Saturday, January 26, 2008

What is Huckonomics?

In order to understand Huckonomics, one must comprehend basic economics.

In a nutshell, the science of economics deals with scarcity. If a person were capable of producing everything that he could ever need or desire without any assistance from anyone else, then he would never buy or sell anything. Instead, he would stay at home and live contented with all of his stuff.

The very fact that marketplaces exist is concrete evidence that no man is an island. I need things from other people just as other people need things from me. The marketplace is merely the place where my surplus time and material is matched with your want or need in a reciprocal transaction. In other words, I will scratch your back if you scratch mine.

Sometimes, though, the marketplace does not always work. I may be a wheat farmer with excess grain while you may be a baker who needs grain. Clearly, I have what you need to make your bread. However, if I do not need your bread, then what can you offer me in exchange for my grain? Absolutely nothing! In a complete vacuum, our bilateral transaction could never happen. Nevertheless, if a third person who wants your bread could also provide me with farm implements, then we could create a multilateral transaction: (1) I will give you my wheat if (2) you give him your bread and if (3) he gives me his surplus farm equipment. Basically, I scratch your back, you scratch his back, and he scratches mine. With just a little bit of collective effort and coordination, we all have our needs met by simply bartering our goods and services to each other.

In complicated economic systems where each person needs several different types of goods and services, matching supply with demand by way of bartering would be a yeoman's task. A multilateral transaction with scores of people scratching each others' backs in one giant circle might be necessary to supply just one good or service. Moreover, the coordination for such a transaction would make going to market a prodigious chore. Beyond this, each person would have to multiply his or her efforts a hundred times over in order to meet his or her other needs. Therefore, the marketplace needs a means of exchange where goods and services may be converted into a universally accepted unit. Fortunately we have that... its called money.

Our present economic system works this way. The wheat farmer needs farm implements, so he borrows money (i.e. obtains credit); he then spends this money on the equipment he needs. His supplier needs bread, so he uses the money that he got from the wheat farmer to purchase loaves from the baker. The baker needs wheat in order to make bread, so he uses his money to purchase grain from the wheat farmer. The farmer, in turn, repays the bank with interest. The cycle is completed. Like an electric current, money has gone around in a circle meeting the needs of every person it touches.

In a way, money is just like electricity. The electrical engineer tells us that current moves one way while the electrons move the other way. Similarly, money goes one way while goods and services go the other. Moreover, if the economic current is ever broken, just like a flipped switch turns off a light bulb, so will the broken flow of money stop the flow of goods and services. When that happens, surplus goods and services are wasted by one person while needs are left unmet with another person. Accordingly, unnecessary barriers to obtaining credit must be eliminated in order to preserve the economic current.

With that said, however, just as electric currents need some resistance, so do economic currents. If too much electricity flows across a wire, the wire will overheat, possibly causing a fire which, in turn, will destroy the circuit. Likewise, if too much money flows into an economy, inflation and/or devaluation will occur.

Put in the simplest possible terms, too much credit (i.e., borrowed money) will destroy an economy just as quickly as too little credit will. If the farmer cannot obtain credit to buy farm implements, he will suffer, as will his equipment supplier as well as the baker who purchases his wheat. The farmer's grain will rot in the fields, the equipment dealer's inventory will rust, and the baker will sit idly by doing nothing. In other words, supply will outpace demand as money becomes scarce, and the economic circuit will break.

On the other hand, if the farmer borrows too much money, he may purchase more equipment than he could possibly use on the plot of land he farms. When he does this, his supplier may use his extra money to purchase more bread; this, in turn, will cause the baker to place an order for grain that the farmer could never fulfill. As demand finally exceeds supply, money will become worthless and the economic circuit will short-out.

In the final analysis, an efficient economy needs a stable money supply where buyer and seller alike is able to enter the marketplace with confidence, knowing full well their excess supply will be met with the goods and services that they demand.

This is where "Huckonomics" is different from other economic models.

Up to now, there have been two basic schools of economic thought, to wit: (1) supply-side economics and (2) demand-side economics. Supply-siders look at a dollar and see what it has produced; demand-siders look at a dollar and see what it can purchase. For example, if a farm worker earns $6 per hour while picking 300 heads of lettuce, then every dollar that the worker earns represents 50 heads of lettuce to a supply-sider; this is what the worker is trading when he goes to market. On the other hand, if a dollar can purchase a 20 oz Coca Cola, then every dollar that the worker earns represents a cold drink to a demand-sider; this is what the worker can purchase.

Along these lines, supply-siders endeavor to create more goods and services. Supply-siders believe that the government should give people more incentive to produce. By giving tax breaks to the wealthy—particularly business owners—the government will stimulate the economy. When business owners have higher profit margins, they will have more incentive to produce. As such, they will place more capital into the economy, creating jobs and prosperity from the top down. Hence the moniker "trickle-down."

Conversely, demand-siders operate from the opposite perspective; they believe that the government should give people more incentive to spend. Each dollar is, in effect, a vote for what goods or services should be offered. As greater votes are placed for a new item, businesses will have greater incentive to produce such an item. Demand-siders believe that economic growth comes from the bottom up. To demand-siders, increased spending—particularly increased government spending—is the best stimulus for economic growth. After all, if there exists no demand for a given product, no tax cut will make that item more appealing to the general public, or by extension any more profitable for the business that produces it.

Huckonomics is a hybrid of the two schools of thought. By replacing the income tax with a retail-level national sales tax, businesses will have greater incentive to produce goods and services. Since business income will no longer be taxed, and since businesses will not be taxed for anything it purchases for resale, business owners will see their tax burden lifted. Accordingly, businesses will have greater incentive to produce goods and services along the lines of the supply side model.

By this same token, the demand-side model is also implicated. At first glance, one may think that leveling a national sales tax would create barriers to trade. (Certainly a 23% sales tax seems prodigious.) However, with businesses no longer passing on the costs of payroll taxes and other imbedded costs to their customers, retail prices will drop. Moreover, with an across the board sales tax in place, every good sold will be on an equal playing field with every other good sold; as such, every good will have an equal chance of receiving a dollar vote. (Right now, this is not the case; some items for sale have more imbedded costs than others.) Beyond this, businesses now with surplus income resulting from having to pay little if any taxes will make larger purchases, particularly at the wholesale level. This, in turn, will stimulate the economy from the bottom-up, along the lines of the demand-side model.

