Mike Huckabee on Tax Reform Former Republican AR Governor

Sub-sections under Tax Reform:
• Arkansas Taxation
• FairTax
• Other issues under Tax Reform

Higher tax brackets punish people for more work

22% of cost of goods is embedded taxes; take that tax out

HUCKABEE: Well, do you know an American that will just stop spending? I don't. Look, Americans will go to the marketplace with more money they've ever had. For the first time they'll be having their whole paycheck. You see, most people don't understand that when you buy something that is made in America, 22% of the cost of it is the embedded tax they never even know they paid. It's why China has beaten the daylights out of us: they can build stuff that we can't because they're not taxing it; they don't tax capital and labor and we do. They bring something over here, it's automatically cheaper even without the regulatory environment because they're not embedding the taxes; we are. Take the embedded taxes out.

Get rid of all taxes on people who produce

HUCKABEE: I have a different idea. I think we ought to get rid of all the taxes on people who produce. Why should we penalize productivity? And it's why I'm an unabashed supporter of the "fair tax," which would be a tax on our consumption, rather than a tax on our productivity. In other words, you're not going to tax anybody for what they earn, whether it's worker whose working by the hour or whether it's a hedge fund manager. If they can produce something and bring capital and labor to create jobs, we need some jobs. And I think the "fair tax" makes more sense. What I'd love to see us do by no longer penalizing the people who are out there working because they are taking a gut punch right now.

Tax system can't be fixed, not even with Duct Tape & WD-40

The fundamental flaw in the current tax system is that it penalizes work and productivity. Here's a little common sense: we get more of what we reward and we get less of what we penalize. Under the FairTax, no one would be taxed--that is, penalized--for their work, investments, savings, or earnings. The tax rate on capital gains would be zero. There would be no paycheck deductions.

The authors of the FairTax estimate that under the FairTax, these economic benefits would occur: Gross Domestic Product would increase by 10.5%. Capital stock would increase by 42%. Labor supply would increase by 4%. Output would increase by 12%. Real wages would increase by 8%.

Tax system punishes people for working & productivity

A: No, I’m really not thinking about what’s going to happen in four, eight or years beyond. I’m thinking about what’s going to happen to this country. And I’m very concerne about it. I’m concerned that we are going to see our taxes go up. That will kill small business. It will kill free enterprise. It will create even more of a trade imbalance. Look, we need some big ideas when it comes to the economy. There are a lot of Americans struggling, and they are not going to get better, with the kind of tax system that punishes people for working and punishes them for their productivity. That’s got to stop, or we are going to just send this nation’s economy into a spiral.

Signed tax pledge to not raise marginal tax rates

A: The reason I ended up signing the pledge, is that I realized that what I was signing was to say that we would not raise marginal tax rates, and frankly, I see no reason or no purpose ever that we need to raise marginal tax rates in this country.

Q: But, in all candor, you did not modify your position in order to play to the conservative base?

A: It wasn’t a play. It was that I realized that my position had to mature in this area.

Supported Bush tax cuts then; I support them now

A: Well, I supported the president’s tax cuts then. I support them now. I think anytime you can cut taxes, it is a good thing. And I don’t believe that those tax cuts only affected those at the top. But certainly, good tax policy ought to even things out for everybody. It’s the reason I support the FairTax, which is a whole lot better than just cutting a few taxes here and there and making winners and losers. It’s the reason that a completely new tax approach is really preferable because it empowers everyone in the economy, those from the top to the bottom. But the people at the bottom actually end up getting the best deal out of the fair tax. So I hope more people will start looking at it and realizing that’s the direction we really need to go.

Raising fees is the same as raising taxes

ROMNEY: We raised fees by $240 million in our state because we had a whole series of fees that hadn’t been raised, in some cases, in decades, so we brought them up to the cost of providing services. These were not broad-based fees that were required for all people to pay, rather for specialized services.

HUCKABEE: It’s semantics about taxes and fees: if you’re a small business owner or you pay the fee, it’s as much out of your pocket. You can call it a fee, you can call it a tax, it’s still money the government’s taking from you. It’s the same thing.

ROMNEY: I came in, there was a $3 billion budget gap. Together with the legislature, we cut spending, we also raised fees, and we calculated how much money we raised in the fees. It was $240 million. We can show you the number.

