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Radical sales tax plan fuels Huckabee's swift rise

December 24, 2007|Janet Hook | Times Staff Writer

WASHINGTON — 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.

For The Record
Los Angeles Times Tuesday, January 01, 2008 Home Edition Main News Part A Page 2 National Desk 1 inches; 46 words Type of Material: Correction
Huckabee and sales taxes: A Dec. 24 Section A article about Republican presidential candidate Mike Huckabee's backing of a national sales tax said that another supporter of the plan, Sen. Jim DeMint (R-S.C.), ran for his Senate seat in 2006. His Senate bid was in 2004.

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.

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 -- 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.

"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 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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