Since Huckanomics does not favor the supply-side over the demand-side or vice versa, Huckanomics will not favor inflationary—or for that matter, deflationary—monetary policies.

The logical extension of a pure demand-side policy is to inflate the economy with excessive government spending, creating a weaker dollar and ultimately breaking the economic circuit. Conversely, if marginal tax rates are cut (as supply siders desire), businesses will have greater incentive to produce goods and services. However, if government spending is cut (as supply siders also desire), demand for these products will drop precipitously since the federal government is the single largest purchaser in the country. Therefore, simultaneous tax-and-spending cuts will create a surplus of goods and services, causing recession, and ultimately breaking the economic circuit. Either way, no economic policy can be purely supply-side or demand-side.

In the final analysis, Huckonomics does not favor business over labor, nor does it favor labor over business. Neither the commodities of supply or the instruments of demand are favored. Rather, Huckonomics brings together the supply-side with the demand side. Huckonomics recognizes that we are all in this together. And if we stick together, the rising waters of economic prosperity will lift all boats—for the rich and poor alike.

29 comments:

BelisariusCA said...

I am impressed by your ability to simplify economic concepts, and show how the Fair Tax works. I would mildly take issue with one thing you said, namely, the part where you said:

"However, if government spending is cut (as supply siders also desire), demand for these products will drop precipitously since the federal government is the single largest purchaser in the country."

My friend (and probably my brother before the only King any man should have), the very point of supply-side economics, at least as Ronald Reagan envisioned it, was to take away the reality of the federal government as a dominant purchaser of goods and services. That's why he cut taxes across the board. Indeed, it solely due to political realities of his time that he could not succeed in creating a single flat tax, which while holding its deficiencies, contain much of the same benefits that the Fair Tax entails.

Furthermore, it is the gross dependency that the all-powerful federal government has possessed that has helped create many of the pathologies in our society: moral, spiritual, racial/ethnic.

I would add, that if you do not cut government spending, and get our house in order, all the benefit of the Fair Tax would be dried up as debt continues to pile on debt, and the federal government becomes a giant vacuum cleaner on all ability to work, produce, buy, sell, save, and invest. I would point you to the devastation in Europe as the value-added tax there was wasted as the governments there would not end their welfare-state economics.

On balance, I do support the Fair Tax, perhaps at a lower rate such as 17% (Steve Forbes old flat tax rate), but for the very reason that classical economics from the 18th-19th centuries would support: the government would then become dependent upon a thriving economy and a self-reliant people, including the poor (who would become less in number anyway, thank the Lord), rather than a dependent people captive to an all-powerful government.

I have some questions about how the prebate procedure in the Fair Tax is going to avoid creating another large bureaucracy, although I imagine that the net effect will be a revenue-collection-redistribution service would occasion a much smaller IRS (possibly with a new name). However, I do believe that in creating the Fair Tax a huge uptick in investment capital will be poured into the USA, which will cause a huge shift in the economy into overdrive.

That will be critical in two other areas that Mike has proposed: the massive buildup in our armed forces that he wants (to 6% of GDP), and the buildup in infrastructure that he proposes. To do that, there will need to be a serious strengthening of our bond markets, the financiers of so many infrastructure-related activities, which we have seen lately are in serious trouble.

It is almost a strange anomaly, but that to strengthen our high-tech-based society, we will need to emulate China, and rapidly rebuild our manufacturing sector through both transformation of infrastructure and our military. Failure to do so will, unfortunately, cause us to mirror India, whose own rapid high-tech economic growth is being hamstrung by corruption and failure to develop infrastructure.

As I examine the positions of the other candidates (especially Romney), I came to the conviction, that Huckabee is the better choice on precisely what is considered Romney's strength, economic and business sense.

I have a blog, which after numerous attempts has not been accepted onto Huckabee's blog roll. So, with your permission, I will post your article and my response on my blog (http://belisariusCA.wordpress.com), and I will copy this same article on the entry you have on the Governor's website.

Hope we can converse again. God bless.

Gus Spoon said...

Thanks for this explanation.
I don't know if you are an electrical engineer or an economist.
The analogy is perfect; who would of ever thought it.
I know Bernake must be green as a pea!

Anonymous said...

I'm not a huge fan of the back scratching and electricity analogies, but poor imagery can be forgiven. The biggest inconsistency I find with "Huckonomics" is the notion of eradicating the income tax and replacing it with a tax that will prove far more problematic.

I find it hard to believe that no one has pointed out the fiscal evils that accompany any flat tax, specifically a sales tax. Granted, these evils will only be felt by certain populations, namely the lower and middle classes. This tax is a retail-level sales tax, and besides mortgage payments, the lower and middle classes do nothing but purchase retail goods with what little money they have. Basic economics research has found conclusively that this is why the lower and middle classes remain stable, and why financial advancement is so darn difficult- while the price of survival continues to increase, wages do not. At least, they do not increase to the point of allowing the pay check to pay check crowd spend some quality time investing for the future.

Considering that the middle class is dwindling and the lower class is growing exponentially, over-taxing these classes will simply lead to economic strife for the classes that can't afford to invest on very small salaries and more defined class stratification.

Put in layman's terms: the rich get richer and the poor get poorer. Those lucky enough to own large businesses, corporations, plenty of stock options, and/or invest in real estate because of their already high income will then see their tax burden lifted, while those in the lower and middle classes will be forced to pick up the slack when the government attempts to maintain the programs and services which the American people have come to expect. Not only that, but by plunging more and more people below the poverty, the socialist programs which are so debatable amongst the parties will be forced to expand to keep millions in homes, with food, and with jobs.

Tanning Lotion said...

Good luck Mike, after going over a few of your points I have decided to throw my hat in your ring. We need a man like you in the White House.

twtheisen said...

First off, Americans need to learn a little personal responsibility.

It is not the government's job to take care of you; it is yours!

I have never NOT had a job. It's not hard to find work. If you can't find one where you live, then re-locate to Wyoming and you can work in the oil fields and make $40,000 plus without a H.S. diploma and live very well.

There are opportunities everywhere, you just have to look for them.