HUCKABEE: The fees I think you raised were more like half a billion dollars, not $240 million.

AdWatch: Your worth is from God, not your checking account

Raised some taxes based on court orders and voter approval

A: Well, I don’t think they’re legitimate criticisms when some of those were either court ordered or they were voted on by the people and approved by the people for things such as roads. I don’t think they’re legitimate criticisms when you improve education for the children of your state. That’s what being a governor is about. It’s about creating opportunities for the people of your state.

Q: Even if it means raising taxes?

A: I cut 94 taxes. People forget what we did do on a positive nature: eliminated the marriage penalty, indexed the income tax for inflation so low-income people weren’t paying high tax rates. So what we tried to do in tax policy by doubling the child care tax credit and by raising the threshold at which people paid, we untaxed a lot of the poor people and gave them a shot at actually making it up the economic ladder.

Gut this incredibly complex and arcane tax code

Attacked as tax-and-spend by several anti-tax groups

A: I have to be a little flattered that the Club for Growth targeted me with $100,000 of ads. But there are nuances of a state government--I’m quite proud of having navigated a ship through trouble waters in Arkansas.

Q: It’s not just the Club for Growth. The Cato Institute gave you a “D” on taxes for your 10 years as governor. Americans for Tax Reform said that state spending during your first 8 years as governor increased by 65%.

A: But if you look at our state spending, budgeting during my time as governor increased about 0.5% a year. When you look at the things that I actually had control [over, you would ignore] these wild accusations that I’m a tax and spender.

Tax system penalizes productivity; needs complete overhaul

A: I absolutely support the FairTax. And part of the reason is, the current system is one that penalizes productivity. If we could have the FairTax, you take $10 trillion parked offshore, bring it home, you rebuild the “Made in America” brand, you free up people to earn money, to work, you don’t penalize them for taking a second job, you don’t penalize them for investing, you don’t penalize them for savings.

Today, our tax system doesn’t need a tap of the hammer, a twist of the screwdriver, it needs a complete overhaul. And what the FairTax does, it ends the underground economy. No more illegals, no more gamblers, prostitutes, pimps and dope dealers will be able to escape the tax code. It’s the single great thing that will help this country [achieve a] revitalized economy.

Wouldn’t propose new taxes, but won’t pledge against taxes

A: I don’t think taxes is really where we need to go. It’s not that our taxes are too low, it’s that our spending is too high. I think that the real issue is getting our spending under control, making our priorities where they work for the American people.

Q: So “read my lips, no new taxes”?

A: I wouldn’t propose any new taxes. I wouldn’t support any. But if we’re in a situation where we are in a different level of war, where there is no other option, I think that it’s a very dangerous position to make pledges that are outside the most important pledge you make, and that is the oath you take to uphold the Constitution and protect the people of the United States.

Illustrated hypocrisy with “Tax Me More Fund”

Arkansas citizens who felt they were not contributing enough of their personal or business income could write checks and the state would be more than happy to receive their contributions.

I carried envelopes for the Tax Me More Fund. I must have carried them to dozens of speeches and yet not one time did anyone ask for an envelope. From 2001 to 2005, a total of 56 people made contributions to the Tax Me More Fund totaling $2,077. It was a potent way of pointing out the hypocrisy of the insincere vocal minority who proved by their failure to write a check that they wanted more taxes to be paid, but they wanted them to be paid by someone other than themselves. In Dec. 2001, the Americans for Tax Reform named me as a Friend of the Taxpayer for exposing the phoniness of the more tax arguments.

We ought to un-tax innovation, un-tax income

Remove the poorest taxpayers from the tax rolls

Remove sales tax on food; it's regressive

No tax increase under any circumstances

In AR, eliminated marriage penalty & bracket creep

• Eliminated the marriage penalty from the tax code (1997)
• Eliminated the capital gains tax on the sale of a home (1997)
• Doubled the child care tax credit (1997)
• Simplified the car-tag renewal process (1997)
• Signed a broad-based tax cut (1997)

Net change as governor: same income tax; 1› more sales tax

A: I turned a $200 million deficit into an $850 million surplus. We built roads. We improved our schools. With the support of the business community, as well as with the Supreme Court order, meant that what I did was exactly what governors are supposed to do, and that’s govern. You know, Ronald Reagan, today, would be attacked by Romney, because Reagan raised taxes $1 billion his first year as governor of California.

