
Republican presidential candidate Mike Huckabee's surge in the polls is due in part to support provided to him by fanatical advocates of the so-called "FairTax." (See, for example, an analysis in today's Washington Post.)
Many things disqualify Huckabee to be president. There is the fact that, in the very first Republican debate, he was one of only three candidates who raised their hands to say that they did not believe in evolution—an indication of his willingness to elevate religion over science. Then there is the fact that he thinks international affairs can be described by analogies to high-school popularity contests.
But arguably the worst idea peddled by Huckabee is the "FairTax." Commentators have been toying with many plays on Huckabee's name (describing his personal charm as "Huck-appeal," for example), but the only one that really ought to stick is: "Huckster." He is selling us, as a way to lift the burden of the IRS, a fraudulent, dangerous political diversion.
The whole style of the argument for the "FairTax" begins with its name, which is an obvious attempt to force us to accept a positive evaluation of the proposal the moment we begin talking about it. It amounts to the following argument: Why should we think the FairTax is a fair tax? Because that's what they named it! This is a proposal that begins by insulting our intelligence, treating us like a bunch of rubes who can be manipulated by the crudest political ploy.
So let's just call this proposal by an actual, objective, descriptive name: it's a national sales tax.
Commentators on the right have already done a good job of dissecting the many fraudulent claims about this tax. Bruce Bartlett, for example, describes the legerdemain used by FairTax advocates to sell us a 30 percent national sales tax as if it were a 23 percent tax. In fact, the best estimates for the actual sales tax rate required to replace current federal revenues—which is what Huckabee claims the tax will do—is about 57%.
And the problems go on and on. The national sales tax would replace a system that places a disproportionate burden on the rich with a new system that places a disproportionate burden on the poor, who spend a higher percentage of their income than the wealthy do. And as one reader pointed out to me, the national sales tax would wallop retirees. "People like me who have spent a lifetime paying income tax and saving, now face a new large tax on spending—a double tax."
Even worse is the proposed solution to these problems: to relieve the burden of the poor, the FairTax would have the government send everyone in the nation a monthly welfare-style check to help us meet our basic needs. Huckabee wants to put the whole nation on the dole.
And what about the biggest benefit claimed for the FairTax—that it would eliminate the IRS? But this only means that state or federal governments would have to create a whole new tax enforcement bureaucracy to further harass and persecute retailers. And what about all of the sales carried out by individuals, on eBay or at flea markets—sales that would now be considered illegal black market transactions? If you hate the IRS, boy are you going to hate the new tax police tasked with enforcing a national sales tax.
And speaking of the black market, when I first heard the national sales tax idea in the early 1990s, I found that a number of economists had done studies on collection rates for sales taxes. The results were pretty consistent: it is possible to collect sales taxes up to a rate of about 12 or 13 percent. Above that, retail transactions quickly move into a burgeoning black market. The incentive to avoid taxes is too high, and the ease of doing so is too great.
These (and other objections) are all valid. But I think the worst effect of a national sales tax is the simple fact that it is radically new and would require a vast restructuring of the economy over the period of at least a decade—and all for nothing.
It would take years of uncertainty for the government even to set up a new tax system, to overhaul that system repeatedly as it discovers new flaws, loopholes, and unanticipated consequences. And because it is impossible to predict with any accuracy the revenue produced by a totally new and untested tax system, Congress would have to spend a decade re-adjusting the national sales tax rate in an attempt to raise a sufficient amount of revenue.
And that's just the government. It would take at least as long for individuals and businesses to figure out how the new tax system works and to restructure their operations so they are still capable of operating under the new system. The only virtue of our current tax system is that it has been around so long that everyone has managed to adapt to it and find a way to survive and grow despite the drain of federal taxes. All of us—businesses and individuals—would have to start that process over again completely from scratch.
Of course, every significant reform requires the individuals and businesses to readjust their expectations—but this only means that we had better make sure that such a change accomplishes an important reduction in the burden of government. Yet FairTax advocates insist that their scheme is designed to bring in exactly as much revenue as the existing system.
In short, changing the whole tax system from the bottom up is a proposal for decades of economic chaos—and for what, if it's not going to significantly reduce the size of government?
This is the real fraud behind the FairTax. For all of the boasting talk about eliminating the IRS, the FairTax is not actually an attempt to reduce the burden of government on our lives. It's just an attempt to shift that burden into a different form. It's an attempt to make us think that our problem is the wrong kind of taxes, when our problem is too much taxes.
And here we reach the purpose of the FairTax fraud. It allows Huckabee to pose as an anti-tax crusader—and to commandeer the energy of an existing grass-roots anti-tax organization—while still allowing him to accept and even expand the whole bloated edifice of the middle class welfare state.
And that brings me to the one criticism of the FairTax that I don't agree with: that it is quixotic and politically impractical. According to this criticism, the FairTax is a dead letter because Congress is never going to vote to repeal the 16th amendment and eliminate the IRS.
But there are many political goals that may seem quixotic. This only means that they will take decades, even a lifetime of patient work to promote. But if you're going to spend decades tilting at windmills, it had better be to achieve something important. In my view, there is only one big crusade, on the issue of taxes and spending, that qualifies: the privatization of Social Security.
Social Security and the other "middle class welfare" program, Medicare, are the largest drivers of runaway federal spending and thus of the ever-increasing taxes required to support that spending. I can remember when the idea of privatizing Social Security seemed utterly impossible. Social Security was "the third rail of American politics": touch it and you die. And yet every few years, decade after decade, privatization has gotten closer and closer to being seriously considered. A few years ago, President Bush promoted in Congress a first incremental step to privatization. The death of that proposal indicates that privatization is still a long way away—but it's closer than the FairTax, and much more worthwhile.
But to get there we have to have a clear idea of the real tax and spending problem we face: too much taxes, supporting too much spending, providing too many unearned benefits—particularly the vast array of subsidies for America's prosperous middle class. We have to realize that the problem is too much government, and the solution is to reduce the size of government.
In short, we need ideological and moral clarity—rather than the hucksterism Mike Huckabee and his FairTax fanatics are offering.