Second, I always hear people say that owning a business is a "luck" thing.

Last time I checked, owning a business takes an awful lot of planning, research and RISK! These people leave jobs and a guaranteed paycheck for a complete unkown. They do not have a crystal ball, they only have faith that their idea will work and often put in 70-90 work weeks for years to make it work.

It's easy to go out and find a job and punch a clock. It is quite another to hold the well being of your family as well as the families of your employees in your hands as you try to start a business and make it work.

If the business fails, the employees leave and find another job. The business owner does not get off quite so easy.

Finally, go to www.fairtax.org and research the facts.

The Fair Tax makes sense.

Right now, business owners buy toys and write them off against their income, meaning they pay less taxes. I know a lot of contractors who make very good money, but write off enough expenses to show they make $0 -10,000 dollars and pay very little into the system.

People always raise the argument that the burden will fall on the lower-middle class. This is simply not true. Rich people buy lots of toys, but they simply write off trips, cars and various toys to avoid taxation. They like to spend their money, folks. The fair tax would force them to pony up and start paying for their lifestyle.

Plus, everyone can apply for and receive a monthly pre-bate under the fair tax to cover expenses up to the poverty level. These figures are provided on the website from the Dept. of Health and Human Services. In doing so, the fair tax helps un-tax the lower and middle class.

Take some time to read the pro's and the con's and make an educated decision.

Our current system is broken, folks. The wealthy will always find a way to utilize the 66,000 pages of tax code and pay their accountants a lot of money to make sure they pay as little as they have to into the system.

Politicians talk about raising taxes on the rich. Well, the rich own businesses. If you raise their taxes, they will pass it on to the consumer. Who is the consumer? The lower and middle class. Or, they will find ways to write it off, which lowers their income and equates to them paying less taxes.

The only way we can change this fact is to change the way taxes are collected. The fair tax is the most researched and viable option available and we should embrace it!

Anonymous said...

Those with reservations about the Fair Tax need to read the book by Neil Boortz. The working poor would receive 100% of their paychecks - PLUS a prebate check every month large enough to cover the cost of the sales tax. A double reason to love this tax. The rich would pay far more because they purchase far more. Illegal activity would be taxed where it counts - when purchases are made and their would be no undrground economy. If anything - Mike has understated the benefits of the Fair Tax. Government spending is another issue - it must come down - and government itself must decrease or the American dream will become a nightmare regardless of which tax system is used.

Anonymous said...

Fair Tax sounds like a great idea. I'm all for thinking about a better, easier, and more fair tax method. However, I have a few questions that the average person might be interested in hearing the answers to.

How is the 'Fair Tax' fair to some of the millions of people who worked hard their whole life, paid taxes along the way and saved after-tax money for retirement only to have to start paying taxes all over again? This will cause millions of people counting on being able to spend a little bit of their hard earned money on some enjoyment in retirement. Why should they have a penalty for saving all their life? Currently, they would have no penalty for saving all of those years.

Currently, business owners have incentives to share some of the profit with employees through profit sharing, Pension plans, 401k's, bonuses, and other benefits rather than paying taxes to a wasteful government. What incentives do they have with the Fair Tax concept?

Along the same line, what incentives do they have to buy new equipment, vehicles, and technology? What drives them to spend any of the profits earned to keep the economy going? Currently the incentive is to take some of the money that would have gone to taxes and reinvest it in deductible items.

Finally, the other favorite tax saving strategy is to donate to charity. What incentives do they have to donate to charities, churches, and other good causes?
Are the charities prepared for a large drop in donations, endowments, and gifts? People are kind and want to give but, most also appreciate the taxes saved by doing so and figure that the charity will put the money to better use than the government can.

To use the power idea, what happens to the current when it stops flowing back to the starting place and the circuit is cut? Like when the money stops flowing out of the businesses and just sits there?

These things are like side-effects for drugs. Sure the drugs may help you but, are they worth the side-effects? What other side-effects and other unintended consequences are there?

Greg Waters said...

I support the Fair Tax but I have to point out that everyone says people engaged in illicit activity, like drug dealing, don't pay income taxes. This is true. But isn't it foolish to think that the same drug dealer is going to collect sales tax for the government? Illicit activities won't pay taxes under any circumstances...

Susan said...

Mr. Waters. No one expects the drug dealers to collect sales taxes on their illegal sales. However, they do spend the money they earn illegally; on cars, clothes, jewelry and other "toys". That is when the underground economy will pay their taxes - when they spend their money!

Keep on with the campaign Mike! I definitely think you are the best candidate out there to be our next president!

train nut said...

To the comment by Greg Waters,
You misunderstood on people in the underground economy and taxes. Of course the drug dealer won't collect a sales (fair) tax for the government on his drug sales. That drug dealer will himself pay the fair tax every time he buys something with the money he collected from his illegal drug sales. With the current income tax system he would not pay any tax at all because only a fool would report income earned from illegal sales.
There's the difference--and one of many reasons I voted for Mike in Georgia's primary on the 5th of February.
I salute Mike's continuing efforts to bring the Fair Tax out into the national debate even though the media tries to downplay it.
J.S.

jaws810 said...

Greg said"Illicit activities won't pay taxes under any circumstances..."

Your half right when elicit items are sold no taxes will be paid; however, when the illgotten funds are spent on "bling bling" or "dubs with spinners" to "trick out" their new "whip" they will pay taxes, taxes on money which could never be traced or taxed as income.(sorry about the slang)
This principle would also apply to the kid that shovels the show off your driveway, the babysitter, anyone that gets paid for services with cash, all the income from these activities could not be taxed but it will be spent which is where the FairTax would be paid.
Anouther previously untaxable group is illeagal immigrants which would be taxed on everything they buy the minute they cross the boarder. This would also apply to visiters and tourists, they enjoy the benifits of being in america so why should they the get all the benefits of being in america for free.

Anonymous said...

