Huckabee’s sales-tax idea could be his Waterloo
December 25, 2007 Leave a comment
Being it’s Christmas Eve and all, and many people are doing their last-minute shopping at retail malls across the nation, it seems an appropriate moment to talk about sales tax, specifically Mike Huckabee’s embrace of a national sales tax and what it may mean for his quest for the Republican presidential nomination.
In short, it probably means trouble for him down the road.
Janet Hook of the Los Angeles Times has a piece today that’s well worth reading on how his embrace of a 23 percent national sales tax, the so-called Fair Tax, to replace the income tax helped give Huckabee some momentum at a critical time in the process.
As Hook reports, The focused efforts of a single-issue group FairTax.org helped Huckabee come in second in the Iowa straw poll last August to Mitt Romney, which made many a political reporter and probably some Iowa Republicans take Huckabee, a former Arkansas governor, more seriously.
So it played in Waterloo, Iowa. But it could wind up being his Waterloo, period.
Why? As Hook also writes, most knowledgeable students of the nation’s tax system and its fiscal policies don’t take the idea of replacing the income tax with a national sales-tax very seriously.
Also, while many Americans may not understand the fiscal esoterica involved, when the experts’ criticisms filter through, as they inevitably will, there likely won’t be a big groundswell for so massive a change in the nation’s tax philosophy. And for good reason.
Independent analyses have concluded that the tax would have to be far higher than 23% to maintain the government at current levels — especially if Congress did not eliminate popular tax breaks, such as the mortgage-interest deduction. William G. Gale, a tax expert at the centrist Brookings Institution think tank, estimates that the levy could run as high as 50% — a tax so steep that it would be an invitation to mass tax evasion.
“It’s a crackpot plan,” said Bruce Bartlett, a conservative economist and former Treasury Department official who is a leading critic of the sales tax. “Anyone who supports it should not be taken seriously.”
That kind of devastating criticism is balanced in Hook’s story, as one would expect, by the arguments made by national-sales tax boosters.
Proponents of a national sales tax say it would be an improvement over the current system because it would increase the incentive to save, by taxing money spent instead of money earned. Also, the proposal would rid the tax code of its myriad loopholes and would free taxpayers and businesses from the time-consuming, often costly task of preparing annual tax returns.
“What we would do with the fair tax is to eliminate all the taxes on productivity, which means you could earn anything you want,” Huckabee said. “You wouldn’t be penalized for saving, earning, for having a capital gain, making an investment.”
Huckabee and Fairtax.org call for a 23% tax on virtually all purchases in place of federal income taxes, as well as payroll taxes to fund Social Security and Medicare.
To ease the effect on the poor, they propose a “prebate” — a monthly cash payment to every family — to cover sales taxes on spending up to the federal poverty level.
Here’s the problem for Huckabee. A national sales tax won’t work to fund the U.S. government at current levels.
There may be some who think the government is too big who would welcome starving it of resources and see a national sales tax as a step to that end.
But it’s interesting to note that even Grover Norquist, the leader of Americans for Tax reform, who has stated goal of “strangling the government in the bathtub” opposes the national sales tax as even more confiscatory in his view than the present income-tax system. Hook mentions his opposition in her story.
The sales-tax folks rail against the loopholes in the current tax code. But their grievances are nothing compared to the caterwauling that would occur if all the loopholes in the present code were abolished.
Those loopholes were put in the tax code over many decades by thousands of lobbyists for industries, charities, unions, churches, you name it, whose successors would put on a fight like few witnessed in the nation’s capital if their beloved tax deductions were threatened.
And we’re not even talking about the din that would be raised by states, most of which see the sales tax as an important source of revenue and wouldn’t take kindly to the federal government horning in on an area they’ve seen as theirs.
This 2005 paper lays out in great detail the challenges states would face under a national sales-tax regime.
The negative impact on states makes it curious, then, that Huckabee as a governor has embraced the national-sales tax idea.
It raises the obvious question as to whether his support for such a tax is in part an effort to neutralize the attacks on his record as Arkansas governor which includes tax increases he supported although, in fairness, he also cut some taxes as well.
Given the fringe nature of the national-sales idea, any candidate who has a national-sales tax at the center of his or her economic program is going to be seen by many voters as unrealistic, to put it politely.
With the Huckamania that currently exists, a lot of voters probably haven’t focused on Huckabee’s stated desire to deep six the current tax code and install a national-sales tax.
But when they do, it likely spells trouble for Huckabee, who hasn’t really given himself a lot of wiggle-room on the issue. If he changes his mind under pressure, assuming he survives the early caucus and primary states, he’ll be easily labeled a flip flopper.
In any event, there’s no national sales-tax yet. So shop away on this last shopping day before Christmas.