Mike Huckabee wants to abolish the IRS

His loopy tax plan would be an economic disaster -- but it's more honest than the schemes being peddled by the establishment Republican candidates.

By Brad DeLong

Read more: Republican Party, IRS, Mike Huckabee, Taxes, Opinion, Tom Tancredo, Duncan Hunter, 2008 election, ron paul, Mike Gravel

Reuters/Andy Clar

Republican presidential candidate Mike Huckabee at a news conference in Des Moines, Iowa, Dec. 31, 2007.

Jan. 7, 2008 | For a generation Republicans have won elections by promising to do something new -- and usually strange -- to America's tax system, and by making wild and improbable claims about how great what they propose will turn out to be. This was how Ronald Reagan rode to victory in 1980 with his tax cut plan -- a plan that his own vice president and successor to be, George H.W. Bush, dismissed as "voodoo economics." This was what George W. Bush did back in 2000 when he claimed that faster economic growth would be guaranteed by yet another tax cut for the rich. And this is what Republican presidential front-runner Mike Huckabee is doing today with the "FairTax": a plan to replace the income tax and the Internal Revenue Service with a nationwide federal sales tax.

From one perspective, you have to wish Huckabee, and the other FairTax backers in the Republican field, well. All of the GOP's second-tier candidates -- Alan Keyes, Duncan Hunter and Ron Paul -- are FairTax proponents, as was the recently departed Tom Tancredo. The other major Republican candidates, including John McCain and Mitt Romney, are all singing the same old song. They are promising a) income tax cuts and b) expanded government services because c) they are willing to claim that cutting income tax rates will trigger so much extra economic growth that revenues will not suffer but will instead expand. One way or another, all the GOP front-runners except Huckabee are lying. They are either a) lying to their supporters who want tax cuts or b) lying to their supporters who want expanded government or c) lying to everybody, perhaps themselves included.

Huckabee, to his credit, doesn't think this is a good game to play.

This view, however, leaves Huckabee and company at a disadvantage. They need to distinguish themselves somehow from the establishment candidates with better organizations and more media visibility. But they don't want to find themselves in the future in the place where George H.W. Bush found himself in 1990. Two years after running for president on a promise that he would block any tax increase by telling congressional Democrats, "Read my lips, no new taxes," he was forced to raised taxes. Huckabee et al. need a new game to play.

Enter the FairTax. It promises to be a game changer. It would abolish the IRS and all current federal taxes, including Medicare, Social Security, and personal and corporate income taxes, and replace them with a national, across-the-board, 23 percent point-of-purchase retail sales tax. It would also give each household a multi-thousand-dollar "prebate" every year on their expected annual taxes and exempt people living below the poverty line from taxes altogether.

The FairTax asks: Don't we all hate the IRS? Don't we wish it would just die? And once Huckabee has made the don't-we-all-hate-the-IRS move, his establishment competitors are suddenly thrown on the defensive. They are the defenders of the hated IRS. They are the people who applaud when the IRS audits you. Cynical on the part of Huckabee? Surely. Dishonest? Somewhat. But remember that this move of Huckabee's is less cynical and dishonest than the standard Republican line on how tax cuts raise revenue, which the other front-running GOP candidates are still mouthing.

From another perspective, however, you have to scorn Huckabee. He is adding yet more layers of confusion to America's conversation about taxes. Huckabee says that the FairTax would mean a 23 percent sales tax rate on all items. First of all, the real tax rate proposed is 30 percent. The FairTax would add 30 cents to every dollar spent, but since 30 cents is 23 percent of $1.30, the FairTaxers call the rate 23 percent.

Second, and more important, both conservative and liberal economists believe the real rate would end up even higher. Estimates of the actual rate of taxation required for the FairTax to be "revenue neutral" (meaning for it to bring in exactly the same amount of revenue that the federal government collects under the current system) start at 30 percent and keep climbing. William Gale of the liberal Brookings Institution think tank says it's a de facto 44 percent sales tax. Calculations go still higher once you add in all the necessary and politically inevitable exemptions on big-ticket items -- like a new home or hospital care. Congress' Joint Committee on Taxation, which draws members from both parties and both houses, says the real rate would be 57 percent. (And this leaves aside the enormous federal outlay required by the "prebates," which even FairTax advocates say would cost the government $485 billion per year.)

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