I am truly amazed at just how brainwashed so many people are regarding our current system of taxation. There is no question that implementation of a Fair Tax would disrupt many, many current tax behaviors, strategies, and the consequences of adjusting one's lifestyle and investment schemes to take the fullest advantage of this current system. The Fair Tax will certainly have an effect on those things. HOWEVER, when observing our current economic situation, and the long-term prospects of maintaining the status quo, our current system is absolutely, fundamentally unsustainable. A government simply cannot spend decades punishing productive activities and high levels of investment, all the while spending many times more money than it needs to spend, and far more money than it collects in revenues. We have quite literally been borrowing our prosperity for the past two decades. This is unsustainable. Furthermore, we have punished investments and production so severely for the past 6+ decades, we will never really know just how deeply we have thwarted what could have been economic growth of historical proportions, the likes of which no man has ever seen. Economic growth that could have dwarfed the industrial and technological revolutions. We will never really know just how much production and innovation this country has lost because of the incredible waste caused by a tax system that is designed to be manipulated by corporations and politicians.

Most people don't really understand the lure of an income tax from the perspective of a Big Brother government. By creating a tax code so convoluted and confusing, the government is able to create loopholes and exemptions for special interests and major corporations, while simultaneously creating a system of incentives and penalties for private citizens and small businesses. That is how they are able to control your behavior. They simply treat you like a performing monkey who gets treats when he juggles the balls, but gets smacked on the nose when he drops the balls. We are all a bunch of performing monkeys for the U.S. Government. That is the slavery of an income tax. Furthermore, an income tax punishes entrepreneurs, and dissuades them from taking the necessary risks of starting businesses.

Under the Fair Tax system, will there be some who get hurt? Yes,but nowhere nearly as badly as another blogger suggests here. He wrote something to the effect that those who saved after-tax dollars all their lives, and invested it so that they could eventually live on a fixed income derived from their retirement money, those people would be affected by the Fair Tax, since everything they would have to buy would have gone way up in price, due to the added "sales" tax imposed on everything they buy. Will there be a period of adjustment for the economy to absorb these huge changes? Of course, but the consequences would never be anywhere near as negative as the status quo is right at this moment. The blogger who suggested the potential consequences, forgot a very interesting fact about the Fair Tax: When you cut corporate income taxes from 35% to 0%, you will certainly see the prices for those goods and/or services decline sharply, because it is no longer anywhere nearly as expensive to run that business, now that your tax burden has been reduced so significantly. Thus, everything that grandma buys, using her after-tax savings and investments, will be far less expensive than suggested by that blogger. In fact, prices should remain relatively the same as they were before implementation of the Fair Tax. Additionally, grandma will be receiving a rebate check every month. That money will offset many of her elevated living expenses, as well.

The bottom line is that if the U.S. wants to be able to compete with the rest of the world for decades to come, we have no choice but to strengthen our economy. The Fair Tax is the fastest, most effective way to do that.

nath said...

Can I further simplify Huckonomics.
Abolish all the existing tax. Treasury would loose 3 trillion dollars. Prices of goods/services

Similarly in place of present Social Security, introduce Universal SS. At the rate of 5000 per person for 300m nation would need 1.5 trillion.

THUS we would need 4.5trillion p.a.

How to raise it. Bank transactions/withdrawals reflects collective CONSUMPTIONS by US citizens as consumers. The av.annual Bank transactions/withdrawals is around 92 trillion. A levy of just 5% against withdrawal would yield to the Treasury 4.60 trillions every year without any paper work at zero cost of collection of revenue. IRS rendered surplus can be better utilised to concentrate on sophisticated economic offences like money laundering, funding terrorism etc. The enormous advantages are there for every one to see. May the leaders show us the way. Long live US

Anonymous said...

Background

I had heard a lot about the Social Security System in US. At the same time I was also told that in US the medical treatment is very costly.

I was curious to know about the special features of the Social Security System. It came as a revelation that the System/Scheme is funded by the workers themselves. It struck me as quite odd. Anybody with normal prudence will agree that if I utilize the services of anyone for my benefit, it is my rightful duty that I take the responsibility of his wages and other benefits (e.g. in the case of any mishap, accident, illness and even death). I cogitated for months about a possible solution which is simple and easy to understand and administer. Following is the result. Any how it is for others to judge whether the way out that I have attempted to come out with a solution is just, rational and practical. Now over to my suggestion.

UNIVERSAL SOCIAL SECURITY SCHEME

Following is a suggestion for the consideration of the rule makers and social scientists. What follows is intended as a “food-for-thought.”
“The simplest idea is the most potent solution to the most vexed problem.”

Population … … … … 300 million
Annual premium (assumed) … … $5000 per annum*
Total annual premium to be generated 300 m x 5000 = 150,000 million

*This figure needs to be accurately defined by competent actuaries.

Premise – Almost every single citizen (including household members) of this nation is both a “service/goods provider” and a “service/goods receiver”.

We shall call the former as “Giver” and the latter category as “Beneficiary/Receiver”.

Since the “Giver” is providing services/goods to the society (the “beneficiary”), it is the duty of the “beneficiary” to take care of the health and insurance of the “giver”. This we term as “Social Security of the giver” or simply “UNIVERSAL SOCIAL SECURITY SCHEME”.

Therefore, the “Beneficiary” should provide/contribute funds for the welfare of “Giver”.

Presently under the existing “Social Security” the workers (i.e. Givers) are required to contribute towards their own welfare. Our focus and approach are from the opposite side. The “Service receiver” is expected to bear the cost of the welfare (health and insurance) of the “Service giver/provider.”

Naturally the question arises how to determine the quantum of the contribution to be paid by the “Beneficiary/receiver” and how to collect it.

We have the following parameters before us:-

1.The contribution should be in proportion to the quantum of services/goods being availed by the individual “beneficiary”. That is indexed in relation to the quantity or value of the goods/services enjoyed.
2.How to determine the value of goods/services availed of? In US almost all transactions are reflected in one’s bank account be it credit card, debit card, check payments, book adjustments etc. THEREFORE THE MOST SIGNIFICANT AND RELIABLE FIGURE OF VALUE OF SERVICES/GOODS AVAILED WOULD BE TOTAL WITHDRAWALS FROM INDIVIDUAL ACCOUNTS.
3.Even though the point at (2) does not need elucidation, we would venture to do it to make our point very clear beyond any pale of doubt. If my Bank account shows that in a given year I have withdrawn/transacted money of say $10,051, it indicates that during the relevant period I have availed of services/goods worth an sum.
4.The beneficiary should be required to pay a ratio or percentage of such WITHDRAWALS so that the target figure aggregating to $15,000 million is recovered during the course of the year.

