Cain's 9-9-9 Plan

http://www.futureofcapitalism.com/2011/10/cain-9-9-9-plan

The post from yesterday on Herman Cain's 9-9-9 tax plan generated five comments from reader-participant-watchdog-community member-content co-creators, which are worth a look. At least two other perspectives on the plan are worth considering.

The American Enterprise Institute's Alan Viard contends that the 9% business or corporate income tax isn't really that, but is in fact more of a value-added tax:

A VAT and a retail sales tax are conceptually equivalent consumption taxes, apart from administrative and compliance issues. The plan is therefore better described as featuring a 9 percent income tax and an 18 percent consumption tax, with half of the latter collected using the VAT methodology and the other half collected using the retail sales tax methodology.

And the Manhattan Institute's Diana Furchtgott-Roth doubts the 9% national sales tax would stay at that level for long:

National sales taxes have risen steadily in countries where they have been implemented, notably Europe. Just one example among many: a value-added tax started in Britain at 10 percent in 1973, and is now 20 percent. The temptation to increase it a little at a time seems to be irresistible to governments looking to spend even more.

The notion implicit in Mr. Cain's proposal that a country can impose a small, single-digit sales tax that will not creep up is not supported by other countries' experience. Thirty OECD countries have VATs, and only three, namely Canada, Japan, and Switzerland, apply rates under 10%. In many countries the VAT is the largest source of revenue.

Ms. Furchtgott-Roth has her own suggestion for tax reform:

Congress could move towards a consumption tax by taking the tax-preferred savings accounts we have now, such as 529 college savings plans, 401(k) retirement plans, traditional and Roth Individual Retirement Accounts, Health Savings Accounts, Simplified Employee Pensions, and melding them into one large tax-free savings account without limiting annual contributions. Income going into this omnibus savings account would not be taxed.

I find her suggestion intriguing but wonder whether Congress would specify what people could spend this savings on and when.

by Editor  |  Oct 14, 2011 at 2:06 pm Related Topics:  Politics, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list