Huckabee candidacy fueled by stand on tax

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Former Gov. Mike Huckabee's rise in the Republican presidential sweepstakes has been fueled not just by his folksy, telegenic manner and his conservative stand on social issues, but also by his embrace of a dramatic and controversial change in federal tax policies.

Along with 68 members of Congress, Mr. Huckabee advocates a repeal of most current federal taxes in favor of a national sales tax. On the campaign trail, he wins hearty applause with his promise to "abolish the IRS."

Advocates of the plan, who have dubbed it "The Fair Tax," do not endorse candidates, but they were widely credited with boosting Mr. Huckabee to a surprising second place showing at last summer's Republican straw poll in Iowa. The showing was one of the first harbingers that the Baptist minister from Arkansas was poised to break from the pack into the top tier of GOP contenders.

Iowa campaign strategists for both Mr. Huckabee and former Massachusetts Gov. Mitt Romney, who won the preliminary show of strength, credit troops bused in by Americans for Fair Taxation for Mr. Huckabee's unexpectedly strong showing.

Since then, the group's depleted coffers have forced it to scale back its lobbying in Iowa and the early primary states, but as Mr. Huckabee has surged so has the group. Spokesman Ken Hoagland said last week, "Reports of our death have been much exaggerated. ...We are actually right now replenishing our budget and are in the process of rising Phoenix-like from the ashes of or own success."

Mr. Hoagland said that the group had spent some $2.5 million in Iowa and other states over the last year and expected to be able to spend between $500,000 and $1 million to spread the Fair Tax gospel over the next six months.

The Fair Tax proposal would abolish most federal taxes, including the personal income tax, Social Security taxes, corporate income taxes, the estate tax and the gift tax. The lost revenue would be replaced by a national retail sales tax of 23 percent -- or much more, depending on who's doing the figuring.

Because poorer people tend to spend a greater share of their income than the wealthy, economists generally consider sales taxes as regressive. The proposal would buffer that burden by pairing the new tax with a system of monthly payments to individuals and families, which the legislation refers to as "prebates."

Those payments are designed to offset the impact of the tax on spending for bare necessities, or poverty level expenditures. The federal government would send monthly checks to every household calculated on a sliding scale according to size. A single adult, for example, would have an annual bare necessities allowance of $10,210, resulting in an annual "prebate" of $2,348 and a monthly check from Washington of $196. A household with two adults and four children would qualify for an annual prebate of $7,898 and a monthly check of $658.

The rate of the sales tax levy is the focus of significant disagreements of both semantics and substance. The legislation before Congress specifies a tax rate of 23 percent. But as several economists, and a recent analysis by Factcheck.org have pointed out, that rate is calculated very differently than how most people understand sales taxes. Normally, if someone purchases a widget for a dollar, a 5 percent sales tax produces a bill for $1.05. Economists call this calculation the tax-exclusive rate -- that is, the tax is five percent of the price of the widget, not including taxes.

If, however, the tax is calculated as a percentage of the final cost of the widget, the 5 cent tax is actually 4.8 percent. Similarly, the 23 percent tax rate specified in the Fair Tax measure is a tax-inclusive rate. The equivalent tax-exclusive rate, expressed in the way we more commonly think of sales taxes, is roughly 30 percent. Both figures are correct, as long as you know the base on which they are calculated.

Beyond that difference of definitions, there is a dispute over whether the rate of the new levy would be enough to replace the revenue forgone with all of the taxes that are to be abolished. Some economists, including a 2005 report by the President's Advisory Panel on Tax Reform, argue that the replacement rate would have to be more than 30 percent. Others put the needed figure as high as 40 percent.

In addition to arguing that the new tax rate is understated, critics of the plan point out that it would have other controversial effects, including the elimination of the tax advantages of home-buying and the imposition of new taxes on purchases of services in areas ranging from medical care to legal bills.

The Factcheck analysis also found that the proposed system would increase the federal tax burden on most middle-income citizens with the benefits skewed toward poorer Americans and those making more than $200,000 annually. Mr. Hoagland argued that those conclusions understate the benefits of eliminating current, highly regressive, payroll taxes for Social Security and Medicare.

In addition to Mr. Huckabee, lower-tier presidential candidates Reps. Duncan Hunter, and Tom Tancredo support the tax plan. Both of them are co-sponsors of the legislation in the House. Rep. Ron Paul has also spoken in favor of the concept. Mike Gravel, the former U.S. senator from Alaska, is the only Democratic supporter in the race.

Among its critics is former New York Mayor Rudolph W. Giuliani. Referring to the current credit crisis, Mr. Giuliani assailed the concept last week saying, "This would not be a good time -- I don't know if there would ever be a good time to do this -- to advocate ending the home mortgage deduction. The home mortgage deduction is considered by many critical to the ability of people to buy a home and keep their home."

Mr. Giuliani also faulted the plan's elimination of other tax breaks such as those for state and local taxes.

In 1996 and 2000, publisher Steve Forbes attracted broad attention but fell short of the GOP nomination by basing his presidential campaigns on a call for radical tax reform -- in his case a plan for a flat income tax. Former Tennessee Sen. Fred Thompson has offered a variant of the concept this year. In contrast to Mr. Forbes' laser-focused effort, the Fair Tax is just one part of Mr. Huckabee's emerging platform. It's one that may win more support, but will certainly receive more scrutiny should his momentum continue through the primaries.


Politics Editor James O'Toole can be reached at jotoole@post-gazette.com or 412-263-1562.


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