Following figures would speak for themselves.

Total withdrawals from US Banks in 2003

Checks … 40 trillion
Electronic payments … 27 trillion
Auto clearing checks … 25 trillion
TOTAL … 92 trillion

(Source – wwwfederalreserve.gov/boarddoc/press/other/2004/20041206/default.htm)

(We are unable to get or ascertain accurate data for the subsequent years 2005 or 2006).

A levy of a mere 1.6% on the bank withdrawal of 92 trillion would generate every year a fund of $150,000 million towards the cost of the proposed Social Security Scheme.

Since this levy is to be effected at the time of withdrawal, the cost of recovery would be zero and would not involve any Paper Work whatever.

We would like to proceed to outline the Scheme, in brief as under.

1.The Scheme would be christened as “Social Security Scheme” – SSS in short.
2.The Authority to administer this Scheme would be known as “Social Security Authority” – SSA in short.
3.Each and every citizen of US would be allotted one Identity number and given one biometric Identity Card. It can be known as Social Security Identity – SSI.
4.This Identity Card would have multi purpose. MOST IMPORTANTLY IT WOULD SERVE AS A CHECK ON ILLEGAL IMMIGRATION INTO THE COUNTRY.
5.Without meaning any offence, we would like to mention here that the cost of medical expenses needs to be brought down drastically in US.
6.The SSA would recognize Hospitals, Institutions all over the nation.
7.SSA would also lay down tariffs for the services and medicines from time to time. This would ensure that one uniform rate prevails throughout the country.
8.Individual Doctors and Clinics could also be recognized by the SSA.
9.The beneficiary would present oneself before the Doctor/Institution concerned for treatment supported by the SSI card issued.
10.The beneficiary would not be required to pay any amount for the medicine or the treatment.
11.The Doctor/Hospital/Institution concerned would keep a record of the services rendered and would get reimbursement from the SSA, say once a month.
12.In order to minimize the possible misuse of this Scheme, SSA can have WATCH DOG TEAMS at various places/areas. These teams would serve as the eyes and ears of the SSA.
13.This Scheme could be considered for being extended to the visitors to this country. Since they would be spending money during their stay in the country, contribution from them also would be coming through Bank withdrawals; no special levy is being suggested here. However, if some additional levy is considered justified, authorities can always do so.
14.In passing a request for consideration. People coming to this country may not please be dubbed “Alien”. They may, we feel, can simply be called “Foreigners or Foreign Visitors”. The label “alien” to our mind appears to be offending. “Foreigner/Foreign visitors” appears to be more dignified.

In short the Scheme envisages that at the rate of 5000 dollars per citizen per annum, we would be required to generate annually $150,000. This sum can be raised by levying a fee of 1.6% against withdrawals of sum from the Banks.

On the death or total disability of the Beneficiary, a decent sum can be thought of being paid to the nominees or the beneficiary, as the case may be.

The above Paper is being sent as a “Food for Thought” to those who has the welfare of the people of this great nation. We trust it would receive the consideration it deserves.

---ooOoo---




NOW WE WOULD LIKE TO VENTURE TO SUGGEST ONE MORE TOPIC FOR CONSIDERATION.

PAPERLESS REVENUE COLLECTION

Background

It is the fundamental right and duty of every citizen of a nation to contribute his mite by way of providing goods/services to the society and receive a decent reward by way of salary/wages/income/profit for the service so rendered. Therefore, income is an index of the services rendered by the individual to the society. In the interests of all concerned rendering of such services to the society should be encouraged to the maximum degree. Hence subjecting INCOME to tax amounts to putting a premium on willingness/ability to render service to the society.

Citizen of a country should not be required under the threat of punishment to keep a detailed account of his financial affairs and render it year after year to the State Authorities for scrutiny. It amounts to intrusion into your privacy – so dear to citizens. Even friendly questions about one’s financial affairs – whether from caring parents, siblings, life partners or friends and well wishers, are resented by almost everyone—rightly so. But this is precisely the Income Tax requires us to do – not in a friendly manner but in an imperious manner. It is time that we put an end to this.

Therefore, we thought of a Scheme which would enable the Government to raise sufficient revenue without placing any undue responsibility on its citizens so that government is able to assess and recover revenues. What follows is a humble attempt towards that goal. It is for others to judge whether the following line of proposition is in the right direction. MAY GOD HELP!

“INCOME TAX” has been one of the hottest topics being discussed in America. Suffice it to quote:-
“Tax simplification remains everyone’s favorite orphan.” Fred Goldberg 
“All of us involved in the tax system--Congress, the executive branch, practitioners and taxpayers proclaim our affection for this child of our dreams, but few are willing to adopt her as our own.” Unknown 
Everyone agrees that the Income Tax Laws have become archaic, obsolete and needs to be changed drastically – Universal opinion.

Every year Millions of US citizens dread the prospect of approaching Deadline for Filing of Returns


The total revenue collection figures are as under: - 

(2003)                                                                          No. of returns        Gross collection
                                                                                                                       (Millions)
Individual Income tax                                                    130,728,360               987,209
Corporation Income Tax                                                5,890,821               194,146
Employment taxes                                                        29,916,033              695,976         
Gift tax                                                                       287,456                   1,939
Excise                                                                                  812,483                 52,771
Estate tax                                                                               91,679    20,888
                                  Total                      167,726,832           1, 952,929

Source - http://www.irs.gov/taxstats/article/0,,id=102886,00.html
 
(2004)
Individual Income tax                                                       131,301,697           990,249
Corporation Income tax                                               2,540,889            230,619
Employment taxes                                                         30,429,671           717,247
Gift tax                                                                     249,019               1,449
Excise                                                                                 647,263            54,807
Estate tax                                                                               73,340           24,130
TOTAL                                                                       1, 65,241,879    2,018,501

      Source - http://www.irs.gov/taxstats/article/0,,id=102886,00.html



(2006)
Individual Income Tax 133,917,068 1,236,259
Corporation Income Tax 2,453,741 380,925
Employment tax 31,182,071 814,819
Gift tax 255,651 1,970
Excise 942,145 57,990
Estate tax 58,279 26,717
TOTAL 2,518,680

We can assume that on an average the total revenue collection has been $300,000 million or 3 trillion (Gross)

Total withdrawals from the US Banks per annum (2003) –
 
            Checks                                     40 trillion
            Electronic payments                 27 trillion
            Auto Clearing Checks              25 trillion
            TOTAL                                   92 trillion

If in place of existing tax laws, a flat rate of 3% levy on withdrawals from the Banks, were to be introduced, it should generate around $3 trillion revenue for the entire nation. This levy can be appropriately called “Automatic Assed Amount” AAA for short. This collection can be apportioned automatically between the Federal and State Governments as per an agreed formula – to be reviewed from time to time.

