Fair tax

At long last, Huckabee's regressive sales tax plan is getting some attention.

Under the plan, Americans would pay only one federal tax, which would be applied to just about everything they buy: not just the goods people buy at stores on which most states assess a sales tax, but nearly all services, including health care and insurance, the purchase of a new home or rental of an apartment, even things like a teenager mowing a lawn or baby-sitting for a neighbor.

But the FairTax, as its many fervent backers call it, is not as simple as its supporters describe. And, to most tax experts who have looked at the proposal, it is anything but fair. For one, its burden would fall disproportionately on middle-income people.

Still, the plan has undeniable appeal. “There is a yearning across the political system to make the tax system better,” said William G. Gale, a critic of the proposal who is a leading tax economist at the Brookings Institution, the liberal-leaning research organization in Washington. “Right now the only people talking about tax reform are the sales tax advocates.”

Supporters, including a handful of tax experts like Laurence J. Kotlikoff, an economist at Boston University, contend that a rate of about 23 percent, applied across the board, would bring in just as much money to the Treasury as all the taxes the federal government now collects.

It is not the same as a normal sales tax, however. Under the proposal, the tax is included first. That means a $100 item would cost $130, or 30 percent more. The plan’s supporters say that works out as a 23 percent rate because $30 is 23 percent of $130. Americans would no longer face federal withholding from their paychecks. But most analysts say the tax rate necessary to replace current federal revenues, under any likely plan, would actually need to be much higher. By some estimates it could add 40 percent, if not more, to the cost of living.

Whatever the rate, critics say, a steep federal retail tax, piled on top of existing state sales taxes, would encourage widespread illegal tax evasion, black market transactions and other forms of cheating, creating a cycle that would require even higher tax rates.

What is irritating, though, is the constant repetition in the press that Americans are dissatisfied with federal tax policy. I know they're told they should be dissatisfied, but poll after poll indicates that, yes, it's complicated doing your taxes, but most people don't feel they pay too much. Paying a sales tax on their baby sitter, though, will surely leave them mighty unhappy.

Wait, check that. Some people are dissatisfied. Guess who?

“The public desperately desires a better way to collect federal taxes for the common good and recognizes the current system as both inherently flawed and then further corrupted by inside-the-Beltway machinations,” Leo E. Linbeck Jr., the multimillionaire founder of Americans for Fair Taxation, wrote in a recent letter defending the decade-old proposal. “It is understood by those who are joining our effort that overcoming the self-interest of the increasingly disdained Congress and the army of income tax system defenders is no small task.”

For Mr. Huckabee, the sales tax plan also helps provide political cover against attacks from antitax Republicans, who suspect, based on his actions as governor, that he might be tempted to raise taxes in the White House.

“It would certainly help limit runaway government spending,” Mr. Kotlikoff said. “Everybody would understand that there is a single tax: the government spends more, everybody’s tax rate will go up.”

Like any tax on consumption, the biggest burden, comparatively, would fall on the poor. To help compensate for this, the plan would provide a monthly check from the government to every American household, rich and poor alike.

The rebate amount would be set to equal what a household living at the poverty level would pay in taxes, leaving some of the poor better off and cushioning the proposal’s impact on the middle class.

But, apart from the administrative nightmares associated with giving every household a rebate, it would still not prevent transferring a substantial part of the current tax burden from those with annual incomes above $200,000, who tend to save a large part of their income rather than spending it, to those earning less.

And why would a federal sales tax be any more of a crimp on Congressional spending that the current system? We're not told.