A Tale of Two Tax Plans
It looks as though tax plans are shaping up to be an integral part of the 2012 GOP campaign. Herman Cain has recently catapulted to the front of the 2012 GOP race, fueled in large part by his 9-9-9 tax plan. For those of you that aren’t yet familiar with 9-9-9, Cain’s plan is to replace the existing tax code with a flat 9 percent personal income tax, a 9 percent national sales tax, and a 9 percent corporate income tax. The 9-9-9 plan would eliminate the capital gains tax and the estate tax, as well as nearly all tax deductions. Cain claims that his tax plan “is fair, simple, transparent and efficient. It taxes everything once and nothing twice. It taxes the broadest possible base at the lowest possible rates. It is neutral with respect to savings and consumption, capital and labor, imports and exports and whether companies pay dividends or retain earnings.” Following successful implementation of 9-9-9, “Phase 2” of Cain’s tax plan would put an end to the IRS as we know it (sounds kind of nice, doesn’t it?) and repeal the 16th Amendment. It’s ambitious, to say the least.
Hot on the heels of Herman Cain’s tax plan came Rick Perry’s tax plan. Perry is proposing a plan that would allow taxpayers to choose whether to use their current tax rate or pay a 20 percent flat rate. Perry claims that his plan would simplify taxes to the point that it “will allow Americans to file their taxes on a postcard.” A postcard?!? That seems wildly optimistic, but I digress… Like the 9-9-9 plan, Perry’s tax plan would eliminate taxes on capital gains and end most tax deductions. However, Perry’s plan would continue to allow deductions for charitable contributions and mortgage interest.
The jury is still out on whether either of these plans is actually viable. According to former Reagan Treasury official Gary Robbins, the 9-9-9 plan would “expand GDP by $2 trillion, create 6 million new jobs, increase business investment by one third, and increase wages by 10%.” That sounds very positive, albeit a tad optimistic. However, a Bloomberg analysis determined that if the 9-9-9 plan had been in place in 2010, tax revenues would have been $200 billion less than they were, and in 2007, tax revenues would have been cut nearly in half. Critics of the 9-9-9 plan call it “shockingly regressive” and “likely unconsititutional.” And according to Ted Gayer, a tax policy expert who served on George W.’s Council of Economic Advisers, Perry’s plan “is more regressive than the current system” and puts more of a burden on lower-income taxpayers. Perry’s critics also take issue with the fact that his plan would most certainly reduce tax revenues, yet he has not outlined how he plans to avoid widening the deficit or reduce spending.
It will be interesting to see how this all plays out in the Presidential campaign, and even more interesting to see what actually happens to the tax code if a Republican candidate wins the 2012 election. It seems that changing the current tax code would be tantamount to raising the Titanic.
I’ll leave you with a quote by Doug Larson: “Some of the world’s greatest feats were accomplished by people not smart enough to know they were impossible.”
Leslie Squires Rojas