January 6, 2008 / 4:49 PM / 12 years ago

UPDATE 1-Huckabee tax plan raises eyebrows in US

(adds Huckabee quotes in paragraphs 12-13)

By Ed Stoddard

MANCHESTER, N.H., Jan 6 (Reuters) - Republican presidential candidate Mike Huckabee’s plan to eliminate all income taxes and replace them with a flat consumption tax has the support of martial arts guru Chuck Norris but few economic analysts.

The former Arkansas governor’s victory in the Iowa caucus, which kicked off the presidential nomination process for the November 2008 White House race, will bring his policy proposals under closer scrutiny as the candidates do battle in the New Hampshire primary on Tuesday.

Much of the focus has been on the social conservatism of Huckabee, an ordained Baptist preacher who has connected solidly with his party’s influential evangelical base.

But some of his supporters have been attracted by his populist tax plan, which calls for an end to all income and payroll taxes. It is the key plank of his economic platform.

“Putting the IRS out of business” has been a common refrain in his speeches in both Iowa and New Hampshire and it always draws some of the most enthusiastic applause.

Huckabee says taxing income is a tax on productivity that stifles economic growth and hits the middle class and small businesses the hardest.

“The FairTax will replace the Internal Revenue Code with a consumption tax ... All of us will get a monthly rebate that will reimburse us for taxes on purchases up to the poverty line ... That means people below the poverty line won’t be taxed at all,” says his Web site.

“All our headaches and heartburn from tax stress will vanish. Instead we will have the FairTax, a simple tax based on wealth. When the FairTax becomes law, it will be like waving a magic wand releasing us from pain and unfairness,” it says.

Analysts see some sleight of hand here.

“To truly equal today’s federal revenue take, to be revenue neutral, the flat tax has to be quite high — usually higher than is advertised up front,” said Richard DeKaser, chief economist at National City Corp in Cleveland.

UNDERGROUND TRANSACTIONS?

“And the complication that comes with that is it encourages underground economic activity. People will increasingly try to circumvent the tax system by doing transactions under the table,” he said.

Analysts also see it as regressive — as it is the same rate across the board regardless of income — even if Huckabee’s plan does make provisions to exempt the poor.

On Sunday, Huckabee was asked about Bush administration criticism that his plan would reduce taxes for those making less than $30,000 a year or more than $200,000 but raise them for everyone else.

“Of course they don’t like the fair tax,” he said on Fox News. “These are the guys that are going to go out of business. Thirty-five thousand lobbyists in Washington — do you think they like the idea that a tax would be so simple that they couldn’t really go in there and tinker with the congressmen?”

Given the U.S. government’s massive revenue needs, Huckabee’s plan is not seen as feasible, although abolishing the Internal Revenue Service appeals to many Americans.

“I think the fair tax is a great idea. It would be great to get rid of income tax ... it really stops people from growing businesses,” said Bruce Weinfeld, 41, who went from New York to Londonderry, New Hampshire, to attend a Huckabee rally.

It is a policy proposal that also could resonate in New Hampshire, which has no state income tax and where evangelicals are less numerous than in Iowa.

The speeches that Huckabee has given in New Hampshire since his Thursday Iowa victory have put more emphasis on his tax plan and less on his opposition to abortion and gay rights.

Huckabee’s “FairTax” idea caught the attention of action movie actor Chuck Norris, who has been traveling with him in what has been dubbed the “Huck and Chuck” show.

Norris tells crowds that young conservative bloggers sent him e-mails about Huckabee's tax plan, selling him on the man. (Additional reporting by Andrea Hopkins in Cincinnati; Editing by Bill Trott) (To read more about the U.S. political campaign, visit Reuters "Tales from the Trail: 2008" online at blogs.reuters.com/trail08/)

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