In time of Emergency situation like Katrina a temporary additional of AAA of just 0.01% should generate sufficient fund to tide over the temporary extra demand.

Among others, it would lead to following benefits –

(a)    Government would be able to raise a higher revenue yield.
(b)   Involve no paper work AND practically zero cost of collection.
(c)    160 million taxpayers would be freed from the hassles of maintaining detailed accounts and submitting them periodically till lifetime. A real freedom indeed for the citizens. State would not pry into their privacy any more, unless warranted in specific cases.
(d)   Citizens would have the motivation and freedom to earn and save as much as they can with no premium on earnings.
(e)    Take home salary of salary earners would go up by 30% plus.
(f)     Prices of services and goods across the board would have come down appreciably.  Everyone on the street would stand to benefit.
(g)    The contact between the citizen and the administration would become minimal.
(h)    The tax system would be put in an “auto mode” or “e-governance”
(i)      With every withdrawal from the Bank, literally revenue would flow into the coffer.
(j) Citizens would not be required to familiarize themselves with terms like capital gains, long term capital gains, capital expenditure, revenue expenditure, depreciation etc. In the words of Albert Einstein “The most difficult thing to understand in this world is the Income Tax Laws.

Every year Millions of US citizens would be spared from the dread of the prospect of approaching “Deadline for Filing of Returns.
 
There could, however, be one serious objection to the above suggestion from some quarters. This would lead to displacement of several employees in the IRS.  Following steps would mitigate the situation to a great extent.
 
Banks would become the “Focal Point” of revenue collection.  Government can think of introducing 7-day working for the Banking sector as in the case of Transport and Communication.  Wherever necessary 2-shifts could be introduced to meet the demands of public.  These would require additional manpower.  Some of surplus members of the IRS could be absorbed.

Also the country is faced with the problem of illegal immigrants. Some of the officers of IRS can be fruitfully deployed to keep vigilance on the illegal entry of immigrants.

An elite force can be carved out to detect and enquire into serious financial irregularities.

To conclude – the actual rate of levy against Bank transactions could be on the following lines :-

Individuals/Charitable Institutions etc. 2%
Others (business, etc. engaged in commercial activities) 8%*

(Whether the levy has to be 2% and 8% ma please be decided by the experts. Our intention was just to emphasize that individuals may be charged at a very nominal rate so that no one feels the pinch and commercial organization may be charged at relatively higher rate)

*In the ultimate this incidence of taxation will have been passed to the consumers.

CONCLUSION – Abolish existing Tax Laws. Treasury would be deprived of revenue of 3 trillions p.a.
Repeal present Social Security Act and Bring in Universal Health Insurance Scheme; it would cost 1.5 trillions p.a.

Government would need 3 + 1.5 = 4.5 trillions. Introduce a levy of around 5% against Bank Transaction (Index of US Consumption) of 92 million. THIS WOULD PROVIDE THE NECESSARY FINANCE OF 4.6 TRILLIONS. The only question is whether the Authorities would do it???


May God Bless the country!!! = Kaushik brothers

Jack Stapleton said...

Is there a plan in place to provide jobs for all those who will be immediately unemployed under this new seemingly simpler system? H&R Block and other private tax companies would have to either offer new services or go out of business. What about the thousands of government jobs in the US; IRS, Payroll, and such? I would be happy to move over to a consumptive tax, but is it really possible? Can we in today’s computer-based technology, be able to made such radical changes without everything coming to a screeching halt? What about former tax liens, or past due taxes? Do we continue to collect, or forgive all past tax liens? What about people who have been imprisoned for tax related crimes? Will they be released as the laws are no longer applicable? What about the tax subsidies given to farmers to not farm portions of their land? How will you manage to stop backroom selling? Will you again try to complicate matters by forcing business to report their purchases and sales to try and gauge their tax liability? Should we just throw away cash and let the government take the tax share right from the credit card swipe? You started by saying that “In order to understand Huckonomics, one must comprehend basic economics.” I would like to know if Alan Greenspan indorses your ideas. He is really the only person in the Country that has a true understanding of how our economy works. I think most voters would look to him for a thumbs up.

Anonymous said...

Hi Bro Mike...

Even if you are VP its still a great new day for the US!
Pine Bluff was proving gound for you...

Best wishes to you and the family.
Jason - White Hall

Alan Reynolds said...

Someone asked if Donovan Quinn is an engineer or economist. He's a film maker.

No economist would say, as such FairTax fans do, “With businesses no longer passing on the costs of payroll taxes and other imbedded [embedded] costs to their customers, retail prices will drop.”

If that were true, then everything would be cheaper in states with no income tax, because all tax savings are assumed to be passed on to consumers. Yet the economists' "Law of One Price" explains why the same good cannot sell for greatly different prices in two places, aside from shipping costs.

If businesses could simply pass on their income and payroll taxes by raising prices, why don't we buy everything from tax havens which impose little or no direct taxes?

Why do we import anything from Germany and Japan, where income and payroll taxes are much higher than ours? Aren't their higher income and payroll taxes embedded in higher prices? No, of course not. Business can't just set prices wherever they like. Prices are set on global markets by supply and demand, not by average cost.

All taxes (including sales taxes) are borne by people in their capacity as suppliers of labor and capital -- they can't just be shifted at will by changing prices.

Experiments with sales taxes above 10% have always failed because intermediate (wholesale) transactions must be exempt to avoid multiple layers of taxation. With a high tax at the retail level, those with access to tax-free wholesale prices would have a huge incentive to sell on the black market. That is very easy with eBay and Pay Pal, and sellers do not have to be in the USA.

