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4 January 2008

about a month ago, i heard a report on NPR regarding the possibility of economic recession in the u.s. that report included a recording of our dear president in which he argued that if americans will just keep spending, we’ll spend ourselves right out of any possible recession.

this argument really bothers me. i have no problem with people spending money. i understand the desire for nice things and have no problem with indulging that desire within reason. but i do have a problem with the degree of consumerism i see in american society. i do have a problem with the extent to which americans willingly go into debt not for housing or education or necessities, but for luxuries. and yes–cable television and high speed internet are actually luxuries, not necessities.

hearing bush make the comment about spending our way out of possible recession reminded me of his similar response to 9/11. one of his responses was that americans should spend spend spend–rather than save their money and conserve their resources–to demonstrate our strength and to avoid economic collapse in reaction to the devastation of 9/11. i don’t understand this response–that we’ll somehow be stronger (both as individuals and as a nation) if we run through our money and consume our resources than if we save our money and conserve our resources.

the advice to spend to stave off economic downfall seems particularly ill-advised in light of the recent problems in the housing market which have contributed to our current economic situation–the problem of sub-prime mortgages which are caused precisely by americans spending more than they should, rather than carefully building and preserving a financial cushion even as they invest in real estate. buying more house than one can afford clearly has much more to do with consumerism and keeping up with the joneses than with investment. even someone as inexperienced in investment as myself knows you don’t invest in such a way that you leave yourself no security if the investment fails.

given americans ever-growing tendency to over-spend, i’m interested in ways to incentivize savings and preservation of resources as opposed to spending and consuming resources. so as i’ve heard all of the post-iowa coverage today, i’ve been struck by mike huckabee’s proposed fair tax in place of the entire existing tax code. in a nutshell, the idea is that the federal government only taxes people based on their consumption. no income tax of any variety. no capital gains tax. no taxes on inheritance. no payroll tax. just a tax on what people spend. you get the idea. here’s huckabee’s brief explanation:

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.

i like the idea of a tax system that rewards people for saving their money rather than spending it frivolously. i like the idea of a tax system that encourages investment and retirement planning. so i’m intrigued by the idea of huckabee’s fair tax. but i’m also very leery of any proposed reform that includes the sentence “when the FairTax becomes law, it will be like waving a magic wand releasing us from pain and unfairness.” really? really? a magic wand?

huckabee argues not only that his proposed fair tax would encourage savings; he further argues that the fair tax would immediately render american goods and businesses “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.” such an argument epitomizes the kind of political sleight of hand that leaves me disgusted. does huckabee actually think that the elimination of corporate taxes and the cost of tax compliance, etc., will result in american corporations dropping prices by 12 to 25%? perhaps what he means is that american corporations will have more flexibility in setting prices so they can be more competitive if necessary. that makes sense. but it would be foolish to expect that the elimination of taxes would automatically result in prices dropping across the board.

huckabee further argues that such a tax would remove the incentive to export jobs overseas. again, this seems nothing more than a pipe dream. even reducing the cost of doing business by 12 to 25% is not going to change the fact that labor is much cheaper overseas. or the fact that compliance with safety and other standards is more expensive in the states than it is in places where such standards are either non-existent or sub par. the fact of the matter is that as long as the bottom line drives business, jobs will keep leeching out of the u.s. as long as we continue to support double standards, insisting on one level of safety and health standards in the u.s. but turning a blind eye to exploitation overseas, no amount of tax reform will be a magic fix.

and then there’s my concern over maintaining and bolstering social welfare programs. in many ways fiscal conservativism appeals to me. i think those in office and those who work for the government have a responsibility to do everything in their power to run government programs as efficiently as possible. but it doesn’t make sense to me to cut just for the sake of cutting. i believe very much in the necessity of government sponsored programs meant to provide a security net for american citizens. and i can’t help but wonder how much a program like huckabee’s fair tax would tax such social welfare programs.

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