Republican presidential hopeful Herman Cain came out last week with his “9-9-9” plan, which replaces the current, arcane, and quite frankly unfair tax system with a 9% flat tax, a 9% national sales tax, and a 9% business transaction tax. It is claimed (and who really knows for sure) that the plan is revenue-neutral. That is, the plan will bring in just as much revenue as the current system.
I have no intention of indicating that 9-9-9 is my preferred tax system, but it is better than the current system for a number of reasons.
(1) Simplification of the tax code is a good thing. The current system is full of loopholes and “behavior modification” programs that have no place in governance.
(2) Flat is a good thing. A flat tax eliminates many of the talking points regarding various degrees of fairness and even civil rights. What is the marriage benefit from a taxation standpoint if the tax is flat? Answer: there is none – this starts to move us in a direction equal protection without mandating gay marriage at the federal level.
Or how about this one: I am married with three children. My wife stays home and raises the kids (and homeschools them) providing an indelibly valuable service. If she were to die, leaving me a widower, I would have to make arrangements for their schooling, for their care in the home (or daycare), and for management of the household … AND I would move into a higher tax bracket! Now that’s fair, isn’t it? A flat tax fixes the last problem.
(3) Ending the payroll tax is a good thing. I am no fan of progressive taxation – nor am I a fan of regressive taxation. The payroll tax is explicitly regressive, taxing you on the first productivity but letting you keep more if you cross some magical barrier north of $106,000 or so. (Odd isn’t it, that the government takes “the first fruits”?).
Further, ending the payroll tax is a move in the right direction towards fixing the Social Security problem. America is rife with the entitlement mentality, but in the case of Social Security it may be somewhat justified (but only somewhat). We have been told that our contributions go into the system and will be paid out to us later. Of course this isn’t true, our contributions make payments for current retirees. (Thus, it is expressly a Ponzi scheme.) This means that when we talk about changing the retirement or benefit criteria, we are met with an array of complaints. Now, some of those reside in the standard American entitlement mentality … “I am owed this because I got up this morning, and because somebody, somewhere is wealthy … and as long as that’s true I am owed something.” But some of it is directly related to the pay-in-pay-out structure. Retirees can rightly say “hey, I paid into the system, and now you’re saying I can’t get the payout?”
(Side note: with life expectancy increasing by 3 months every year, the retirement age must increase by at the same amount [give or take] or the system is fundamentally unsustainable. Try raising the retirement age by 3 months and see what happens.)
Ending the contribution portion of Social Security, and relegating it to general entitlement status, is the first step in actually addressing the problems – and Herman Cain’s plan does that.
OK, those are my thoughts. This is not an endorsement of Herman Cain, but an endorsement of flat taxes and an end to the payroll tax.