Will New Hampshire Republicans Buy Into Huckabee's Flat Tax Plan?
A New Year's Day mini-shopping spree found me the new owner of a pea-green and day-glo orange nylon-webbed day bag. After a few hours of ownership, I regained my senses and returned it. With former Arkansas Gov. Mike Huckabee's breathtaking Iowa caucus victory, Republicans can be forgiven for experiencing a similar case of buyer's remorse.
Huckabee, a Southern Baptist minister, was until recently best known for rapidly shedding more than 110 pounds and hawking the diet guide Quit Digging Your Grave with a Knife and Fork. Huckabee roared onto the political scene in August with a second-place finish in the Iowa GOP's Ames Straw Poll. The surprising secret to that win? Huckabee's ministry of FairTax, a sales-tax-based overhaul of the American economic system. The Houston-based Americans for Fair Taxation (AFFT) bused in thousands of FairTax supporters to pave Huckabee's way to a strong finish, igniting the Huck-a-fire that tore through Iowa and races to New Hampshire for Tuesday's vote.
The FairTax (and yes, in advocates' preferred styling, it lacks a space) was first laid out in 2005 by Atlanta radio host Neal Boortz and Georgia congressman John Linder in their The FairTax Book. The plan dramatically reworks the way America fills its public coffers, shuttering the Internal Revenue Service and abolishing personal income taxes. Great! But wait, um, how are we supposed to fund the federal government? The FairTax answer: with a 30 percent sales tax on everything we eat, drink, buy new or otherwise consume.
Huckabee swoons over the FairTax on the campaign trail. On his official website -- where FairTax is the long and the short of his "economic plan" -- Huckabee calls the proposal "like waving a magic wand releasing us from pain and unfairness." More soberly, the Wall Street Journal has called it "the most radical reform imaginable," in part because it seeks to repeal the 16th amendment ("the Congress shall have power to lay and collect taxes on incomes").
The 2008 presidential race's compressed scheduled gives Granite State Republicans -- and, importantly, independents who can vote in either party's primary -- less than a week to make sense of the new GOP frontrunner's economic gamble. Huckabee knows well that selling a 30 percent consumer tax in the famously income-tax and sales-tax free state will require hurried and skilled salesmanship. Said Huckabee while discussing FairTax on CBS's Early Show the morning after his Iowa win, "We only have a few days to close the sale."
Huckabee will have to hustle to get New Hampshirites to swallow "prebates," the government checks that, under the plan, Uncle Sam will hand over to each and every American each and every month. The way a FairTax regime works, a single person is allocated an annual "consumption allowance" of $10,210 and receives a monthly government payout of $196. A married couple with two children, a $27,380 annual allowance and $525 monthly check. So, sure, the FairTax would do away with the dreaded Internal Revenue Service. But some behemoth government agency is going to be charged with making sure we get our $400 billion or so in payout checks each year.
These government checks are the attempt by FairTax advocates to assure skeptics that the American tax regime will stay progressive -- with the greatest burden on the wealthiest among us. AFFT argues that "wealthy people" buy more and better anyway: "filet mignon instead of hamburger, fine wine instead of beer." But prebates function as a safety mechanism, allocating each American an allowance that gives a tax break to the essential goods (say, food and drink) and services (say, childcare) consumed before he or she crosses federal poverty line.
Prebates are a bedrock component of FairTax. But they're one of the few cut-and-dry things about the plan. Take that 30 percent tax rate itself, for example. FairTaxers, Huckabee included, pitch FairTax as a 23 percent add-on to the cost of goods and services. How do they arrive at that lower rate? By calculating it as "tax-inclusive." That's how we think of income taxes taken from our paychecks. But it's the way no human being understands sales tax.
Think of it this way. Tomorrow afternoon Huckabee will be the guest of honor at the Chowderfest Meet-and-Greet at The Lobster Tail in Windham, New Hampshire. Today, 14 bucks gets you a Lobster Tail lobster roll. But say Huckabee were to indeed wave his magic wand during Chowderfest and enact the FairTax. The register price of that same seafood sandwich would be $18.20 -- with the added $4.20 going to the federal government. Now, $4.20 is 30 percent of the price of a $14 lobster roll, making the FairTax sure look like 30 percent. But a FairTaxer would argue that $4.20 is actually a mere 23 percent of the $18.20 final cost of the sandwich, justifying the lower tax rate they regularly cite.
Confusing, no? And that $18 lobster roll should give us pause when we reflect upon what will happen to American buying habits when post-FairTax prices on all consumer goods are simultaneously jacked up what will look (to most of us, at least) like close to a third over the pre-FairTax price.
What will happen to consumer spending, the fuel that makes the American economy go, is only one question raised by Huckabee's plan. Can a 30 percent consumption tax recreate the same revenue stream our current tax system generates? What effect dropping tax breaks like the Child Tax Credit and mortgage payments will have on the middle class -- for whom existing tax credits and deductions can make the difference between a decent financial year and a painful 12 months?
What's alarming is that such FairTax mysteries seem to stump Huckabee, who's attempting to ride through New Hampshire and to the White House on the scheme's back. An otherwise sympathetic profile by Zev Chafets in last month's New York Times Magazine said of the FairTax: "Huckabee does not have an impressive grasp of its details. When I suggested, for example, that consumers might evade the tax simply by acquiring goods and services for cash on the black market, he seemed genuinely surprised."
Huckabee's embrace of the FairTax may have been a Sophie's choice, opting for an anti-tax proposal to get fiscal conservatives off his back in the early states. Huckabee has been roundly attacked for his record in Arkansas, with the Club for Growth flagellating him last January for his "profoundly anti-growth positions on taxes, spending and government regulation." The powerful conservative organization ended its report with this zinger: "Calling oneself an economic conservative does not make one so."
Huckabee's FairTax embrace gave his campaign a chance at life by self-identifying as the fiscally toughest cowboy in the Republican race, buying him a ticket through Iowa in the process. But Huckabee's gambit may not work for long and the FairTax's wild ride may end in New Hampshire -- where the Baptist minister's religious gleam is far less distracting than it was in Iowa. Former Reagan economist Bruce Bartlett has gleefully mocked the plan in the pages of the Wall Street Journal, calling the FairTax "too good to be true." With Huckabee squarely in his sights, Bartlett cautioned voters to "not take seriously any candidate who supports it." Ouch.
Iowa voters rolled the dice on Huckabee and his FairTax plan. But the Granite State is home to a very different electorate, and closing on his FairTax plan there won't be easy. On Tuesday, we'll see if New Hampshire voters are buying what Mike Huckabee has to sell.