Q: He says you raised taxes $500 million more than you cut taxes. On that narrow point, is he right?

A: Well, only if you understand that some of those were gasoline taxes. At the end of my governorship, the income tax was exactly the same, and the sales tax was a penny higher. The net result was we had a better base of overall revenue.

Raised AR net tax burden by $500M to comply with court order

HUCKABEE: There had never been a broad-based tax cut in the 160-year history of my state, & I signed the first one. I cut taxes 94 times. We eliminated the marriage penalty. We doubled the child tax care credit. We indexed the income tax for inflation. We froze property taxes for seniors so they didn’t lose their homes due to increases in property taxes.

ROMNEY: Facts are different things. Net-net, didn’t you raise taxes in your state by half a billion dollars?

HUCKABEE: By a court order that said we had to improve education. Maybe you don’t have to obey the court in Massachusetts. I did in Arkansas. And you know something? Education is a good thing for kids, because kids like me wouldn’t be sitting here if it weren’t for [public education].

FactCheck: 90 cuts + 23 tax increases: net $505M increase

The ad shows a graphic asserting that Huckabee “cut taxes over 90 times” as governor. 90 tax cuts indeed were enacted under Huckabee; however, so were 21 tax increases, and they far outweighed the cuts. The total net tax increase under Huckabee was an estimated $505.1 million. Not surprisingly, anti-tax groups give Huckabee poor marks, and the anti-tax group Club For Growth has even been running TV ads against Huckabee on this topic.

Huckabee’s ad also boasts that he “balanced the budget every year” he was governor, but that’s not much to crow about. Like other governors, he must balance the state budget by law.

AdWatch: Signed first-ever broad-based tax cut in Arkansas

FactCheck: Passed broad-based tax cut, but not “first ever”

First governor in Arkansas history to ever lower taxes

Did we raise taxes on fuel? Yes, but 80% of the people voted on improving what was the worst road system in the country.

Raised Arkansas taxes 5 times, but lowered taxes 94 times

Source: Meet the Press: 2007 “Meet the Candidates” series , Jan 28, 2007

Eliminated AR marriage penalty & capital gains on home sales

During my tenure as governor, we:
• Eliminated the income tax for families below the poverty line.
• Increased the standard deductions.
• Eliminated the marriage penalty.
• Eliminated bracket creep by indexing the income taxes to inflation, thereby preventing taxpayers from moving into a higher bracket when their paychecks increase due to inflations.
• Doubled the child care tax credit.
• Eliminated capital gains tax on the sale of a home.
• Passed the first broad-based tax cut in the state’s history.
• Signed a property taxpayer’s bill of rights establishing a uniform notice and due process procedure allowing taxpayers to appeal valuation and assessments.
• Provided an income tax credit for companies that provide or reimburse for training and education programs for employees.
• Cut the capital gains tax for individuals and business to encourage investment.

FairTax is better than punishing productivity

FairTax gets rid of IRS and sifts power back to the states

HUCKABEE: There are a lot of things happening at the federal level that are absolutely beyond the jurisdiction of the Constitution. This is power that should be shifted back to the states, whether it's the EPA or the Department of Education. We can get rid of the Internal Revenue Service if we would pass the FairTax, and move power back where the founders believed it should have been all along.

FairTax broadens tax base to include non-wage-earners

HUCKABEE: One of the reasons that Social Security is in so much trouble is that the only funding stream comes from people who get a wage. The people who get wages is declining dramatically. Most of the income in this country is made by people at the top who get dividends and capital gains. The FairTax transforms the process by which we fund Social Security and Medicare because the money paid in consumption is paid by everybody, including illegals, prostitutes, pimps, drug dealers, all the people that are freeloading off the system now. That's why it ought to be a transformed system.