Taking a leap of faith is fine, but not when it comes to learning economics. That takes some work.

Anonymous said...

I agree wholeheartedly with those that have posted after me (the author of the "sales taxes are bad" entry) that businesses require a great deal of planning and risk. I am not a business owner (I'm freshly out of college), but I know business owners, and I wouldn't dream of impugning their hard work.

However, to say that we live in a pure meritocracy is naive at best. There are some populations where "hard work" just won't cut it. The American dream is a double edged sword, and its effectiveness is dicey as history proves. We don't all begin on a level playing field. No amount of hard work changes the fact, for example, that statistically African Americans make thousands of dollars less per year than their Caucasian counterparts in similar fields and positions. Well, I suppose that hard work could change that, and racism in the United States has definitely changed in the last century, but there are still realities that stand squarely in the way of advancement that a fair tax will not fix. Not only that, but rarely are decisions able to be made so easily as moving to another state to find work. The point is that people shouldn't be forced to scavenge the country for available employment that will allow them to live. Employers should be willing to sustain those who willingly produce their goods.

And, there are those that would argue (John Locke chief amongst them), that the only reason a legitimate government exists is to protect its citizenry. In my opinion, this includes protecting them from absolute poverty. Besides, none of this changes the fact that the American people are not ready to give up their social programs. If we want to reduce participation in Medicare, Welfare, etc., then imposing a tax that favors the wealthy (that's microeconomic theory talking...any high school or college class in the country will give you this information) will only require us to expand these programs, which runs counterintuitive to conservative philosophy, or at least my understanding of it.

John Locke also makes this argument, which I think is more important than any other he has ever made: we are here to ensure the survival of our fellow human being. He advocates living by the Golden Rule. How is the "sink or swim" isolationist attitude that conservatism expresses so often going to advance all individuals?

As a first year employed teacher, I agree with all of the candidates that something must be done about the fiscal policies of the nation. After I pay all of my necessary bills, I have about $300 of spendable money, which I will use on gas, food, and supplies for my classroom that the school cannot provide in a timely fashion. But, am I to blame for my poverty? Or is it a societal construct which devalues certain professions over others arbitrarily? Is it a government that is trying to fund the programs that its citizenry asked it to create? I'm not on welfare. I don't use food stamps. I don't receive anything besides my wages. But, if I were to find myself, due to circumstances most likely out of my control, unable to survive, I am glad that the government, which is supposed to be there for the sole purpose of protecting me, would be able to help me to survive.

I guess I just have a problem with policies that leave our most needy fellow humans out in the cold.

Anonymous said...

PS- about fairtax.org...

Research is what we should all be doing before we vote for anything, much less an entirely restructured national taxing system. One of the classes I teach is themed "being an informed citizen," and I have coached public speakers and debaters for going on a decade now.

However, my sincere hope is that you are not ONLY basing assumptions about this flat tax on one website. All sources contain seen and unseen bias, and the first thing that I tell my students is to seek out sources both for and against a subject, and then make up your own mind. It may be that, after looking at myriad sources, you still decide that a national sales tax is the way to go. More power to you for exercising your right to your own opinion.

Fairtax.org is one one many sources on national sales taxes. Make sure that you remember the "many" part, instead of parroting what one source tells you.

Anonymous said...

Getting rid of the current tax system (flaws and all) is the one thing I disagree with Mike Hucabee. A national sales tax will lead to a national ID card. Why? A national sales tax will have to apid by all - including those who are unemployed and on fixed incomes. Do you really think that is goung to happen? No. Those people and others will be given a exmeption. And how will the reatilers/stores/etc. know they are exempt? A national tax exmpetion card. Soon, all the same "special" interest groups will want their exemptions and we will all be required to have.

Anonymous said...

Huckabee is a good man. His feet are on level ground and He has the crystal clear thinking of the Greek, unfortunately his idea of a so called fair tax would be a field day for the rich and well connected.

As soon as the fair tax was enacted the rich and well connected would meet at their local country club to set up a barter system ( you scratch my back I'll scratch yours ). They will trade back and forth and virtually pay no tax at all.

mjainomaha said...

That really was a great description of micro economics. There is another piece of the puzzle that needs to be addressed, and that is macro economics. Specifically what is happening internationally. If money is the electricity of our economy, our current is weekened year by year as we have negative trade agreements, and we are buying more from other countries than we are selling. As our money pours into China and India for cheap products and technical solutions, less of that money is returned to us for our products and technical solutions. This dillutes our money supply, so that there are fewer and fewer dollars to circulate in our own country. I remember learning in economics that the economy is defined by available dollars and how many times each dollar is spent each year. I remember at that time that the average was that each dollar would be spent 3 times a year. As the money supply dwindles, an economy has to keep pace by spending more and more of the same dollar per year. The only other solution is to get rid of the trade deficit and get money from the outside, or simply print more which causes inflation. I think we need to balance the trade deficit to help our economy as well. I do like the flat tax system in addition.

proton said...

Please review this analysis and tell me how this going to work with my experiment analysis.

I wanted to know how this was going to work myself, but from my figures the tax plan would have to work for the average tax payers. this plan will still make the rich richer and the government would have to cut their spending almost in half

An analysis of if Huckabee was the president and took out Federal Income tax

the analysis I did was an approxiamte of income tax based on a person income, then caclulated in property tax, registration fees and other governmental fees for the 3 lelvels of income. If you have trouble understanding this then do it yourself using the format you will see below
Agrument is the more money someone makes the more they will spend an invest. Usually the families with better income have better houses that are higher tax property tax. Same with other governmental fees such as registering automobiles and what else.

annually upper poor class income average middle class imcome low upper class income
Income 17,500 40,000 75,000
income tax 2,625 15% 6,000 15% 18,750 25%
left after I-tax 14,875 34,000 56,250
living/buy exp. 10,000 15,000 25,000
Sales tax avg.8% 800 1200 2000
left after buy exp 4,075 17,800 29,250
prop tax &G-fees 2000 5000 8000
Total money left 2,075 12,800 21,250
Gov. makes $$ 5,425 12,200 28,750 Total 46,375

