be 23% less of them.

Can Environmentalists Be Atheists?

Over the weekend, I went to the Atlantic coast and stayed on Chincoteague. On Saturday, I took a stroll to Assateague Island. On the entire trip, both the drive and the walk, the outstanding feature was the trees. Both along the highway and on the islands, there are trees in abundance. This had me thinking this morning about the central feature of the drive to save the rainforests and fight global warming, the fear that biodiversity will be lost as species of trees and animals go extinct.

What amuses me is the extent to which many of have these fears are atheists and/or are believers in the view that our current way of dealing with the world is entirely too human centric. Why is this amusing? You have to know a bit of epistemology to see why. The entire concept of the “species” is a product of human thought. Granted, there are physical realities that distinguish one such grouping from another, but their entire importance lies in the mind and language of man. What we consider a species is in reality a small variation in the genetic pattern of the organism in question. A few chemical sequences in the DNA, if you will. All of the importance attached to preserving this bit of variation lies in the conversation about it. The soon to be extinct species could care less (unless they are having trouble mating).

Notice the contradiction? If there is no “meta-reality” beyond the physical world, the entire conversation about extinction is rather silly. Also, if there is such a reality, then the normal cycle of species extinction also matters little in the grant scheme of things.

There are a few species, such as the American Bald Eagle, that have symbolic significance to us – but likely don’t to the people of other nations. There are also some species which are close enough to humanity to preserve as a point of familial honor, such as the Orangutan. I won’t lose much sleep about most of the rest, however. Species have been going extinct before man walked the earth and will do so long after we join them or evolve out of this universe.

Yo, Archbishop Burke - I Dare You to Excommunicate Me

The AP reports that St. Louis Archbishop Raymond Leo Burke, never one to avoid publicity, has asked the University of St. Louis (which is a Jesuit school, so it is not a diocesean asset considered his personal property) to discipline coach Ray Majerus for thinking for himself.

Someone show the Archbishop this blog, either so he can be educated or so that he will retaliate against someone more able to joust with him intellectually on the finer points of abortion policy than a basketball coach or a Senator.

Archbishop - I dare you to excommunicate me. In fact, I double dare you. This is because I would then be entitled to state my side of the case to you, which means you might have half a chance of learning why I and most of the Catholics in both the U.S. and your Archdiocese disagree with you on abortion policy.

To put it bluntly, your Excellency, you are so wrong it is embarrasing.

Your degree is in Cannon Law, not public policy - and it shows every time you open your yap.

I hope I have your attention.

The error you make is in equating support for legalized abortion with support for the procedure itself. What legalized abortion means is that no one is prosecuted when an abortion is performed. It does not mean that society necessarily likes abortion or that Catholics who refuse to pass laws subjecting doctors to prosecution. It means that we find it unwise to turn abortion into a black market activity where abortions are still obtained, but in less sanitary conditions. It does not mean we endorse abortion for teens or couples with inconvenient pregnancies. That would be excommunicable.

When we say we do not believe Roe v. Wade should be overturned, it does not mean we support abortion on demand. It means that we believe that overturning Roe v. Wade and the right of privacy would have the effect of overturning ALL judicial supervision of state legislative majorites when they interfere with majority rights (an avowed position of Justices Thomas and Scalia). Under the theory of republican government (small r), minorities must have recourse against majority power - and this recourse is often in the court system.

We don't even believe that abortion must be available in all cases. Most of us believe that some regulation of late term abortion is necessary, provided that an acception is made for medical need. How medical need is defined can be tinkered with through legislation - one need not overturn Roe to do it. I am of the opinion that Congress could move the begining of citizenship to the start of the third, or even sometime in the second, trimester. Adjusting the terms of citizenship is the province of CONGRESS, not the state legislatures. You cannot excommunicate me for disagreeing with you on the finer points of constitutional theory - especially when you are WRONG.

There are more appropriate ways to deal with abortion than the criminal law. Criminalizing abortion in the first trimester would make every miscarriage the possible subject to a public investigation as to whether it was in fact the result of a voluntary abortion. As a Pastor, you cannot favor this, as women who have recently lost their babies should not be in any way subjected to the whims of prosecutors out to make points with authoritarian voters (and you know that would happen if first trimester abortion was criminalized). As a husband who has lost children to miscarriage, I urge you to recant on any policy that would inject the state into the lives of women at such a trying time. Keeping the state out of this time is the essence of the right of privacy.

A more appropriate way to stop abortion is to gaurantee a living wage through tax benefits. This will decrease the need for abortion without actually banning the procedure.

The Church could actually take the lead on this by both excommunicating Catholic business owners who refuse to pay a living wage, using its lobbying arm in the USCCB to encourage the enactment of a living wage tax credit for each child, regardless of parental income, and in PAYING A LIVING WAGE ITSELF. The Church is notorious for not doing this, especially to its female employees.

The Church could also grant free tuition and a stipend to both parents whenever a teen gets pregnant in both Catholic secondary and univeristy settings. As the largest private education provider in the nation, the church could prevent quite a few abortions by doing this. It hasn't, so maybe the Archbishop should EXCOMMUNICATE HIMSELF.

A Political Home for the Marchers

Peter Liebold and Liz McCloskey wrote an interesting piece in today's Washington Post regarding the lack of a political home for pro-life Catholics - a sympathy which I share. This essay coincides with the annual March for Life.

I must add that the solution proposed by many of the marchers, the turning of the matter over to the states, is also distasteful, as it would also jeapordize federal supremacy in civil rights issues. Abortion must be removed from the right wing social agenda, which at times is intolerant of migrants and blind to the effects of past discrimination (it is ironic that the march comes one day after the MLK Holiday - and I note that the Archdiocese of Washington was a big supporter of the March on Washington, where Dr. King first came to national attention).

