Landsburg Likes Huckabee’s FairTax

February 13, 2008

Economist Steven Landsburg thinks Huckabee’s FlatTax plan is brilliant.

Basically, Huckabee’s plan is to eliminate the income tax and replace it with a national sales tax. To a first approximation, that’s not such a radical change. As long as you spend what you earn, a sales tax feels just like an income tax. If you earn $1,000 a week and spend $1,000 a week, it doesn’t matter whether I take 20 percent of your income or 20 percent of your spending.

Bottom line for Landsburg is that the FairTax is a sneaky way of getting an unlimited IRA. He likes the idea of an unlimited IRA because it encourages savings.

I think the brilliance of the FairTax is that it makes a number of sneaky changes without really stating that its doing so. As far as I can tell it eliminates corporate taxes, payroll taxes (i.e. social insurance), and progressive tax rates down to two (no tax and normal tax).

All these types of changes are fine in my opinion but I’m not fond of the sneaky nature of the change. If you want to eliminate existing tax categories I think it is important to make your case for each elimination.

There is also a fundamental flaw in the FairTax. Any savings that a person accumulated in the old income-based system will now be double-taxed using the new sales-based system (if the person chooses to spend that money). There is no way around this as far as I can tell.

Punishing retired people is not usually a good political strategy… even if its endorsed by Chuck Norris.