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Someone Tries To Defend The Fairtax. Bad Idea.


A few weeks ago, in a column about Mike Huckabee, I took note of his crazy plan to replace the income tax with a federal sales tax:*

It is difficult for me to find the words to explain just how crazy this idea is. The national sales tax is crazier, by an order of magnitude, than any other crazy idea I've seen at the national level. It's so crazy that even really crazy right-wingers think it's pretty crazy.

I probably understated the case, but sometimes that happens when you're working with space constraints. Basically, trying to explain why the Fairtax is a bad idea is like trying to explain why having trained elephants perform open-heart surgery on every first-grader in America is a bad idea. The whole idea is one bit of lunacy stacked upon another, so when you focus on any one element of it, you let the other side suck you into into arguments about details--Maybe there could be benefits to preemptively fixing the hearts of six year olds! Perhaps elephants do have the potential intelligence to one day perform this task!!--that inadvertently make the plan sound semi-credible.

Basically, the main problems of the Fairtax are:

1. It would be massively regressive (though some conservatives consider this a feature, not a bug)

2. Every customer and every merchant would have the incentive to evade the tax on every sale ever made. It could not be enforced unless you had tax collectors posted in every business in America, and possibly not even then, and would probably lead to an explosion of black-market sales and other evasion that would turn the American economy into something resembling a post-Soviet Republic.

If you want to read about these problems in greater detail, conservative Bruce Bartlett has more here.

Anyway, right-wing University of Rochester economist and Slate contributor Stephen Landsburg steps up to defend the Fairtax in Slate today as "brilliant." Landsburg's defense focuses on two points:

1. A sales tax would tax consumption, and there are many forms of consumption tax that economists approve of, such as unlimited Individual Retirement Accounts.

2. It's theoretically possible, perhaps through the development of some currently-unavailable technology, for a national sales tax to charge higher rates to rich people. ("Yes, there are a lot of details to be worked out," Landsburg concedes.)

So the only treatment of the regressivity issue is to float the possibility of some as-yet unidentified technological breakthrough to allow a graduated sales tax. And of course this technology would have to have strong anti-cheating measures to prevent the overwhelming incentive for rich people from enlisting poor people to buy things for them at the lower sales tax rate and split the savings between them. Landsburg has absolutely nothing to say about the enforcement issue.

Look, I'm sure the idea of abolishing all progressive taxation is attractive to Landsburg's libertarian philosophy. But if he wants to make the poor and middle class pay a higher share of the tax burden, there are ways to do it that aren't totally insane.

Update: The first line of this post has been corrected. It originally said, "...his crazy plan to replace all federal sales taxes with an income tax."

--Jonathan Chait