Flat Tax Policy: The New New Thing for 2012

Mon, October 24, 2011

Economy, Republicans

via iStock Photo/Thomas Dickson

Have you noticed that tax policy is the new new thing for the GOP presidential candidates? Not thoughtful, analytical or well-reasoned tax policy, mind you.  But some of the Republican presidential wannabes are embracing the idea of a federal flat tax scheme thanks to Herman Cain and his now infamous “9-9-9″ plan.

Sadly, that plan by Cain, the former head of Godfather’s Pizza, is not one for 9 pizzas with 9 toppings for $9 — something Americans probably could use to help stretch their food dollars right about now.

9-9-9 is catchy.  So it’s got our attention and it has Americans looking at Cain as a serious contender, even though the whole idea of a federal flat tax is a non-starter.  And if one candidate is getting attention on a topic, you know others will follow.  Rick “I’m fading into the sunset” Perry has already announced that he’ll have his own flat tax plan to announce shortly.  And Mitt Romney is weighing his options.  It’s nothing new to have candidates follow where the attention is, but I’m concerned that this is the start of a trend that could wrongly convince voters that a simple sounding tax plan is in their best interests.

Cain, who at least has an outline for his vision, thinks that turning our labyrinthine tax code into a paragraph or so will solve all our fiscal woes, save the American economy and that it won’t raise taxes on the poorest Americans.  Nothing to worry about, he exclaims — he’s a man interested only in fairness.  And he’s been assured by his financial advisory team an accountant somewhere in the Midwest that this is a good idea.  Except he’s wrong.  You don’t have to take my word for it –the organization Politifact gives Cain’s assertions that his 9-9-9 plan won’t raise taxes on the poorest Americans a “False” rating (the only rating worse is called “Pants on Fire“).

So why does Cain keep banging the drum about the supposed equity of his scheme when so many economists say there’s nothing fair about it?  Because 9-9-9 is a good soundbite.  Short, sweet, and TV and radio friendly! All presidential candidates luvz them some good soundbites.  Politicians craft 15 to 20 second blurbs to polish their talking point skills not only so voters can understand what they’re saying on the issues.  They also craft their messages that way to get the most media attention.  You know — like in commercials.

The vast majority of economists agree that flat taxes are regressive — meaning that the poor end up paying more taxes as a percentage of their income than the rich.  And if you look at the numbers as they would play out, the uber-rich would save a bundle with Cain.

I know tax policy is complicated and we all yearn for something a little easier every April.  Heck, I got an ‘A’ in Federal Income Tax in law school and I can’t get past about the first two pages of our income tax returns without needing the accountant to do some serious explaining.  And while there’s a whole lot that can and should be done to make our tax system fairer, a flat tax isn’t the way.

And the candidates know that.

So why do the candidates want to fool us like this?  They’re pretending this will be a good thing for us schlubs, even though it would really only benefit their big corporate political donors?  Because that’s a win/win for politicians — they get voter support because their soundbite-y plans seem on the surface to be all about treating everyone the same, but their political donors are happy because they know in they end they win and we lose.

As Cain, Perry and, possibly, Romney, get increased attention for these tax gimmicks, you can be sure the likes of Michele Bachmann (if she has any staff left) and Newt Gingrich will jump on that talking point to squeeze out just a little more mileage for their campaigns.  But don’t be fooled — just because they’re all saying it, doesn’t make it true.

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8 Responses to “Flat Tax Policy: The New New Thing for 2012”

  1. Lisse Says:

    Flat tax: that’s so 9-9-90s!

  2. Michael Harris Says:

    Well, at least the top 20% got included on the good side of that graph :)

    The state of inequality in this country has gone from bad to worse over the last 40 years. Tax law and politics has been the fuel for the fire. We need change.

  3. PunditMom Says:

    We need change, but how will we ever get it with current crop in DC and not much change on the horizon?

