Regardless of what you think of Herman Cain as a candidate, his tax plan forced both Democrats and Republicans to look at the idea of radical tax reform. The first reaction of technocratic class was to poo poo the idea. The simple idea that the entire tax system needed a dramatic overhaul caught the imagination of conservatives and independents. Helping popularize the idea that taxation should be simpler and fairer was cause for vested interests to attack Cain. Now as Cain fades in the polls (with good reason) let’s not forget the idea that put his candidacy on the map – radical tax reform.
Compare a radical tax proposal like 9-9-9 with the current tax code;
The current tax system forces tax payers in low tax states like Texas, Florida, and Wyoming to subsidizes the tax payers in high tax states through the income tax deduction of state and local taxes. Radical tax reform would remove this market distorting perverse incentive for inefficient state tax systems. The current tax system allows companies like GE to pay no corporate taxes. A tax system like 9-9-9 would have collected nearly 500 million in taxes from GE. Radical tax reform also will remove popular deductions, like the taxsubsidies for mortgages and health insurance. One could go on for pages simply because our current system is so large, so complex, and so broken.
Radical tax reform has some fundamental drivers;
|1. The 71,684 pages of tax code has become another way for the government to pick winners and losers. The federal tax code is oppressive, destructive, and often used to reward political friends. It has also been used to punish political enemies.
|2. The government doesn’t spend what it needs, it spends what it can. Between 2008 and 2009 the Federal government’s spending jumped nearly 20% supposedly due to a “one time” stimulus designed package, yet FY2010 spending was 608 billion over 2008 baseline with a deficit of 1.6 trillion dollars. Radical tax reform has to be part of an overall strategy for limiting government growth.
|3. Due to the increasing complexity and cost of the tax code, a parasitic industry of bureaucrats, lawyers and lobbyist has developed around how the federal government taxes. The existence of such robust enterprise and lobbying around taxation is a symptom of a fundamentally broken system. The expense of these parasites misappropriates capital and resources better used elsewhere.
|4. A simplified tax code broadens the tax base. Every citizen is taxed in a very open and transparent fashion. As they say on Wall Street, now all the players have skin in the game (and they know it).
|5. A complex and convoluted tax system is a source of power for Washington technocrats of all flavors. A simplified tax code returns power to the people where it belongs.
Our current taxation system has lead to a maze of special interest and competing priorities that makes any meaningful discussion on taxation or spending nearly impossible. To understand how absurd the debate over taxation and spending has become, let’s examine the recent failure of the dept commission. The government is expected to spend around 38 trillion dollars over ten years yet the committee couldn’t agree to a mere 1.2 trillion dollar cut (around 3%). To put it another way, with all the automatic budgetary funding increases tied to the Consumer Price Index the committee couldn’t agree to keep federal spending at the today’s bloated levels. Remember, the current spending levels fund 2 military conflicts that are winding down.
With the largest growing portion of the budget being entitlements, Democrats defied all logic and reason by making entitlements sacrosanct. The democratic members of the debt commission refused to consider entitlement reform in any way shape or form. President Obama scolds the rich for “not paying their fair share” while resisting a simple change that would allow means testing of medicaid recipients. Apparently “pay their fair share” does not apply to medicaid entitlements. The President, Democrats, and their boosters engage in mediscare tactics to beat back any attempt at changing entitlement programs that have proven unsustainable.
The ultimate irony is that the only tax decrease that the President supports and vigorously extols is a reduction in the social security pay roll tax. The one tax expressly enacted to pay for the social security program is being cut at a time when the program’s expenditures are going up. The President that tries to scare social security recipients with a fantasy about evil Republicans scheming to take away their check explicitly supports a cut to funding going into the very same social security program. Can we stop pretending that the social security payroll tax is anything more than a 12% income tax yet? After all, that is how the President is treating it.
The point isn’t that we need 9-9-9 but a wholesale revamp of the tax system. 9-9-9 is the conversation starter. If it wasn’t for 9-9-9 would Rick Perry have proposed his flat tax, or would Newt have modified his tax proposals? The devil is in the details, but if 9-9-9 didn’t exist most candidates would still be playing at the margins of the US tax code and calling it “reform”.
The byproduct of radical tax reform will be a conversation about the role of government, what it spends, and how much it taxes. A super simplified tax code sharpens the focus by stripping away a lot of the extraneous arguments. With radical tax reform it won’t matter if you are a company, a private person, or your income is derived from capital gains as opposed to a salary, you will be taxed in the same way as your neighbor. (Note: taxing capital gains the same as income is a change from Cain’s 9-9-9 plan)
99% of Americans will view such a system as an improvement and find it refreshingly fair.
Our current President has proven that he has no belly for solutions that tack too far away from his leftist ideology and prefers to knit together a coalition of the bribed and disgruntled. His preferred method for debt relief is to kick the can down the road while blaming everyone else for his lack of leadership. Radical tax reform is popular because those that are paying attention know that without a radical reform agenda we are doomed to a slow slide into insolvency. 9-9-9 is important because it is a conversation starter for real reform. This is no time to flit about the edges of our debt and spending problems. On Halloween of this year (2011) our national debt exceeded our annual GDP. We need radical tax reform now!