Pros and Cons of Huckabee's "Fair Tax"

As Mike Huckabee's campaign gains momentum, people have started look more closely at perhaps his most radical idea: the Fair Tax . This idea was not developed by Huckabee but by a group called Americans for Fair Taxation.

If implemented, this new tax system would nearly eliminate the IRS. The income tax would not exist and neither would those horrible forms we fill out every year. Instead, the tax would be shifted on everyday purchases that we make. Prices would increase 30%. Seems a bit unfair to poor but apparently they receive a government rebate check every month to offset the increase. In other words, they will pay only a fraction of the 30% increase or none at all depending on how little they make.

PROS
1.No more IRS and nasty forms to fill out every year

2.Encourages savings and investment. Two ingredients necessary for economic growth

3.Appears to distribute the tax burden 'fairly' based on what you make and consume

4.Single handily eliminates tax loop holes that lobbyists love and would prevent tax breaks to favored groups

CONS
1."Fair" is a very subjective term and there may be many people that do not find this as a favorable move.

2.Potential to create a HUGE underground black market. Just think, if you are not paying income tax, you would have an incentive to try and find products that aren't taxed with the new 30% increase. This mimics the black market for cigarettes that grew from the heavy taxation of cigarettes. If enough people avoided paying this tax, it could cripple the government.

3.Would everything be taxed? Baby food is an example cited. If you continue not to tax baby food then you open the door to many other products and you would need to move the loss on these products onto other products.

4.Lets say that in general everything appears fair. Poor people get a break and wealthy people get taxed a lot. Seems fair but in reality that is not the case. For example, say you won the lottery or received a huge 10 million dollar bonus. Under current conditions, all 10 million will be taxed. But now with the fair tax, you choose to save 9 million and only spend 1 million. Now your tax rate expressed as a % using 10 million as the denominator is incredibly small. Critics cite that the rich will actually become filthy rich if the Fair Tax is implemented.

I'm sure there are other pros and cons that I am forgetting. Common sense tells me this idea will probably never reach fruition but it is still an interesting idea. One aspect that i find intriguing is how a 30% increase in everyday prices would affect my spending habits. Theoretically, I guess it should have no effect but I think I would have a hard time pay 30% more for a bunch of the crap I buy. My guess is that I would save even more money and pay far less in taxes than the government intended.