Mike Huckabee won the Iowa Republican caucuses last night, as certainly most everyone knows by now. Many may not realize, however, that Huckabee has taken a position in favor of the so-called "fair tax" (a national sales tax, which is claimed to be feasible at a 30% tax-exclusive rate) and also claims that adopting a national sales tax will permit abolishing the IRS. His website proclaims the possibility of an IRS "going-out-of-business sale."
For background information, you can see various earlier "consumption tax" posts about the issues here, and in particular my most recent post on the "Fair Tax" at this link.
The problems with the tax reform Huckabee supports are legion. The rate is unrealistic (even when expressed appropriately as a tax-exclusive 30% rate rather than as a 23% tax-inclusive rate). It would have to be much higher to account for the many items that won't be taxed (imputed rents, government expenditures), the rebates for a poverty-level consumption, the "reimbursements" to states to act as the federal tax collectors, and the loss from non-compliance by taxpayers and by withholding agents.
The idea of abolishing a federal tax agency is unrealistic. States cannot be forced to be the federal tax collectors, and their taxes are quite different from the proposed tax, so something will have to give. Most likely result--a new federal IRS-like agency that works on sales tax issues, audits, collection and enforcement to replace the current federal IRS.
States also are likely to increase their use of income taxes. So we might (might but likely not) get rid of the income tax in order to have a consumption tax (more likely we'd add a consumption tax component to federal taxation). But states would likely (probably) increase their reliance on income taxation. The result would be increased audit and enforcement issues at the state level, replacing possibly somewhat laxer audit and enforcement issues at the federal level. Not much of a gain for individual taxpayers.
Sales taxes are regressive. Income taxes can be (and ours is) progressive. The majority of Americans have long supported progressive taxation and have recognized that it is unfair to expect lower-income families to bear a proportionate share of the tax burden. The "fair tax" supposedly deals with this through rebating a poverty level amount to every single household (even Bill Gates would get one). But that's both arbitrary and complex. Children don't count for as much as adults. Single parents get the shaft compared to married couples. The amount won't cover real needs for poor and almost poor families since the poverty threshold is a 1960s number that doesn't really cover today's needs.
And the transition problems are enormous. People who've saved under one system would be taxed when they spend it under the new system, unless some kind of very complicated tracking system were initiated. Either fairness or simplicity would be thrown out the window, no matter what.
Of course, Huckabee doesn't get the description of the "fair tax" right, even given what the "fair tax" purports to be. He says, for example, that it is a tax on wealth. Not so. It is a tax on expenditures (consumption). (He says that later too.)
So did Iowans just not understand what Huckabee was talking about? Or did he just come across as folksy and down to earth, so they voted for that? Or did his use of his "Christian conservatism" win the day for him (see his website about his belief that faith belongs in politics)? I suspect it was some combination of all three. And each one of those possibilities is very disturbing. The first means that Americans continue to be too darned ignorant about policy issues that really matter. The second means that Americans learned nothing from the disaster of the Bush presidency, when a "good ol' boy" from Texas was elected with almost non-existent credentials for leading a superpower mainly because he projected a "just one of the folks" image (which was put on for the cameras--he's a rich kid, after all). The third is very worrisome--religion has taken an unprecedented role in public affairs under Bush, and Americans don't seem to heed the lessons that our founders paid particular attention to--that governments should stay out of religion and religion should stay out of government.
I'm crossing my fingers that this was a fluke and that Americans will know better than to buy this kind of tax hokem as the symbol of the regime change we need.
Note (added 1/7/08): See Tom Redburn, Huckabee's Tax Plan Appeals, But Is It Fair?, NY Times, Jan. 6, 2008.