  4. Reba Says:

    Actual your are wrong. A flat tax is not truly regressive at all. It ensures that everyone is paying something. It eliminates loopholes those at the top currently enjoy that allow them to elimate their liability, while consolidating numerous other tax revenue streams those at the bottom are already paying that don’t get factored in to most “non-partisan” analysises. I for one would probably pay more federal taxes out of pocket, but we would all realize numerous savings as we and our employers will no longer need to pay/employ accountants and tax lawyers, not to mention being able to greatly reduce the size of the IRS. Most importantly, once the tax code is simplified to the point that we have greater transparency, Democrats…whoops, I mean our elected leaders, can no raise taxes on the middle class, while hiding behind a complicated tax code to try to make it look like they are only go after the rich to help the poor and down trodden. Go Cain, and all those who challenge the status quo that has let us to our present dismal economic state.

  5. PunditMom Says:

    Reba, I have to disagree. The flat tax system would impose increased taxes on those who are the poorest who do not pay much in the way of taxes now because their incomes are so low. A national flat sales tax, as proposed by Herman Cain, would cause those people to pay more out of pocket than they do now — money that they cannot afford to pay. There is little disagreement among reputable economists — flat taxes, by definition, are regressive and impact the poorest the most.

  6. pat Says:

    As David Mamet noted “fairness” cannot be defined in a logical and legal manner, therefore it’s nothing more than a child’s playground whine. Beware those who would take what is not theirs in pursuit of this elusive “fairness” creature – all they want to do is steal from you.

    Wanna be part of the nation? Pay some taxes. Flat tax, no deductions. Everyone pays something, everyone participates; then everyone’s got a reason to be angry at the wasteful politicians…and better yet, hold them accountable!

  7. PunditMom Says:

    Everyone already pays SOME taxes, but not everyone pays federal income tax because they don’t make enough to owe anything! That’s the point people are missing. We all have reason to be angry and it’s fair to expect those who make more to pay more and not be given the windfall of this flat tax scheme. The thing that makes me livid is that a flat tax has the ring of fairness when pretty much every economist worth his or her salt agree that the only people who actually benefit from a flat tax are the wealthy

  8. lenna Says:

    Joanne, have you actually studied Cain’s 999? The Tax Policy Center has. In fact, they are the number one link for analysis on it. If you think you are up to it, here’s what they say:

    We assume that the national sales tax and business flat tax are imposed independently on businesses so they sum to sales tax rate of 18 percent. The individual flat tax, however, is applied to real wages that have been reduced by 18 percent by the other two taxes. The 9 percent individual tax thus applies to only 82 percent of tax-inclusive consumption, making its effective rate 7.38 percent of all consumption. Therefore, the three taxes combined are equivalent to a 25.38 percent national sales tax, with the above mentioned adjustments for dividends paid to tax-exempt entities and charitable contributions.

    This is not an analysis. This is fraud (under the guise of objectivity). They would have you believe your taxes go up the entire 9-9-9 (for a total of 27%). Oh, they “balance” their estimate by knocking off 1.62%, and pointing out that since you get less money, you will pay less in taxes. But this is not analysis.

    1) Under the plan, businesses don’t pay sales tax. This is not a VAT, so when a baker buys flour, they aren’t paying 9% extra. If this is a professional analysis, why don’t they know that? Why do they say it is a VAT when it clearly is not?

    2) The payroll tax is eliminated. The nominal rate for payroll tax is 15%. That means an instant pay increase for any employee. By the way, there will be no more FICA and Medicare tax coming out of your paycheck either. When figuring your total taxes, aren’t these important facts that should be part of a detailed, or even cursory “analysis”.

    3) Your personal tax rate is 9%. The lowest income tax bracket is 15%. Isn’t 9% lower than 15%?

    4) Goods will be cheaper. If Coke’s tax rate goes from 35% to 9%, it won’t take long for them to reduce prices to lure customers from Pepsi, and it won’t take longer for Pepsi to do the same. Prices will rapidly come down for the goods we buy most often. This idea is not discussed in the analysis.

    5) A 9% corporate tax rate would be the lowest in the world (well, okay, in the developed world). This really is the key to everything. A 9% corporate tax rate would encourage businesses – not only to stay here – but would encourage overseas businesses to come here – along with lots of jobs.

    The plan is more than ready for prime time.

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