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Sunday, February 10, 2008

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Obama Becomes the Favourite

Barack Obama certainly did get a fillip from the three states which chose their delegates at the weekend for the Democratic Party convention to endorse the presidential candidate. He clearly won all three and is now favourite to become the Democratic candidate – a 65% probability to a 35% chance for Hillary Clinton.

On the Republican side, Governor Mike Huckabee surprised by winning in Louisiana and Kansas but Senator John McCain, who won in Washington , is still strongly favoured to become the candidate – a 94% chance to a 4% chance for Huckabee.

You can see how the Owl's Election Indicator fared in the table below where the winner's percent is in red.

An Income Tax Less World

The interesting aspect for an outsider of the support that candidate Huckabee is obtaining is the unorthodox taxation policy he advocates. At the forefront of the Huckabee campaign is a promise to abolish all income and payroll taxes and replace them with a national retail sales tax on new goods.

His policy describes his Fair Tax plan thus:

I'd like you to join me at the best "Going Out of Business" sale I can imagine - one held by the Internal Revenue Service. Am I running for president to shut down the federal government? Not exactly. But I am running to completely eliminate all federal income and payroll taxes. And I do mean all - personal federal, corporate federal, gift, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment. All our hours filling out forms, all our payments for help with those forms, all our shopping bags filled with disorganized receipts, all our headaches and heartburn from tax stress will vanish. Instead we will have the FairTax, a simple tax based on wealth. When the FairTax becomes law, it will be like waving a magic wand releasing us from pain and unfairness.

The FairTax will replace the Internal Revenue Code with a consumption tax, like the taxes on retail sales forty-five states and the District of Columbia have now. All of us will get a monthly rebate that will reimburse us for taxes on purchases up to the poverty line, so that we're not taxed on necessities. That means people below the poverty line won't be taxed at all. We'll be taxed on what we decide to buy, not what we happen to earn. We won't be taxed on what we choose to save or the interest those savings earn. The tax will apply only to new goods, so we can reduce our taxes further by buying a used car or computer.

Our current progressive tax system penalizes us for working harder and becoming more successful. As we climb the ladder, the government lurks on each rung, hungry for a bigger bite out of our earnings. The FairTax is also progressive, but it doesn't punish the American dream of success, or the old-fashioned virtues of hard work and thrift, it rewards and encourages them. The FairTax isn't intended to raise any more or less money for the federal government to spend - it is revenue neutral.

Expert analyses have shown that the FairTax lowers the lifetime tax burden of all of us: single or married; working or retired; rich, poor or middle class.

The FairTax will instantly make American products 12 to 25% more competitive because the cost of those goods will no longer be inflated by corporate taxes, costs of tax compliance, and Social Security matching payments. When we buy products now, those taxes are built into the cost, so all of us pay corporate taxes indirectly on top of the personal taxes we pay directly. Compliance costs are just make-work with no real added value, yet they consume as much as 3% of our gross domestic product annually. These costs are an especially heavy burden on small businesses, which generate most of our jobs.

If you buy a bottle of domestic wine, you're paying the taxes/compliance/matching payments of all the folks who produced the grapes, the wine, the bottle, the cork, the label. If you buy a bottle of French wine, the producers had their Value Added Tax rebated to them when the wine was exported. So French consumers pay those taxes, but you don't. Our current tax system puts our goods at a disadvantage both here and overseas. Other governments give their goods an advantage on the world market, an advantage estimated at 18% compared to American goods.

So no matter how hard Americans work, no matter how innovative and creative we are, no matter how superior our products are, we suffer from a built-in competitive disadvantage simply because of our tax system. A recent study by MIT found that our tax system deprives us of about $1 billion in exports annually. When you export over-priced goods as we have, you inevitably end up exporting jobs and industries as we now are. We are the square peg trying to fit into the round hole of international trade. The rest of the world isn't going to change, it's time that we do.

Under the FairTax, American companies are far less likely to move overseas and foreign companies are far more likely to come here, hiring Americans to build and work in their new plants. The FairTax encourages growth by promoting investment and capital formation.

We have to scrap a 20th century tax system that is holding us back and keeping us down in the 21st century. The FairTax is the path to greater prosperity and job security for us and for our children.

The Pick of Sunday Morning's Political Coverage

Migration scheme unravels – Eamonn Duff – Sydney Sun Herald

Let us kill and eat whale: Japanese – Julian Ryall, Sunday Age

Libs target high profile Patti Chong, Justin Langer - Paul Lampathakis, Perth Sunday Times

Fears of carer crisis – Michael Stedman, The Sunday Tasmanian

Fraser puts State fat on the chopping block – Darrell Giles, Brisbane Sunday Mail

The Sunday Reality Check

People clearly love a good funeral. The Perth version of the farewell to Heath Ledger dominated the most read lists this morning with 12 entries plus 11 about other celebrities. The only way federal politics made the top 50 was because of the celebrities clamouring to be invited to Kevin Rudd's ideas summit and Nick Minchin using the f word to Malcolm Turnbull.