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Monday, January 07, 2008

Brad DeLong on Huckabee's FairTax Proposal

Can Mike Huckabee use hatred of the IRS to convince the majority of voters to vote against their own economic self-interest and shift the tax burden from those making over $200,000 to those making less than that amount? Brad DeLong says that with the help of a press that refuses to say much about the substance of policy leaving many voters uniformed about the consequences of the proposal, perhaps so:

Mike Huckabee wants to abolish the IRS, by By Brad DeLong, Salon: ...Republican presidential front-runner Mike Huckabee is [proposing]... the "FairTax": a plan to replace the income tax and the Internal Revenue Service with a nationwide federal sales tax. ...

The ... FairTax ... 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. ... 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. ... Second, and more important, both conservative and liberal economists believe the real rate would end up even higher. ... 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"...)

Also, Huckabee calls his proposal a "fair" tax. But it's a mammoth tax cut for the crowd making more than $200,000 a year and a substantial tax increase for those making between $30,000 and $200,000 a year. Does this make economic sense? It is hard to see how...

Does the FairTax make political sense? It is hard to see how -- at least not if people know what he is really proposing. After all, a lot more people make between $30,000 and $200,000 a year than make more than $200,000. ...

So why is Huckabee doing this? I believe ... he is counting on people not knowing what he is really promising. I believe he is counting on the nigh total fecklessness of America's press corps -- a fecklessness that I at least now see as deployed with a sharp partisan edge. ...

Huckabee is a Republican. And it is different if you are a Republican. The New York Times in its big Huckabee profile by Zev Chafets said:

Huckabee's answer to his opponents on the fiscal right has been his Fair Tax proposal ... Governor Huckabee promises that this plan would be "like waving a magic wand, releasing us from pain and unfairness." Some reputable economists think the scheme is practicable. Many others regard it as fanciful ... In any case, the Fair Tax proposal is based on extremely complex projections.

And that's all the crack journalism of the New York Times has to say. If you are seeking information in a daily newspaper, look elsewhere...

Since America's mainstream press believes that it cannot talk about the substance of policy, about who actually would gain and who would lose from a shift to a national sales tax -- that, you see, depends on "extremely complex projections" -- the only point to grab onto when talking about the national sales tax is that it eliminates the IRS. And that sounds very good. And sounding very good is what Huckabee is counting on.

But what replaces the IRS? What agency administers a national sales tax? ... [T]his FairTax selling point is bogus too. The FairTax doesn't eliminate the IRS. It replaces the IRS with another agency -- the United States Fair Tax Federal Revenue Administration and State Tax Authority Reconciliation Service, or the USFTFRASTARS. It is true that the USFTFRASTARS doesn't audit individuals -- it audits businesses and state governments instead. This is a good thing for the $200,000-plus crowd: They are the ones who get audited, and so they get both a big tax cut and greatly increased peace of mind. But this is not a good thing for everybody else. The administrative and enforcement burden does not go away but, rather, becomes even more complicated.

Is Huckabee's FairTax smoke and mirrors? Yes. Is it voodoo economics? Yes. But remember one more thing: It is more reality based than the proposals of the establishment Republican candidates.

Given all the deceptions in Huckabee's FairTax proposal (more here, here, and here), and the actual substance of the plan, I'm not so sure Huckabee deserves to be elevated above the rest of the Republican candidates.

    Posted by on Monday, January 7, 2008 at 10:06 AM in Economics, Politics, Taxes | Permalink  TrackBack (0)  Comments (46)

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