As for Perry’s plan, the Texan shrewdly immunized himself against criticism that he was proposing to raise taxes on any group by offering folks the option of paying under the current system.
There would be no “losers” under the first option, but there would be a limited number of “winners” under the second option. That’s because, under the best-case scenario, only individuals or families with gross earnings of upward of $200,000 a year would reap a benefit.
At that taxable income threshold of $150,000 (which is income minus deductions), the effective tax rate is 20 percent, which is the same as Perry’s flat tax rate. So anyone with taxable income of more than $150,000 would see a higher-than-20 percent effective rate under the current system, and they would opt to pay the flat tax, says Jeff Lancaster, a principal at Bingham, Osborn and Scarborough in San Francisco.
“He’s not raising taxes on anyone — just lowering them for people with more than $150,000 of taxable income,” Lancaster says.
And even though Perry bills his plan as refreshingly simple — anyone paying under the flat-tax system need only file on a postcard, he likes to point out — it is anything but that. By giving taxpayers an option of whether to pay under the current or flat-tax systems, he would maintain the complexities of the current tax system and layer an entire new tax system on top of it. That would hardly be an improvement.
As for Romney’s plan, it’s as dense and complicated as the current system, because he only makes some changes on the margins. His central changes are to eliminate capital-gains taxes on taxpayers earning less than $200,000 and to repeal the estate tax.
Cain’s plan appears simple, but think again. “Would it be difficult to file taxes? No,” says Michael Linden, director for tax and budget policy of the Center for American Progress.
But if simplicity is defined partly by transparency, “the plan is misleading,” Linden says.
The 9 percent business tax isn’t ultimately paid by businesses, as its name suggests. It works like a value-added tax, a levy that passes down the supply chain of any item’s production and is ultimately embedded in prices. “It is essentially borne by consumers but doesn’t show up on their tax return,” Linden says, pointing out that the 9-9-9 plan is essentially a 27 percent tax paid by individuals.
Revenue, meanwhile, is the whole point of having a tax system, but none of the Republican plans would raise revenue matching the current tax system’s $4.6 trillion, which some argue isn’t even enough.
Details of the various plans’ revenue haven’t been released. The only plan that actually raises taxes is Cain’s — on the middle class — but his massive tax cuts for the wealthy would far outweigh any added revenue collected from the middle class.
Clearly, any tax plan will have to include compromises when it comes to fairness, simplicity and revenue.
“These criteria are often in conflict with each other,” says Chris William Sanchirico, a Samuel A. Blank professor of law, business and public policy at the University of Pennsylvania.
“For example, simplicity may be in conflict with fairness. As soon as you want to key tax liability to people’s ability to pay, then you have to look for indications of people’s ability to pay, and all of a sudden it becomes quite complicated,” Sanchirico says.
Still, the average American ought to be miffed at the Republican candidates’ push for major tax changes that would do little for them while helping the nation’s wealthiest taxpayers.
No dice.
Hube is a columnist for The Fiscal Times, an independent news organization that provides original reporting and analysis on fiscal and economic matters.
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