Megan McArdle had a good post yesterday on the subject of the FairTax, prompted by Kriston Capps's question here. She very ably answers the question of why the FairTax should be rejected even by those (like me) broadly sympathetic to the basic idea that it's preferable to tax consumption (which is, in essence, what one takes out of the economy) rather than income (which is what one puts into it).
There are at least two compelling philosophical arguments to be made, in additional to the practical ones like the likelihood of widespread tax evasion. One, which I think Megan is too hasty in rejecting, is that savings confer some amount of utility owing to the sense of economic security they provide, and hence should be fair game for taxation. (Megan accepts the notion that we don't want a tax code that's regressive with regard to utility, so I'm a bit puzzled as to why she apparently doesn't think savings should be taxed.) It's true that the federal government needs to do more to get Americans to save at greater rates, but to completely exempt savings from taxation would be to swing too far in the opposite direction.
More importantly, though, Megan highlights what she calls the "the biggest problem, to my mind, with the fair tax." It is that
The tax's main virtue is its simplicity--it is a backdoor way to accomplish bipartisan goals like tax simplification. But that simplicity would never survive the political process. The prebate would be set too low to be progressive, or too high to raise much revenue; vast swathes of goods would end up exempted (medical supplies! new homes! baby products!); and the compliance process would get progressively more complicated in order to catch evaders. In the end, everyone except Steve Forbes would be begging for the return of the income tax.
It's important to emphasize the degree to which the FairTax is, like much of the GOP's economic platform, a thoroughly un-conservative proposal. It envisions a sudden, wholesale restructuring of a central pillar of the country's economic order. It places immense faith in the ability of government to effectively manage a very complicated, largely unprecedented transition process. To me, this--rather than his public professions of faith or his modest tax increases as governor--is what's most troubling about Mike Huckabee. He seems, at once, startlingly uninformed about the details of how the federal government operates but nevertheless serenely confident that his policy proposals, such as they are, will achieve his stated aims without much trouble. I'm not sure how effective of a political argument against him this is going to be for John McCain in South Carolina, but there must be some way of making hay out of it.