Interview with Gary Johnson: "Fair Tax" questions...

This Blogger has always greatly appreciated Gary Johnson’s social libertarianism and record as Governor of New Mexico. In fact, of all the GOP candidates, Johnson is by far my favorite. And so, this afternoon, I had the opportunity to participate in a blogger’s Conference Call with the Governor to ask him policy questions.

I decided to ask him about his one position that bothers me the most: his support for the so-called “Fair Tax,” a national 23% sales tax he would like to use to replace both the federal income tax and the social security tax. Those who support the Fair Tax point to the fact that it taxes consumption, not income and that the IRS and the insanely complicated income tax code could both be abolished. A major criticism of that plan - that poor people will be significantly affected - is countered by Fair Tax proponent’s plan to send every household a $200 monthly check (called a “Prebate,” since it is a rebate of taxes to be paid that month) to help them pay for the new tax they would be paying on all goods. Here is how our discussion went”

Tully: Governor, I have three questions about your Fair Tax proposal. First, given your proposal for a “Prebate,” aren’t you really just encouraging a society-wide sense of dependency on Government checks?

Johnson: “The Prebate would amount to $200/mo, or $2,400 a year…you can’t avoid paying taxes, so everyone would get a check up to the poverty level, and that would cover the amount of tax you’d be paying.”

[I found the response disappointing, and not at all on-point. He told me how it would work, but never addressed my question which was about creating a societal dependence on checks from the government.]

Tully: Second, at a time when consumer spending and confidence is at a low, wouldn’t the shock value of a large sales tax reduce consumer spending even more?

Johnson: “There might be a very temporary withdrawal of consumerism, but we’re going to have to buy food, we’re going to have to buy gasoline, we’re going to have to buy clothing”

[His response ignored the economic concept of Opportunity Cost. If I am spending more of my income on gasoline or food, then I will have to spend less on some other item somewhere. I understand the idea is that by eliminating an income tax, each worker would have more disposable income in their pocket because they wouldn’t have those deductions; but even Governor Johnson had to admit to a ‘temporary withdrawal of consumerism.’ That ‘temporary’ withdrawal would lead to decreased GDP, increased unemployment as businesses lay off workers because fewer products are being purchased, and lower consumer confidence over all – none of which would be helpful in this economy. In fact, a ‘temporary’ withdrawal might lead to a very long-term downward spiral.]

Tully: You claim that you would be able to eliminate the IRS through this proposal, but who would collect the Fair Tax and send out the prebate checks? States that have sales taxes still have Departments of Revenue to collect them.”

Johnson: “The prebate checks would be mailed by the Social Security administration…states that have sales taxes have agencies that collect them…it’s fairly easy.”

[Again, I was unsatisfied with Johnson’s response here. If the Social Security Administration – which currently sends out checks to retirees only – will have to send checks to every household, this will require a massive increase in the agency’s size. There will be abominable record-keeping as the agency tracks the moves, divorces, separation and deaths of every single American. The IRS might be abolished, but the SSA would have to take up the slack.

Further, *some* agency would have to receive and log and track sales tax receipts, which would be coming from every business in the United States. And – as has so often been the case in this poor economy, and as every state Department of Revenue will confirm – some agency will have to track down the thousands of businesses that will be late in sending this tax to the federal government (Cash-strapped businesses are notorious for using tax receipts to help with their own cash flow in poor economic times.) The notion that the IRS will just disappear and not be replaced by an even greater agency is unrealistic.]

Johnson has a decent track record as Governor, and in the private sector. He has Executive experience, and grew his construction company from one person to 1,000, the largest in his state. His opposition to the war on drugs and support for civil liberties makes him a likable candidate on social issues (certainly more likeable than any other Republican), and his fiscal conservatism was realistic and tested as Governor of New Mexico.

But his support for the Fair Tax is not well-thought through…or at least not well articulated...and not a campaign strength.