Wednesday, October 26, 2011

A tale of two great tax plans


Yesterday, releasing the specifics of his economic plan in a Wall Street Journal op-ed, Gov. Rick Perry joined Herman Cain in becoming the second presidential candidate to release a specific economic plan based on the concept of flat taxation. Likewise, Perry’s plan was immediately scrutinized by all and attacked by adversaries of any notion of authentic tax reform, who’d rather leave the current structure as is and fill it with more progressive ideas to tax success, or as they say, tax the rich.

I wrote a piece last week defending Cain’s 9-9-9 Plan from all the false assertions and detractors, so I make no bones about my preference, as well as liking the man himself. I am a strong advocate for the Fair Tax, particularly ever since tapping into the wealth of information in Neal Boortz and John Linders books concerning the topic. So now that Perry’s plan is out, it seems only natural, as so many already have, to do a little comparing and contrasting between the two.

Rather than pitting one against the other, allow me to express that BOTH, Perry’s Cut, Balance and Grow Plan (i.e., 20/20 plan) or Cain’s 9-9-9 Plan, are viable proposals for economic growth and American success.

In a nutshell, Cain’s plan scraps the current tax code, removes ALL payroll taxes and replaces with a 9% individual flat tax (exempting those at the poverty level), eliminates capital gains taxes and the Death Tax, replaces the corporate tax with a 9% business flat tax, replaces the embedded cost of products with a 9% national sales tax, eliminates loopholes, ending nearly all deductions and eliminating special interest favors, creates opportunity zones for business incentives in low-income areas. As Cain describes, it’s “fair, simple, efficient, neutral and transparent,” while it works to increase capital for small businesses, drives productivity and wage growth, and strengthens the dollar. And that’s only Phase 1. Phase 2 begins the process of replacing the individual and corporate income taxes with the singular Fair Tax, ending the IRS as we know it and repealing the 16th Amendment! In essence, the 9-9-9 Plan works to bridge the flat-taxers with Fair Tax advocates. The ‘Father of Supply-Side Economics’, Dr. Arthur Laffer, who was a member of Reagan’s Economic Policy Advisory Board, has resoundingly endorsed Cain’s plan; and former Reagan Treasury official Gary Robbins, now of Fiscal Associates, has had the plan scored (here & here), saying that it will expand GDP by $2 trillion, create 6 million new jobs, increase business investment by one third, and increase wages by 10%!

In comparison, Perry’s plan aims at fixing the tax code by giving individuals the option of either paying a 20% flat income tax rate or remaining under the current tax code (whichever benefits your situation the best), preserves mortgage interest and charity deductions, eliminates taxes on social security benefits, eliminates taxes on capital gains & dividends, ends the Death Tax, eliminates corporate loopholes and special-interest tax breaks, reduces the corporate income tax rate from the average 28% down to 20%, and transitions the international corporate tax structure that taxes twice (once there & once here for American companies with foreign subsidiaries) to a territorial tax system that only taxes profits once (where they’re earned), encouraging repatriation of overseas capital. In addition to these tax code fixes, Perry compliments his tax plan with further elaborations into federal regulation reductions, social security reform (similar to the ideas behind the Chilean model endorsed by Cain – younger workers transitioning to personal retirement accounts, while preserving benefits for those retired or about to retire – but in addition to raising the retirement age), Medicare and Medicaid reform (gradually raising the Medicare eligibility age, reducing fraud & waste, and returning Medicare responsibility to the states), repealing job-killing legislation (e.g., ObamaCare, Dodd-Frank, Sarbanes-Oxley), demanding a balanced budget amendment, and capping federal spending at 18% of GDP through various reduction proposals, which include ending such practices as earmarks, baseline budgeting and bailouts. Reminiscent of the original flat-taxer’s plan, Steve Forbes has endorsed Perry’s plan saying, “A very low rate, generous exemptions for adults and for children, make it worthwhile to invest in America again, drastically simplifying the tax code, lowering the corporate tax rate…so it’s win-win all around!”

The most stark differences between the two plans lie within a couple of places. First, where Cain’s proposal scraps the current tax code completely, Perry keeps the current code in existence by providing an option to choose between the new and old systems. Secondly, and perhaps the most recognizable difference, Perry doesn’t replace embedded taxes with a national sales tax (a distinct Fair Tax component). While many flat-taxers may prefer this, it should be noted that such a plan doesn’t allow the personal and corporate income taxes to be lowered near the level of the 9-9-9 Plan. Nonetheless, either program illustrates a lesson in broader fairness (a word our current president likes to give lip service to) that serves as a refreshing upgrade to the punishing system we annually trudge through, leading up to that fateful April deadline.

Wouldn’t certainty be nice?

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