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The Role of the FairTax in Huckabee’s Win

By: Gerald Prante

Time Magazine’s campaign blog had an interesting article today analyzing the role of the grassroots organization of the FairTaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. in Mike Huckabee’s big victory on Thursday in Iowa. The article also provides a nice brief historical context for the FairTax, and is rather favorable of it. Here’s a portion:

Mike Huckabee’s victory in Iowa Thursday was a big victory also for the “Fair Tax,” the radical revamping of the federal tax code that he endorses. And while Huckabee’s Iowa win may be a one-off, one gets the feeling that the Fair Tax campaign will be with us for a while. The resurgent John McCain is mildly supportive of it as well. And the legions of Fair Tax fanatics aren’t going anywhere.

The Fair Tax is a proposal to abolish the Internal Revenue Service, throw out all existing federal taxes and replace them with a 30% nationwide retail sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. that would, it is hoped, raise about as much as income taxes, payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. es, excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es and the lot do now. You’ll hear a lot of the Fair Taxers saying it’s a 23% tax, which it is, if you think of it like an income tax. (No use getting bogged down in that here; I’ll explain at the bottom of the post.)

Anyway, on the occasion of Huckabee triumph, I called up Leo Linbeck Jr., the Houston businessman who together with two friends launched the Fair Tax movement just over a decade ago. I’m not sure what I expected from the conversation–maybe a little gloating over the Iowa results, I guess. What I got was two hours of mostly fascinating discourse, ranging from tax theory to feudal nature of modern Washington D.C. to the ideas of philosopher/theologian Michael Novak.

The Fair Tax got started like this, Linbeck told me: Three old rich men in Houston talked over lunch in 1995 about what they could do to leave the country better off before they died. They hit on reforming the tax system, and in particular simplifying it, as a worthy goal. “I’ve been a beneficiary of the complexity of the tax code,” is how Linbeck puts it.

While the Tax Foundation does not officially endorse the FairTax, it is nice to see tax reform on the agenda in the 2008 presidential election, regardless of who the candidates are and what tax reforms they are proposing.

For a less sympathetic view of the FairTax compared to this Time Magazine blog, here is a recent podcast we conducted with one of its biggest critics, Bruce Bartlett. Also, last year, we conducted a podcast with its leading academic supporter, Laurence Kotlikoff.l