It is also time to end the association between the criminalization of abortion and support for life. There are more effective ways to support the unborn. Providing a system whereby everyone can go to college without burdening their parents is a start (it would be better to publicly fund the first two years of a BA and have students find an employer to privately fund the last 2 and the MA). More importantly, it is time to use our tax system to fund a living wage, so that when each child is born, the parents receive an additional tax credit supported $500 per month in tax credits regardless of their base income (which will likely go down to accomodate a shift to paying for family support).

The Church as a provider of education and an employer could begin to make some moves in this area. When it does, I know it is serious about Life issues.

As for politics, I am of the belief that Governor Huckabee is the closest to the positions I have outlined and the most able to come to some compromise on this issue. The partisans who are arranging marches and fundraisers around this date show the state of the debate on this issue. There is none. Rather, we have opportunities for publicity and fundraising. Considering what a cash cow this annual event is, why compromise?

Cook v. Casey (was Rumsfeld)

The other day, I was on the Service Members Legal Defense Fund web page reading the District Court dismissal in Cook v. Rumsfeld (now Casey), which is currently being appealed to the First Circuit Court of Appeals. It struck me that the Court could probably not do anything else until the Supreme Court finds that sexual privacy is a fundamental liberty interest, since the Court did not go to that length in Webster v. Texas.

I would like to suggest a different grounds to overturn Don't Ask, Don't Tell - which in effect is Don't Ask, Don't Tell, Don't Sin because it punishes homosexual acts under the Uniform Code of Military Justice (the same way it punishes adultery). These two prohibitions on immoral conduct (which is no longer illegal in the civilian population) amount to an unconstitutional religious test. Service members must conform their sexual conduct to the religious dictates of the orthodox elements of the Catholic, mainline Protestant and Evangelical in order to serve in the armed forces. This is a reflection of the religious affiliation of the command structure and their expectations of what is good for unit cohesion (which is held together from the top). If this amounts in practice to a religious test for holding employment or office, it cannot stand.

Of course, if Don't Ask, Don't Tell is repealed a certain amount of tolerance will be mandated for conduct that Command finds sinful. Command could argue that they are now facing a religious test in having to be tolerant. This can be dealt with by pointing out that their faith actually requires tolerant behavior and kindness and more importantly the Constitution that they have been sworn to protect and defend requires an adherence to the values of liberty. If they are unwilling to be missionaries in the quest for liberty then perhaps they should rethink their oaths.

Christian Humanism

I was surfing the web today, Googling blogs on Christian Humanism. Three recent pieces jumped out at me. Indywatchman goes to one extreme and discounts Christian Humanism as a man centered evil. Andrew Haines and Pastor John cite a more conventional God centered Christian Humanism. Needless to say, I agree somewhat with the latter with one important qualification: any natural law philosophy worth its salt must be humanist or it is something besides natural law.

Natural law must consider the role of God in forming humanity and also God's relationship to Himself as a starting point. Here is where I depart from either of the strains cited above: God does not have a stake in our morality. God is perfect and perfectly happy. If our behavior touched him negatively, He would not be perfect. He has an alturistic concern for us - one based on pure love - but this does not give him a stake in our game. By this, I mean that a morality based on Humanism, especially Christian Humanism, must be centered on the happiness of man as God created him for this world. If there is a divine virtue to be replicated by our morality, it is Love, which is also a giving thing and an accepting thing rather than a chastizing thing.

Why does God want us to Love? Because a morality based on Love will make us happy. Any precepts must pass muster against this principle or they are not natural law. The Lord said "Come to me all you who labor, for I am meek and humble of heart. My yoke is easy and my burden is light." This is profound and it is confirmation that God's stake in the game is our happiness rather than his own.

This has profound implications for how Christians look at morality. Right off the bat, it shows that doctrines which attempt to oppress homosexuals are not natural law based. Our understanding of natural law must be fluid, as our understanding of human nature changes with the advancement of science. We now pretty much know that homosexuality is not disordered and homosexual acts are not sinful for homosexuals because God created them that way. Homosexuality is a part of natural variation, indeed it is prevalent in other primate species. What is disordered is homosexual promiscuity, since this violates the law of Love because it is selfish.

The whole idea of a "natural order" is suspect, and I suspect it is a way to set up an objective philosophical standard in an attempt to get around the axiom that a perfect God cannot be damaged by human conduct. The natural order is a proxy for God in this, since it can be violated and God must then punish violations of it out of justice. This is a sophistry. The natural order, if it exists at all, must reside in and only in the nature of mankind and what we know about it.

If the Pope thinks differently, then the Pope is wrong. This happens sometimes. Of course, the spiritual relativism that is the grant to Peter of the "keys to the kingdom" gives believers an out by trusting in what Peter says - even if he is wrong (and assuming that the heir to Peter is not Barthalomew, whose see would have become Prime when Constantine moved the empire - much in the same way that the western patriarchate moved to Avingon when the Pope moved there from Rome).

I am not saying we don't need a Church. What I am saying is that the Church must reorient its understanding of natural law. I can say that, since I am a member and I am not leaving. (Try to kick me out - it will only raise the visibility of the issue). The Church will always retain a valuable teaching role, which will improve with time as everything does. More importantly, the Church is the guardian of the rituals. This, to me, is more important than its moral teaching. I can think for myself and at some level must form my own conscience. I cannot, however, adopt my own public ritual. I can certainly make suggestions, for instance, the adoption of the Tridentine Mass presented in the venacular (if it was so good, it will retain its splendor in a language I can understand) - although it is the hierarchy which makes this decision for the community.