Fuzzy Math

Much has been made of the claim by Mike Huckabee that his “fair tax” sales tax rate is 23%, when it actually amounts to a 30% sales tax, and I want to crunch a few numbers, just to clarify for everyone.

Many people seem to have decided that Mr. Huckabee is being inherently dishonest, but for comparison purposes to our current income tax, his 23% number is actually clearer, if somewhat misleading when compared to current sales taxes.

Here's how the math works such that 23% and 30% can mean the same thing:

Suppose you buy something for $100. At a 30% tax rate, you would end up paying $130 ($100 for the item, $30 in taxes). However, if you consider the entire price as $130, then 23% of that ($30 out of $130) is taxes, 77% is core cost.

And this is the point that most people start yelling "But that's dishonest! It's a 30% tax if it raises the cost by 30%". But here's why I think the 23% number may be the more honest one when comparing this tax to the current income tax, which it is intended to replace:

Assume the same $100 item that you wish to buy. If you are in the 30% tax bracket, you have to earn nearly $143 in order to buy that $100 item. On the other hand, if you're in the 23% tax bracket, you have to earn $130 to net enough to cover $100. Therefore, when comparing taxes, if you have to earn $130 to buy a $100 item at a 23% income tax bracket, it's fair to refer to it as a 23% tax in the "fair tax" system as well, for clarity.

So while it is clearly confusing to refer to a 30% tax as a 23% tax, it is clearly more fair than those opponents of the tax who throw around the 30% number and compare it to the 15% tax rate of the poor. 23% vs 15% is already bad enough.

Now, I disagree with this plan for a number of reasons, which I will detail in a comment or a later post. But this particular bit of “he's being dishonest about his numbers (but please don't notice that I'm also being a bit dishonest myself” has been annoying me for a while now, so I thought it might be nice to write a bit.

Liam.