There are many things to dislike about Mike Huckabee’s proposal for a 30% national sales tax, the so-called Fair Tax, such as the fact that it’s thoroughly regressive. (It would lower taxes slightly for the poor, lower them tremendously for the rich, and raise them significantly for the middle class.) But I just want to observe a curious example of fuzzy math in the discussions of this proposal. As an example, consider this sentence from Saturday’s Chicago Tribune:
On Friday, the first of two days of campaigning in Michigan, Huckabee used the Detroit Economic Club as a platform to push his support for the so-called fair tax that would replace the income tax with a 23 percent national sales tax.
This figure of 23% is being thrown around a lot — you’ll find it all over the Web — so you may wonder how 30% magically became 23%. Here’s how:
Let’s suppose you buy a product for $100.00 and pay a $30.00 tax; that would be a 30% tax rate, wouldn’t it? Well, it would be 30% in my classroom, and even on the MCAS, so where does 23% come from? It’s simple: $30.00 is 23% of $130.00. Let’s apply that same theory to discounts: Apple offers a 10% discount on a new iPod if you recycle your old one, so they charge you $134.10 for a $149.00 model. But under the Huckabee model they should be allowed to call it an 11.1% discount, since you saved $14.90 out of an eventual price of $134.10. It’s nice how percents can be slippery, isn’t it?
Percents are always calculated on the original amount, regardless of whether we’re talking about taxes or discounts.