Perhaps nothing government does causes more resentment than the income tax; it is the visible sign of government intrusion into our economic lives. There are many reasons for this resentment, most of them legitimate. When the tax first began, it affected, at most, the upper 2% of the population, and was, therefore, a wealth tax. But over the years, it became largely a tax on (and an attack on) labor. Why labor is something that should be taxed—that is to say, discouraged—is a bit mysterious. But each payday, the worker sees his pay stub filled with deductions to his hard-earned wages. And he suspects, correctly as it turns out, that the rich do not pay anywhere near the same proportion of their disposable income in taxes. Therefore the primary emotion is one of basic unfairness.
It is therefore not surprising that a scheme, no matter how hare-brained, that is labeled a fairtax would hold some initial appeal. The prospect of closing down the hated bureaucracy of the IRS can only fill one with glee; I certainly look forward to that happy day. That appeal will wear thin, I believe, when the new tax replaces the pay-day resentment of deductions with the everyday resentment of a 30% tax each and every time the worker buys something. The “FairTax” folk promise him—today—that his wages will rise by roughly the same amount. However, their assumptions are dubious at best; since there is no precedent for such a massive intervention in the market, no one can say what the effect on wages or prices will be, and hence no one can say what the effect on the market will be. The plain truth of the matter is that the 30% national sales tax represents the largest single government intervention into the free market since the Russian Revolution. And like all such interventions it will require a bureaucracy to administer it. And the bigger the intervention, the bigger the bureaucracy; and since the Huckabee tax is the biggest of interventions, it will require that the Huckabee Bureaucracy be the mother of all bureaucracies. Moreover, the Huckabee bureaucracy will be primarily a police force, just like the IRS, because the system he envisions will be prone to fraud on a massive scale, and will therefore require a massive police force.
The sources of massive fraud in the administration of the National Sales Tax are three. The first concerns the fact that it sets up the largest welfare program ever (the so-called prebate), a program that will require the issuance of a national identity card. How else will they know to whom and where to mail all those monthly checks? Since each identity card entitles it's bearer to “free” money from the government (you and me) in the amount of about $200/month, many people will want more than one. Why not a dozen or so? Why not two dozen? Identity theft is already big business, as is the business of “manufacturing” identities. But with a $2,300/year “prebate” with each phony and stolen identity, there will be millions upon millions of them. The Huckabee National Identity Bureau will have its hands full trying to root out the false ID's. I can't imagine them being able to do that without broad and extensive police powers, and even then the mafia is likely to stay well ahead of the Huckabee Identity Police.
But as bad as the identity fraud will be, there is a bigger source of fraud in the fact that the National Sales Tax sets up a two-tiered pricing system. The same items will be taxed or untaxed depending on who the buyer is. If a businessman or woman is buying the item for ostensibly business purposes, then there is no tax. So, since I am a businessman, when I buy my car, I pay no tax. You, buying the same model car at the same time, will pay 30% more for it. Now the resentment really begins. However, how is the sales clerk to know which one of us is really a businessman? In the bad old days of the IRS, the businessman was the one who filed a schedule C and paid taxes on the profits. But now there is no such thing as the IRS (hooray!), so there will have to be a way to distinguish between the business and non-business buyers. This will require that each businessman get a certificate from the Huckabee Business Certification Bureau. But an immediate problem arises: how do you define a business? There is a sense in which a firm or person is currently defined as a business by paying business taxes. But under the National Sales Tax, it will be the opposite: a businessman is the one who doesn't pay the taxes. Hence, everybody will want to be a businessperson, at least when they are shopping. We can reasonably expect there to be millions and millions of applications for the business certificate. And since one doesn't have to show a profit, or indeed, show anything, there will be lots of people who are businessman only when they shop. Since this alone is enough to wreck the entire revenue system, there will have to be established the Huckabee Business Auditing Bureau to ensure that the businesses are legitimate. Even though this bureau will collect no taxes, it will have, in every other respect, the same task in relation to business as does the dreaded IRS.
Now, each seller will have certain sales that are taxed, and others that are untaxed. There will undoubtedly be any number of dishonest businessmen who will simply lie; they will report as “untaxed” a certain percentage of transactions for which the customers actually did pay the tax, thereby increasing their margins on those sales by an instant 30%. This kind of thing happens already with sales taxes, with some business reporting lower sales than they actually had, and hence pocketing the sales taxes that they collected. However, it is somewhat rare, because both the retailer and his supplier have such extensive reporting requirements for the IRS that the fraud becomes trickier, because one serves as a check on the other. But with no reporting requirements, there is also no check. Hence, to prevent massive fraud, there will have to be extensive reporting of each and every transaction to the Huckabee Sales Auditing Bureau. They will have the immense task of auditing each and every sale to make sure that the taxes are accurately reported and paid.
But the two-tiered pricing system has another distinction, that between “new” and “used” items, since “used” items are not taxed. We pass over the fact that this guarantees the death of the new housing industry, where the tax rate is prohibitive, and go on the difficulty of this distinction generally. Is a re-manufactured toner cartridge new or used? Is a demo car new or used? Normally, buyers and sellers work these things out for themselves without the help of the Federal Government, but now the Huckabee government will have to intervene to protect its tax base. I don't even know what to call this bureau or how it will fulfill its duties; reader suggestions are welcome. But it does suggest an excellent business opportunity. Since I am a businessman, I can buy a new car tax-free. I can drive it for a week and sell it to you at a 10% markup. You will save 20%, I will make 10%, and everyone will be happy. And I will get to drive a new car each week. Since there is no reporting of business expenses, no one will know that my business is buying an awful lot of cars, more than the normal real estate agent might require in the discharge of his duties. To prevent this sort of thing, there will have to be established the Huckabee How-Many-Cars-are-You-Buying Bureau, (yes, I am running out of names for these things).
Of course, the term “used” will acquire a new meaning. Now, something like “Used Appliance Store” means one thing, but under the Huckabee administration, it will mean “30% off Appliance Store.” Such stores will claim that there stock is entirely used, and they will wear out quite a few ball-peen hammers putting dents in their “used” stock. To prevent this rather obvious fraud, there will have to be a Huckabee Product Origins Bureau.
But the simplest way around the taxes is simply not to report the sales, which will be easy since there is no messy income tax to deal with. People will buy goods in Canada and Mexico by the truckload, and sell them off the back of their truck or out of their trunks or living rooms. Drugs, appliances, jewelry—any sufficiently high value item will have an underground and non-taxed market. To deal with this, there will have to be a Huckabee Market Police.
I could go on, and many of you I'm sure will report other problems require other bureaus. The plain truth is that when you intervene in the market to this extent, the police powers of the state expand at the same rate or greater. The Huckabee National Sales Tax is anti-person, anti-family, and anti-business. People, even the most honest person, will be forced to cheat just to make ends meet. The plan encourages criminality and proliferates bureaucracies. The only beneficiaries will be the rich who spend only a small portion of their incomes on consumption, and hence escape most taxes. And the Mafia of course; they will rejoice at the new "business" opportunities. The rest of us will be forced to protect our incomes and families in other ways. Those who cheered to see the IRS closed down, will weep when they see the expansion of government power beyond their worst nightmares.
P.S. If you know someone in Iowa, pass this on.