Bottom 1/3 of economy benefits most from the FairTax

A: They have it exactly wrong. In fact, it's the bottom third of the economy who benefit the most from the FairTax. The people of the top third of the economy benefit the least, although everybody benefits some. That tax study is one that has been discredited by the people who spend over $20 million, very thorough, thoughtful economic study developing the fair tax. The difference is that the FairTaxhas what's called the pre-bate, which untaxes people for their necessities. So, if you're at the bottom 1/3, chances are you really don't pay any effective tax whatsoever in the consumption tax because you are consuming less & you're getting a pre-bate, which is a rebate in advance for that what you would have spent

Replace IRS & income tax with national sales tax

Huckabee proposes a national "Fair Tax." The idea would eliminate income, corporate, capital gains and a number of other taxes and replace them with a single sales tax. He would also eliminate the IRS, arguing the simple system would make it unnecessary.

FactCheck: To be revenue-neutral, FairTax raises some taxes

Huckabee’s claim that everyone will pay less is a fantasy. The FairTax claims to be revenue neutral. That means that it has to collect the same $2.4 trillion that the current system collects. And remember that the FairTax replaces corporate income and payroll taxes. That means that individuals have to pony up to replace those in addition to replacing the sums collected via personal income and payroll taxes.

So Huckabee is suggesting that the FairTax will generate exactly the same revenue while collecting nothing from corporations and still costing everyone less than they are currently paying. We certainly hope Huckabee has a barrel of magic pixie dust buried somewhere.

FactCheck: FairTax does not bring underground into economy

Huckabee’s suggestion that the FairTax will end the underground economy is highly unlikely. It’s true that pimps and drug dealers will now be taxed when they spend their earnings. But will they really charge johns and junkies sales tax on their purchases It’s a better deal for the person buying the sex or drugs, and a worse deal for the person selling it.

In fact, far from ending the underground economy, there is a real possibility that the FairTax will feed it growth hormones. There would probably be two prices--one you can pay with a check or credit card that includes the FairTax and one you can pay in cash & save 23%. Because there would no longer be any audits of income, tracing such tax evasion would be extremely difficult

FairTax will tax the average American much less

A: They’re not paying 15 percent; that’s in their visible tax in the terms of the takeout from their checks. When you include the built-in tax, the embedded tax in the products we buy that corporations build in, the average American is paying 33% in his or her taxes. It would be a dramatic difference if the taxpayers got to choose the taxes, which they would do under the FairTax.

FairTax and its prebate untax the poor and the elderly

Support FairTax with a tax credit for the poor

FactCheck: FairTax would not eliminate IRS; just change role

It is true that the FairTax would get rid of the agency that we now call the IRS. But, according to the bill Huckabee supports, the Fairtax would “eliminate” the IRS by replacing it with a new Sales Tax Bureau, which wouldn’t necessarily be much smaller than the existing IRS.

According to the Bush administration study on the FairTax, “The federal administrative burden for a retail sales tax may be similar to the burden under the current system.” The FairTax would also require an entirely new type of bureaucracy to “keep track of the personal information that would be necessary to determine the size of the taxpayer’s cash grant.”

FairTax is 23%; Bush’s study missed prebate & other aspects

A: Right.

Q: This would be a sales tax of 23% on almost every good and service you buy or anyone buys. But a bipartisan panel named by President Bush say to raise enough money, the rate would have to be 34%.

A: They didn’t really study the FairTax. They simply studied a type of consumption tax, not the actual proposal that was designed by some of the leading economists in this country. It is a rate of 23%. It’s not 30% or 34%, as some of the critics complain.

Q: They said that a FairTax would reduce the tax burden on only two groups, those making less than $30,000 a year, because there’s a rebate for people under the poverty line, and those making more than $200,000 a year. So the rich and the poor do better, but the vast middle class ends up paying more taxes.

A: They had a fatal flaw. They didn’t understand that the “prebate” applies to everybody, including the middle class. Everybody comes off better off.

FairTax untaxes productivity & things which we export

HUCKABEE: Nothing’s going to discourage Americans from spending money! No, the FairTax does something that is absolutely phenomenal for the economy. It untaxes productivity. It untaxes those things which we export.

HUNTER: I’m a sponsor of the FairTax.

FairTax eliminates all taxes on productivity & saving

A: The Bush tax panel did not look at the FairTax proposal. They looked at something that called itself that, but it was not. The true FairTax proposal is the 23%. And it empowers everyone in the economy, not just the people at the bottom and the very top, but all of the middle class, which is a desperate need. What we would do with the FairTax is to eliminate all the taxes on productivity. You wouldn’t be penalized for saving, earning, for having a capital gain, making an investment.

