by Linda Beal
The Atlantic has a good summary article contrasting Perry’s Flat Tax proposal (an alternative choice to the income tax, that is modeled after Steve Forbe’s flat tax, which will result in much lower taxes for the wealthy because of the deductions it retains along with the zero taxation of capital income) and Cain’s 9-9-9 intermediary proposal as well as Cain’s ultimate goal of the so-called “FAIR tax” –a national sales tax at a tax-inclusive rate of 23%–both of which will result in much lower taes for the wealthy because of zero taxation of capital income. Of course, along the way to his purported “FairTax”, Cain will put us through his wacky 9-9-9 plan that includes a VAT (but one that has solely a wage base), an individual Flat Tax (but one whose provisions to benefit the poor are uncertain–some kind of poverty exemption and impoverished district exemption, without much information about how it works or how much it helps), and a FairTax (without any relief from the lumpiness of the tax that causes it to be particularly unfair to the poorest of the poor). See Derek Thompson, Perry Tax, Flat Tax, Fair Tax, VAT (Tax): What’s the Difference?, The Atlantic (Oct. 25, 2011).
None of these proposals are revenue neutral (they will raise less revenues than raised under the current tax system). Either the rates would have to be increased or the government would be forced to operate in deficits (as it was pushed into doing with the Bush tax cuts where the $1.2 trillion cost over ten years of the 2001 bill moved the nation from surplus to deficit in one fell swoop).
None of them are distributionally fair–they shift the tax burden (to whatever extent the federal government is allowed to exist) down to the middle class and maybe the poor, while giving the rich extraordinary tax reductions through complete exemption of their main type of income.
None of these proposals are “simple” in any meaningful way. They all require similar tax administrative apparatus to the current system (or, in Perry’s case, duplicative administration to take care of the choice of Flat or Income tax), involve the same calculations about timing, amount and character of income necessary under the income tax (but now fraught with more potential for abuse through mischaracterization, since one type is entirely tax free), and require the same procedural due process and penalty mechanisms, as well as forms, instructions, guidance and audits that are required under teh current system. The only sense in which the Flat or FAir tax or VAT is simpler is when you mean by simpler that the wealthy pay less in taxes.
So if we are to judge the proposals by their results, it would seem that these two right-wing contenders for the GOP presidential nod think that two things are immensely important:
1) reducing taxes on the uberrich, and
2) reducing revenues available to the government to fund important programs.
That fits, since the right wants to “drown” government (and get rid of the New Deal earned benefit programs of Social Security and Medicare that aren’t needed by the elite who fund the right) and wants to cut taxes on the rich/big corporations as close to zero as it can get away with.
Let me repeat. The arguments used to support all of these consumption-type taxes are fundamentally flawed. They are not simple–they will involve the same hair-splitting on categorization of income as the current income tax, the same forms, timing issues, accounting issues, tax procedures for due process, and tax administration as the income tax. They are not fair–they push the tax burden off on the middle class (and the poor, especially under some of the variants) and give the wealthy inordinate tax breaks by not taxing at all their most common type of income from capital. They will not bolster growth and result in superb “trickle down” effects for the poor–tax cutting measures simply cannot do this because the theory that says they can is based on flawed assumptions about real life and flawed judgments about what matters. They will hurt government programs that are vitally important to quality of life. They will exacerbate the inordinate inequality already hurting the US society by making the wealthy even wealthier, and push us even further towards outright plutarchy (plutocracy and oligarchy at the same time, where a wealthy and prestigious elite holds all the reins of power). They will result in the dismantling of the New Deal from Social Security to Medicare, accompanied by gleeful sounds of delight from the radical right that supports the corporatist state and moans of pain from the vulnerable, the poor, and the elderly who are thrust back into neofeudal serfdom under the corporate masters of the universe.
Michael Kingsley and Francis Wilkerson agree with me on the latter issues. I just found their Bloomberg opinion piece on flat taxes: Flat Tax Proposals are Perpetual Font of False Promises, Bloomberg.com (Oct. 24, 2011).
originally published at ataxingmatter