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.
Actually, McCain has forcefully argued that we need to cut government spending, and that the lack of spending cuts is why he opposed the first round of Bush tax cuts, but let’s not split hairs. The basic point is right: the non-FairTax plans are in some respects worse than the FairTax.
So is there a better way? Yes, but it’s probably not a political winner. A few weeks ago I read Michael Graetz’s 100 Million Unnecessary Returns, in which Graetz renews his case for a comprehensive tax overhaul. At the risk of oversimplifying Graetz’s proposal, he calls for a 10-14 percent VAT that would fund an income tax exemption of $50,000 for single earners and $100,000 for married couples. Above that amount there would be a single rate of tax, 20-25 percent, for all income, including corporate income. The EITC and other measures designed to protect low-income families would be be replaced by refundable credits against payroll taxes.
The political danger is anti-VAT hysteria. Used in virtually all advanced industrial democracies, the VAT has been attacked as regressive and as a chillingly effective revenue-raising machine. Payroll tax credits and the elimination of income taxes for working families will keep the system progressive, and transparency will help keep the VAT from becoming an all-devouring tax monster. The relative efficiency of the VAT is often used as an argument against it, as though voters won’t resist VAT hikes.
The political promise is that the GraetzTax will deliver what the FairTax cannot: an income-tax-free existence for most Americans and a steady stream of revenue.