I used to like the flat tax. In fact, I used to propose exactly what Rick Perry is now pushing – an optional flat tax where taxpayers could either make their way through the labyrinth of IRS fine print in search of deductions or could just pay a flat percent of their income in taxes and be done with it.
But then came 2007-2008 and the flaws in our economy became glaringly apparent: The pursuit of wealth through loopholes in the tax code and other speculative devices rather than by productive investment in economic growth. So when Herman Cain proposed 9-9-9, I was and am ready to embrace the idea.
Though imitation is the sincerest form of flattery, Perry’s rush to put his own tax reform on the table is an obvious attempt to horn in on the limelight in which Cain has basked. But the proposals are just not comparable.
Cain’s goal is to reduce the drag that the income tax puts on entrepreneurial initiative and hard work. By slashing the income tax rate, effectively, in half, he makes it that much more worthwhile to get up in the morning, take risks, work hard, take chances, and invest in progress. By eliminating the capital gains tax, he rewards investment and ownership and makes it possible for people to move up the economic ladder, not through phony teaser Fannie Mae mortgages, but by smart purchases and skillful investint.
The goal of Perry’s proposal is far more modest: He wants to cut our paperwork. He wants to make it possible to file one’s taxes in a few minutes rather than devote days and weeks to the task. He proposes, essentially, a short form for middle income and rich people so tax preparation won’t consume their lives. It’s a worthy goal. We need to trim the ranks of IRS auditors and staff and free people to make sound investment decisions regardless of the tax consequences. We need to get the IRS out of our lives and a flat tax is a good way to do it.
But Cain’s proposal is so very much more important. Perry will nibble around the edges, freeing valuable hours from tax preparation to be available for wealth creation. But Herman Cain would establish America as a beacon for investors, entrepreneurs, inventors, creative business people, and all manner of upwardly mobile, ambitious men and women. He would give the U.S. the lowest personal and corporate tax rates in the world, and the only place where investment earnings are tax free. In the process, he and his plan would kindle decades of robust economic growth. He would make the next few decades a continuation of the American Century.
To trivialize Cain’s big idea by comparing to to Perry’s small one is a vast disservice. Perry would not reduce the amount of money taken in by income and corporate profit taxation. He would just shift it to shorter forms and a nominally lower rate (but not really lower). Taxes would appear to be cut, but the amount we would have to pay would be more or less the same. He even strives to have his program seen as revenue neutral.
Cain would shift about half of our nation’s tax revenues to consumption taxes and away from income taxes. He would vastly reduce the disincentive to earn and encourage savings and investment by taxing spending.
It is not enough to undo the damage Obama has done to the economy by repealing his spending, taxing, health care, and regulatory actions. All that will do is dial us back to the sick economy Bush bequeathed to America. The diseases of the first decade of the 21st Century will still be with us. But Cain’s ideas really get at the heart of the problem — in much the same way that Reagan’s reducing of the top personal tax rate from 70% to 28% solved the stagflation of the 70s.
Cain’s reforms are the real deal. Perry’s are a pale imitation.