In the aftermath of Lois Lerner repeatedly having invoked her Fifth Amendment right against self-incrimination and conservatives feeling singled out by Barack Obama’s Internal Revenue Service, abolishing the IRS and overhauling the tax code have gained currency among the GOP’s prospects for 2016. In August, Sen. Ted Cruz linked the need to upend the IRS to its abuse of power. According to Cruz, “After these revelations of political targeting by the IRS, we need to padlock and shut down the building, abolish the IRS, and move to a flat tax or the Fair Tax.” As a practical matter, the Fair Tax spares wages, savings and investments, and instead taxes consumption; while a flat tax eliminates itemized deductions, and instead taxes income at a single rate.
Cruz is not alone in demanding that the IRS be neutered, or at least be put on a very short leash. Sen. Rand Paul has called for the “attrition if not an outright elimination of the IRS.” Paul has also called for a flat tax to replace the current tax system, and as a Senate candidate in 2010, he had even wavered between the flat tax and the Fair Tax, a tax regime to eliminate federal income and payroll taxes and replace them with a consumption tax, saying: “I support making taxes flatter and simpler. I would vote for the Fair Tax to get rid of the Sixteenth Amendment, the IRS and a lot of the control the federal government exerts over us.”
Cruz and Paul are joined in their antipathy toward the tax status quo by Mike Huckabee, the former Arkansas governor who finished second for the 2008 Republican presidential nomination. For the record, Huckabee is no Johnny-come-lately to the cause of overhauling the tax system. More than six years ago, as a candidate, Huckabee was calling for changing the way government raises revenue and for the Fair Tax.
The Fair Tax is a national sales tax on purchases of new goods and services excluding necessities under a so-called monthly “prebate.” Proponents assert that after the prebate for necessities the Fair Tax comes to 23 percent, a rate equal to the lowest current income tax bracket of 15 percent combined with employee payroll taxes (7.65 percent), both of which would be eliminated. Critics assail the Fair Tax as regressive, while its proponents view it as simple and easier to administer than the loophole-ridden status quo.
These days, Huckabee views getting rid of the current tax regime as being about aiding working families and addressing the fact that middle-class income has essentially been either stagnant or in retrograde since the end of Bill Clinton’s presidency. I recently interviewed Huckabee for the Beast; in part one, he discussed immigration and foreign policy. In this interview installment, he focused on taxes. Huckabee described the Fair Tax as “the most family-friendly tax plan.”
Drawing upon his experience as governor, he explained that under the Fair Tax, “Families are not punished for working hard, marrying, or saving. As governor, we eliminated the marriage penalty and raised the child tax credit in Arkansas, but it’s still better to make a major transformation of the tax system by eliminating the penalties for productivity.”
In the face of stagnant incomes, Huckabee stressed what he saw as the attractiveness of the Fair Tax, “Under the Fair Tax, there is no disincentive to savings or investment—now or in the future. One is only taxed when one consumes or spends.”
He also expanded on the need to get the average American out from under the blizzard of paperwork that the tax season brings. According to the IRS, it takes 22 hours to prepare and complete a long tax form, Form 1040, 10 hours to fill out the shorter tax form, the 1040A, and seven hours to get through the even shorter 1040EZ.
Huckabee viewed the tax trap this way: “Most working families… need tax reform they can understand and follow easily. They need time to see their kids’ ball games and dance recitals instead of having to gather information for the tax man.” At the recent Values Voters Summit, Huckabee also acknowledged that same disconnect between the GOP’s base and Washington, saying, “Some of you are frustrated and even upset and angry about America, and I get it.”
As a former governor of a rural state, Huckabee is also mindful of the effects inheritance taxes can have on family farms and small businesses. Says Huckabee, “Some families have assets in long-held land that has to be sold to pay inheritance taxes. Why should a generation be punished for seeking to leave something for one’s family?” At present, the federal estate tax kicks in at estates valued at more than $5.34 million.
In Huckabee’s view, tax reform should not harm the middle class or undermine the family. As corollary, Huckabee opposes tax reform that is based on curbing charitable deductions or undermining the home interest mortgage deduction—which Mitt Romney refused to rule out in 2012.
According to Huckabee, “If we continue the current system, then we should keep deductions that benefit the community and the country, such as charitable contributions or mortgage payments.” To be sure, Huckabee still views the Fair Tax as “the better option.”
Huckabee also has his eye on revamping the corporate tax structure, which seems to be driving American corporations offshore, and revenues overseas. In fact, just last week, Treasury Secretary Jack Lew announced new regulations to make it more difficult for corporations to move abroad, but without remedying the underlying cause of U.S. companies moving the headquarters abroad—taxes that are too high.
Ironically, the brains behind corporate tax inversions are actually the President’s own donor base. According to Bloomberg News, the lawyers and bankers who facilitated and structured tax inversions, as well as companies that have relied upon them, have contributed to the President. Not surprisingly, Obama has refused to return campaign donations from the very individuals who benefited from these “unpatriotic measures,” much the same way as Obama tapped Lew as his Treasury Secretary, despite Lew’s investments in Cayman Island-based entities.
Huckabee gets beyond Obama’s verbal gymnastics by categorizing the tax system as punitive. In Huckabee’s words, “A tax is punishment. Why punish a company for making money? If there were no taxes on what we earn, imagine the trillions of capital that would flow here from around the world.”
Back in the 1960s, Republican congressional stalwarts such as Don Rumsfeld and Bob Dole opposed President John Kennedy’s call for tax cuts, only to see the GOP embrace the mantra of lower taxes and tax reform less than two decades later. With the GOP base up in arms over the IRS and Lerner, calls for tax cutting will not likely subside during the Republican primaries. Indeed, any candidate who refuses to entertain the abolition of the IRS and won’t endorse either a flat tax or Fair Tax should be prepared to face the wrath of the party faithful.