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Radical sales tax plan fuels Huckabee’s swift rise

Times Staff Writer

Mike Huckabee, one of the most conservative Republicans in the 2008 presidential race, has embraced one of the most radical ideas on the campaign trail: a plan to abolish all federal income and payroll taxes and replace them with a single 23% national sales tax.

The idea -- dubbed the “fair tax” by proponents -- has been a political asset for Huckabee; its well-organized backers have helped catapult him from the back of the presidential pack to its top tier.

Sales tax proponents have tapped into seething voter hostility toward the Internal Revenue Service to become a below-the-radar political force, popping up at campaign events and candidate forums in Iowa and elsewhere.

The efforts on Huckabee’s behalf by sales tax advocates helped spur his surprise second-place showing in an August Iowa straw poll -- the breakthrough that marked the beginning of his rise in the state and nationwide.

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He is the only major presidential candidate to make the idea central to his campaign. “The first thing I’d love to do as president: Put a ‘going out of business’ sign on the Internal Revenue Service,” he said at one debate.

Some wonder, however, whether his embrace of the plan eventually could turn into a liability.

The sales tax proposal has been around for years but languished on the fringes of practical politics and policy. Tax professionals generally regard the idea as impractical, regressive and even “crackpot,” as one critic puts it.

It has gone nowhere in Congress. The 2005 Presidential Advisory Panel on Federal Tax Reform soundly rejected the idea. And many politicians shy away from it because it is easy for opponents to portray it as a huge tax increase -- as Democrats did in a 2006 Senate race in South Carolina.

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The front-runner, Republican Jim DeMint, faced an unexpectedly stiff contest because of his support for a national sales tax. “DeMint wants an extra 23% on nearly everything -- gas, food, clothing,” one Democratic ad said.

DeMint responded that his position was being misrepresented, but he still suffered a sharp decline in the polls. He won in the end, but what many thought would be a cakewalk for him turned into a cliffhanger.

Grover Norquist, a conservative activist who, as head of Americans for Tax Reform, pushed candidates to take a no-tax-hike pledge, said promoting a national sales tax in the presidential election would be “political poison.”

Still, the proposal inspires grass-roots passion, in large part because it would replace or abolish the Internal Revenue Service, one of the most hated federal agencies and a symbol of intrusive government in some conservative circles.

Among the early advocates of a national sales tax were members of the Church of Scientology, a group that battled the IRS for years to gain recognition as a legitimate religious institution eligible for tax-exempt status. Church leaders backed the establishment of Citizens for an Alternative Tax System in 1990 to advance the cause of replacing the income tax with a national sales tax.

Eventually, the church won tax-exempt status and the group faded. But the issue was taken up by another group, Americans for Fair Taxation -- better known as Fairtax.org -- founded in 1995 by a group of Texas millionaires.

Proponents of a national sales tax say it would be an improvement over the current system because it would increase the incentive to save, by taxing money spent instead of money earned.

Also, the proposal would rid the tax code of its myriad loopholes and would free taxpayers and businesses from the time-consuming, often costly task of preparing annual tax returns.

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“What we would do with the fair tax is to eliminate all the taxes on productivity, which means you could earn anything you want,” Huckabee said. “You wouldn’t be penalized for saving, earning, for having a capital gain, making an investment.”

Huckabee and Fairtax.org call for a 23% tax on virtually all purchases in place of federal income taxes, as well as payroll taxes to fund Social Security and Medicare.

To ease the effect on the poor, they propose a “prebate” -- a monthly cash payment to every family -- to cover sales taxes on spending up to the federal poverty level.

‘Crackpot plan’

Critics argue that this aspect of the plan would create an unwieldy new government program akin to welfare.

A report by the president’s tax-reform panel said such a program could cost $600 billion a year -- “which would make it America’s largest entitlement program,” the report said.

Even with the subsidies to poor families, critics argue, the tax would primarily benefit the rich because they save the largest share of their income.

Independent analyses have concluded that the tax would have to be far higher than 23% to maintain the government at current levels -- especially if Congress did not eliminate popular tax breaks, such as the mortgage-interest deduction.

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William G. Gale, a tax expert at the centrist Brookings Institution think tank, estimates that the levy could run as high as 50% -- a tax so steep that it would be an invitation to mass tax evasion.

“It’s a crackpot plan,” said Bruce Bartlett, a conservative economist and former Treasury Department official who is a leading critic of the sales tax. “Anyone who supports it should not be taken seriously.”

Ken Hoagland, communications director for Fairtax.org, said critics had financial and professional interests in continuing the current tax code.

The group has spent about $2.5 million to mobilize supporters in early caucus and primary states, and plans to spend $1 million more in coming months.

As a nonprofit, it cannot endorse a candidate. But it lets people know where the candidates stand -- and that Huckabee is a particularly strong backer of the tax.

Thousands attended a May rally in South Carolina promoting the sales tax plan, just before the GOP candidates met for a debate there.

None of the then-leading candidates accepted the group’s invitation to speak at the gathering. But Huckabee -- at that point still a dark horse in the race -- did speak and for the first time endorsed the group’s plan.

“I have a dream that one day in this country . . . April 15 will just be another beautiful spring day,” he told the cheering crowd.

A boost in Iowa

The group’s biggest push was in Iowa leading up to the August straw poll. Fairtax.org advocates hit the talk-radio circuit. The group aired a radio ad featuring a jackalope -- a mythical animal -- with the tag line: “Real tax reform shouldn’t be as mythical as a jackalope.”

It sent stuffed jackalopes to every political reporter in Iowa. It hosted an open-bar reception at a major spring political dinner for Iowa Republicans. The group bought up all the tickets to a minor league baseball game and gave them to anyone who would listen to its tax pitch.

For the straw poll, Fairtax.org rented 10 buses and paid the $35 individual fee for 400 tickets to the event.

Huckabee placed second, behind former Massachusetts Gov. Mitt Romney, and garnered the first major coverage he had received in the campaign.

No one knows how many Fairtax.org voters backed Huckabee. But a Romney strategist said the group’s effort clearly benefited the former Arkansas governor.

“They were engaged on the ground,” said the strategist, who requested anonymity when discussing another campaign. “They were determined to play in this election.”

Having depleted its resources in the straw-poll push, Fairtax .org scaled back its publicity efforts to recover financially.

“We went for broke, and almost got there,” Hoagland said.

But the cause has been brought to the heart of the Huckabee campaign: David C. Polyansky, a former officer of Fairtax .org, has become a senior Huckabee campaign advisor.

For Huckabee, the proposal may prove a politically useful antidote to the intense criticism he has taken from his party’s anti-tax wing for overseeing several tax increases as Arkansas governor.

The sales tax proposal, with its anti-Washington undertone, dovetails with the populist campaign themes he has crafted -- especially on economic issues.

“The average American is more afraid of an IRS audit than getting mugged,” he frequently says.

janet.hook@latimes.com


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