The income tax above is based on 2007 income tax braquet. The theory is of no income tax, people will have more to spend (or invest), especially higher income families
Hypethitcal Huckabee tax program idea of course sales tax will go up and property tax wil go up too, but watch below
Income 17,500 40,000 75,000
income tax 0 0 0
left after I-tax 17,500 40,000 75,000
living/buy exp. 11565 17,500 35000
Sales tax avg.15% 1734.75 2625 5250
left after buy exp 4,200 19,875 34,750
prop tax &G-fees 2000 6000 10,000
Total money left 2,200 13,875 24,750
Gov. makes $$ 3,735 8,625 15,250 Total 27,610

with this model based on the average person or family income the Government is losing lots of money. I tried making a 20% sales tax across the board but the poor was out of luck. I even tried 18%. The middle class didn't fair well either. 15% was the only one I could find comperable. I even rasied property tax/Governmental fees, except on the poor, a little on the middle class, and moderate on the rich. The Government would loose lots of money nearly half.
How is Huckabee going to cut Government spending nearly in half to make this model work for the average 3 workers/familys in America


From my model the government will loose lots of money or would have to cut spending nearly in half and the poor only come out a touch a head, the middle class a little and the rich would get richer.

How is Huckabee going to cut Government spending nearly in half to make this model work for the average 3 workers/familys in America.And how is he going to keep the rich from making a bigger gap between the Rich and Middle class?

proton said...

please review my analysis of an average of 3 income family/workers after reveiwing the model please tell me how Huckabee is going to cut Government spending in Half to make this work and how we keep the rich from getting even richer making a bigger gap between them and the middle class.

Don't get me wrong I thought this would really work and wanted it too, but from my hypathytical analysis the poor would only be able to spend a little more and be a touch more ahead, the middle class only a moderately ahead and a moderate more spending. and the rich would get a lot more money, but yes could spend more. I based the Income tax on the 2007 tax braquet found anywhere on the web-site.

proton said...

Further comment to Proton's model. I appoligize, becasue I didn't include into the model the tax returns for those who qualify for tax returns at the end of the year that actually could bring more income back to the families, and be ahead if there was no income tax

mjainomaha said...

Proton,

I like how you broke that out. That does leave some questions to be answered. Some flat tax people propose a prebate, which basically gives X amount of dollars to the poor, and then they make the percentage higher, like 20%. Your analysis showing a wealthy person not spending all the money they make may not be totally acurate. Some wealthy people push their means to the limit just like poor people do, and this would invigerate the economy and increase government taxes as well.

I also think that changing the system would temporarily slow down the economy. The first few weeks that the high sales tax kicked in, and the number of paychecks it would take to feel the extra money that is not taxed would cause a slow down, albeit temporary.

Hybridguy said...

"God allows U-turns"

That was the message on a bumper sticker I saw a few years ago, and it has stuck with me ever since. I was at the end of a relationship and it seemed that every mistake I made, no matter how long ago it happened, was constantly hung around my neck and was never coming off unless I ended everything with this person and started anew somewhere else.

There is a parallel to this in the world of tens of millions of lower to middle-class Americans. Due to a whole host of reasons (poor schooling in basic economics, reckless use of credit, failed business, loss of income, family illness, huge student debt, etc.) 10's of millions of Americans have "bruised" or poor credit. If any of you bloggers out there have experienced a hit on your credit rating, it is a very slippery slope that is almost impossible to overcome. Credit issuers, especially the credit reporting companies, do not subscribe to the "U-turns are allowed" philosophy. Once branded a credit risk, you are always to be branded a credit risk. Automobile, appliance, furniture, and other huge retailers love people with less than perfect credit as they can charge much more interest than to someone with perfect credit. Of course, when someone has less-than-perfect credit they have to pay more than others even though they are the ones who can least afford to pay more. The higher payments usually feed on themselves and end up causing the individual to miss payments and further drag down his or her credit rating. At the end of this miserable cycle, the individual has to end his or her payment obligations by either going bankrupt (another 7 years of horrible credit), going through a consumer proposal (another 5 or so years of not great credit) or simply going underground and avoiding creditors as long as possible while trying to rebuild some sort of cash flow. At this point, the individual is not a part of society the way we would like them to be; instead they are typically on social assistance or welfare and are being supported by tax payers. There are millions of Americans who would love to be "penniless" with a clean credit rating and certified training on how to manage credit than to be tens of thousands of dollars or more in debt with a horrible credit rating and no real knowledge on how to get back on track and stay on track.

I really like "Huckonomicks", and I have read all of the blogs coming from the original post. The current system of taxation was best described in one of the blogs by Anonymous on Feb. 8 at 9:00am. A major change is needed. But at the same time, I feel Mike H., with carefull consideration of course as I am a newby at this, should look at a Federal Government sponsored "U-turn" program for people fixing their credit and really turning their lives around. I'm not talking about simply wiping debt and poor credit history from everyone's records, but I would like to see more light at the end of the tunnel than what all of the "credit repair" firms offer. Maybe something like a government sponsored credit repair program that would include a nationally approved course on financial management run by banks or accounting firms, which upon graduation would enable the individual to re-negotiate their debts with their creditors and to obtain low interest financing for the remainder of their debts. After say 2 years of making timely payments on their financed debt and being smart with 1 low-limit credit card they would be back to a R1 rating. In my opionion this would be very attractive a lot of voters and it would cross all lines of race and gender.

Go Mike Go!

Anonymous said...

Anonymous Joan in CA...I learned a lo, though much over my head in these comments and responses. One question I have is "why do we still presume that if there is supply (like oil) and demand (like in Los Angeles) that the big companies will have any attitude of concern for their customers and their needs. The current gas price escalation disproves that theory. Yes, it creates jobs and profit (if in oil co. biz) but we see no "trickle down" to others, in fact a complete devastation in almost every other industry. So who benefits except the stock holders??

Anonymous said...

Anonymous Joan in CA...I learned a lot, though much over my head in these comments and responses. One question I have is "why do we still presume that if there is supply (like oil) and demand (like in Los Angeles) that the big companies will have any attitude of concern for their customers and their needs? The current gas price escalation disproves that theory. Yes, it creates jobs and profit (if in oil co. biz) but we see no "trickle down" to others, in fact a complete devastation in almost every other industry. So who benefits except the stock holders??