The Wall Street Journal and the Cato Institute’s Daniel Mitchell have branded the “FAIR Tax” sales tax proposal a loser issue for political candidates. In a more-in-sorrow-than-anger tone, the Journal notes the difficulties of candidates who embrace this national sales tax:
In 16 House and three Senate races so far, Democrats have blasted GOP candidates for at one point or another voicing an interest in the FAIR tax. In Kentucky’s Senate race, Democrat Jack Conway is running a TV spot charging that Republican “Rand Paul wants a new 23% sales tax on groceries, clothes, prescriptions, everything.”
FAIR tax proponents are right to say these Democratic attacks are unfair and don’t mention the tax-cutting side of the proposal, but the attacks do seem to work.
The Journal concludes:
Our advice to the FAIR taxers is that voters will start to take the idea seriously once the income tax is on the road to repeal. Until then, our advice to candidates would be to avoid the FAIR tax and focus on goals that are more achievable and less politically self-destructive.
There’s a better reason not to push the FAIR Tax: it’s a bad idea.
It should be enough to say “23% sales tax” to stop the discussion. I don’t know of any sales tax nearly that high that has ever been effectively administered. The ceiling for an effective sales tax seems to be around 10%.
Yet it’s worse. As people generally understand sales taxes, the FAIR tax has a 30% rate — it would be about 30% of the price computed without the sales tax. FAIR Tax fans say that the “tax inclusive” rate is theoretically accurate, but this would go against almost universal practice for obvious practical reasons. In real life, it would never raise the revenue supporters expect, as the rate would be high enough to trigger massive non-compliance.
Further, it would be administered by the states. Supporters say this would enable you to get rid of the IRS, but I’d rather deal with them any day than the 50 state revenue agencies.
Finally, the FAIR Tax includes a strange “prebate” to low income taxpayers. That will require determining who is low-income — a challenge when there is no income tax. This would be an administrative nightmare.
That the current income tax is ugly enough to drive people into the arms of the FAIR Tax says terrible things about the income tax, but that doesn’t make the FAIR tax pretty.
Related: Huckabee Hawks the FAIR tax.