FairTax puts Going-Out-of-Business sign on IRS

A: The simplest way is an active FairTax. That’s the first thing I’d love to do as president, put a “Going Out of Business” sign on the Internal Revenue Service and stop the $10 billion a year that it costs just for them to operate. A FairTax would eliminate the alternative minimum tax [& many other taxes].

FactCheck: FairTax requires 34% sales tax +$600B entitlement

“A FairTax would eliminate the alternative minimum tax, personal income tax, corporate tax, & al the various taxes that are hidden in our system & Americans don’t realize what they’re paying.”

Pres. Bush’s bipartisan Advisory Panel on Tax Reform rejected the idea, saying it would substantially increase taxes for 80% of taxpayers. The panel calculated that a sales tax would have to be set at 34% of retail prices, and the monthly cash prebate would amount to the largest entitlement program in history, at least $600 billion per year.

Flatter, fairer, finite, family friendly overhaul: Fair Tax

A: I cut taxes 94 times as governor, but I realize tinkering with it doesn’t work. I’d overhaul it. I would work for the fair tax, which meets the four criteria: flatter, fairer, finite, family friendly. We’d get rid of the IRS. We’re get rid of all capital gains, income, corporate. And we’d have a consumption tax. The fair tax proposal, I believe, offers the best opportunity for all levels of Americans.

Supports national flat tax to keep up with globalization

One of the arguments for a flat tax is to address a world economy that has radically changed in the last decade. Capital, and even labor, are fluid & mobile. A tax structure that is more predictable, consistent, flatter, and fairer not only represents greater accountability in government but may well be a key element of economic survival as we continue to play on a global stage. Governments unwilling to respond with lower rates and broader tax bases are tempting fate and could continue to see erosion of investment & jobs.

Some argue that a flat tax is especially oppressive to those at the bottom of the economy because they currently pay little of their income to taxes. Making sure that a tax system is fair means we should not ignore the needs of the poor.

No national sales tax or VAT.

State tax policy is closely linked to federal policy. 36 states currently use either federal income or federal tax liability as the state tax base for personal income taxes. It is critical that Congress and the administration do not enact tax reform in a vacuum, but in consultation and in partnership with the nation’s Governors.
• National Sales or Value-Added Tax The nation’s Governors oppose a national sales or transactional value-added tax. Such taxes would intrude into a tax area that has traditionally been reserved for and relied on by state and local governments. If enacted, either of these taxes would seriously threaten the ability of state and local governments to maintain their tax base.
• Current Income Tax If Congress decides to reform the current tax system, they should reduce the complexity of current income taxes; increase incentives to work, save, and invest; and increase efficiency and fairness. As part of any reform of the current income tax, the nation’s Governors would oppose any modification to the deductibility of state income taxes, property taxes, and the interest on state and local bonds.
• Transition If major tax reform is enacted, it should not be implemented for at least three years, to give states ample time to adjust their own tax systems.
• Information Needs of the StatesThe ability of states to tax various revenue sources depends to a large extent on information that only the federal government can collect. This is becoming much more important given the complexity of both the international and domestic economies in tracing where goods and income are generated. It is critical that the federal government separate tax reform per se from the information that is collected from individuals, businesses, and corporations with respect to income generated. The data collection role of the federal government must be developed in partnership with state and local governments.

Let states independently determine estate taxes.

We are writing to request equal treatment between states and the federal government on estate tax changes. Regardless of one’s view about phasing out the federal estate tax, the Governors are absolutely united in opposing any action that would discriminate against states in the phase-out of the state and federal estate taxes. This issue needs to be addressed before the Senate goes to conference with the House.

Governors believe that the ability of states to independently determine their own tax revenue policy is a basic tenet of federalism. Moreover, no federal tax bill should be enacted without close consultation with the states.

At the very least, there must be equity in the treatment of the state death tax credit in the tax bill the Congress considers with the proposed phase-out of the federal estate tax. Governors oppose provisions that impose disproportionate impacts on state revenue systems. The changes proposed by the Senate would have abrupt, significant adverse impacts on state revenues at a particularly onerous time for many states. The potential impact on states would begin next year and have a potential impact of between $50 and $100 billion over the next ten years.

We urge the leaders to respect those rights and to restore fairness.