The whole purpose of a flat tax, à la 9-9-9, is to lower marginal tax rates and simplify the tax code. With lower marginal tax rates (and boy will marginal tax rates be lower with the 9-9-9 plan), both the demand for and the supply of labor and capital will increase. Output will soar, as will jobs. Tax revenues will also increase enormously—not because tax rates have increased, but because marginal tax rates have decreased.
By making the tax codes a lot simpler, we’d allow individuals and businesses to spend a lot less on maintaining tax records; filing taxes; hiring lawyers, accountants and tax-deferral experts; and lobbying Congress. As I wrote on this page earlier this year (“The 30-Cent Tax Premium,” April 18), for every dollar of business and personal income taxes paid, some 30 cents in out-of-pocket expenses also were paid to comply with the tax code. Under 9-9-9, these expenses would plummet without a penny being lost to the U.S. Treasury. It’s a win-win.
But what about the poor?
A static revenue-neutral tax change requires static winners and losers. And this 9-9-9 plan has made certain that even on static terms those below the poverty line will be better off—period. Once the dynamics take hold, many of those below the poverty line will find good jobs and thus will rise above the poverty line and start paying taxes.
We’ve seen this philosophy before:
While the 9-9-9 plan has captured people’s imaginations at this moment, it’s not all that different from California Gov. Jerry Brown’s 13% flat tax when he ran for president in 1992. As you may recall, he came in second behind Bill Clinton in the Democratic Party primary.
In 1986, President Reagan passed a major tax-reform bill that lowered to 28% from 50% the top marginal personal income tax rate. The Tax Reform Act of 1986 also raised the lowest marginal income tax rate to 15% from 11% and closed many loopholes, making for a flatter tax structure. Reagan’s bill passed the Senate in a landslide 97-to-3 vote. Who says a flat tax can’t be a bipartisan proposal?
But many argue that elected officials can merely raise the 9% sales tax:
What they miss is that any tax could be instituted in the future at a higher rate. If I could figure a way to stop future Congresses from ever raising taxes I’d do it every day of the week and twice on Sunday. Until then, let’s not make the perfect the enemy of the good.
This is the type of tax increase I wholeheartedly support. I support collecting more in taxes from people with high incomes who choose to actually pay taxes at lower tax rates than use lawyers and accountants to avoid taxes at higher tax rates. Some tax revenues at low tax rates is a heckuva lot better than no tax revenues at high tax rates.
Read the whole thing.
UPDATE: Don Surber comments:
My doubts about the efficacy of Herman Cain’s 9-9-9 plan were eased when economist Arthur Laffer wrote a piece in the Wall Street Journal vouching for it. The key components are two things I like: eliminating most of the $1 trillion in tax deductions and tax credits. Hooray. The IRS tax code is socialistic and corrupt as politicians use its intricate and Byzantine system of deductions and tax credits to wield power, control the economy and pocket contributions (and even more, do-nothing jobs for relatives) from fatcats. Herman Cain’s plan would flush out the sewers of Congress and the White House.
Conservatives have wanted to simply the tax code for some time. This plan would do so, but it would also turn taxation toward it should be: On consumption and not production. If you tax that which you want to reduce, then why tax income? We should tax consumption. An economy based on consumption is limited. The American economy from the post-Civil War era up until the Great Society was based production. Since then we have done much navel-gazing. It’s time to get back to work, America.
If 9-9-9 is what it takes to do that, let’s get ‘er done.