With President Bush plunging ahead into dramatic tax simplification, two places to keep an eye on are Texas and Canada.

We had a visitor to our editorial rooms the other day from the Lone Star State in the person of Thomas Wright, the executive director of Americans for Fair Taxation. That group seeks to replace the current federal tax structure with a national retail sales tax. Gone would be the federal income tax, the payroll taxes for Medicare and Social Security, and the federal tax on corporate profits. Gone would be the capital gains tax, the estate tax, the gift tax. In place of all of them would be a retail sales tax that would apply to purchases of new goods and services by consumers. It wouldn’t apply to sales of used houses or to purchases by businesses of goods and services.

Shifting federal taxation to consumption as opposed to income is such a radical change that in most cases it would be regarded as flaky. For one thing, for such a tax to generate the same amount of revenue as the current system does, the rate would have to be a hefty 30%.

But an odd combination of factors is making the idea more likely than you’d think. One important one is geography. Americans for Fair Taxation, which is pushing the plan, is based in Houston. When we asked Mr. Wright who in the White House his group talks to, he answers, “The president.” Says Mr. Wright, “He knows who we are, he knows what we are doing, he knows what we are up to.” Some members of the group’s board have known Mr. Bush since his first unsuccessful run for Congress decades ago. “We see a very good window of opportunity to actually get this done,” Mr. Wright says. He says more than 100 members of the House of Representatives support his group’s plan.

The idea has gotten some traction in Mr. Bush’s home state of Texas. The state government Mr. Bush was governor of there supported itself with no state income tax, only a sales tax. The 2004 platform of the Texas Republican Party with respect to federal tax reform reads, “We further urge that the personal income tax, inheritance (death) tax, gift tax, capital gains, corporate income tax, and payroll tax be eliminated. We recommend the implementation of a national retail sales tax, with the provision that a two thirds majority of the U.S. House and U.S. Senate is required to raise the rate. Such reforms will encourage investment and economic growth.” This is President Bush’s home base talking.

Among the positive aspects of the plan touted by its backers are that it would make collection easier. A few big retailers – grocery store chains, car dealers, Wal-Mart – would collect most of the taxes. Built into the plan is a tax rebate that would bring all Americans to at least the poverty line on an after-tax basis, helping address complaints that the tax would be regressive. The retail sales tax could also help clean up politics by ending the system of lobbyists and campaign contributors cozying up to congressmen in hopes of winning special tax breaks.

Where does Canada fit in? That’s where a conservative and popular prime minister, Brian Mulroney, that great friend of Ronald Reagan, implemented a goods and services tax in 1991. His approval ratings plummeted, growth slowed, unemployment rose, and conservatism in Canada still hasn’t fully recovered. The economists all said Mr. Mulroney’s goods and services tax would be more efficient than the “hidden” manufacturing tax it replaced, but the problem was that while consulting all the economists, he forgot to check with any psychologists, who could have explained that people don’t like seeing taxes.

The fair tax crowd has ready responses to all this. They note that politicians in 2004 who were linked by their opponents to the fair tax overwhelmingly withstood such attacks. And they say that making the cost of government obvious – perhaps even painfully obvious – to taxpayers may help build a constituency for reducing the size of government. In Canada, Mr. Mulroney imposed the goods and services tax without getting rid of the income tax.

Mr. Bush is expected to appoint a tax reform commission to weigh these issues. Any reform he proposes will have to make it through a Senate in which Republicans, despite gains in the 2004 election, still lack a filibuster-proof majority. While Mr. Bush spoke of tax reform and simplification in his campaign, he did little to build popular support for a specific plan. Our own sense is that if the Republicans and any allies among the Democrats want to take such a dramatic route as a national retail sales tax without paying a Mulroney like price for it, they will first have to win a real endorsement for it from the voters in either the 2006 or 2008 election.