Fair Tax is better option than 9-9-9
Herman Cain's 9-9-9 plan is being riddled with criticisms on a bipartisan basis.
Because the plan had not been fully vetted before the presidential campaign, the tax is changing shape and form almost weekly.
The confusion has eliminated the initial strength of the plan - its simplicity.
The plan refers to a 9 percent business flat tax, a 9 percent individual flat tax and a 9 percent national sales tax. It would eliminate a number of current taxes, such as the payroll tax, the inheritance tax and the capital gains tax.
Exemptions include used purchases or charitable deductions. Businesses could deduct new equipment purchases from the corporate income tax.
Cain's campaign website quotes an economist as saying the plan would expand gross domestic product by $2 trillion, create six million new jobs, increase business investment by one-third and increase wages by 10 percent.
That sounds good at first glance, which is probably why Cain has surged in the polls.
But if it pulls in the same amount of revenue - one of many controversies - then who benefits the most? The wealthy would see marginal income tax rates reduced, so the burden would appear to shift to the lower and middle classes.
Informed by the nonpartisan Tax Policy Center that it would raise taxes for 84 percent of the taxpayers, Cain announced it really was a 9-0-9 plan for some, meaning there would be no income tax at all for low-income people who don't pay taxes now.
The Wall Street Journal questioned the national sales tax portion of his plan, noting that even if it is low today, it is likely to be raised tomorrow.
Other critics have referred to it as a 27 percent tax.
And when you add the 9 percent national sales tax to state and local taxes, you come up with some breathtaking totals. At least 12 states would have total sales taxes of 17 percent or more. Four states with no sales tax would start paying one.
Robert Lezner of the Forbes staff called that "ridiculous, unrealistic, stupid and would never pass muster."..
The Fair Tax includes provisions so that low-income people are not penalized, and it can be structured to obtain as much revenue as needed.
The tax reform proposal by Cain that makes the most sense is a revival of empowerment zones.
This favorite device of deceased Republican stalwart Jack Kemp provides important incentives to develop businesses in low-income areas.
As described by Arthur Laffer in The Wall Street Journal, empowerment zones in high poverty areas should include exemptions of payroll taxes, minimum wages would be suspended, regulations minimized and profits would be taxed at one-third the regular rate.
Empowerment zones have the advantage of being tested in real life.
Cain has done a national service by putting tax reform on the table, but his 9-9-9 plan needed to have been vetted long before the presidential campaign.
The Fair Tax makes more sense. And a general lowering of tax rates while removing deductions would do just as much good for the economy.
That is the basic proposal of candidate Jon Huntsman, but his plan, like his candidacy, suffers from a lack of hype or a catchy slogan.
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