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It’s Friday, which means it’s time for the Innovator of the Week. If you’re not familiar with the series, you can catch up and vote in our entirely non-scientific poll. If you are familiar with the series, then you know that last week we pitted the Occupy Wall Street movement against the object of its ire: Wall Street.
The 9-9-9 Plan: Republican presidential candidate and former Godfather’s Pizza CEO Herman Cain has captured the attention of the nation and the world with one of the catchiest tax-related slogans since George H.W. Bush said “read my lips, no new taxes.” The “9-9-9 Plan” has been considered “politically savvy,” but has received a lukewarm reception, at best, on the details.
During The Washington Post-Bloomberg News debate on Oct. 11, former Utah governor and ambassador to China Jon Huntsman joked that he thought Cain’s tax plan “was the price of pizza.” But that hasn’t stopped the plan and Cain from gaining significant traction in the Republican primary race. The campaign’s description of the 9-9-9 Plan is available online for anyone to read. But, for an impartial analysis, we turned to Washington Post Fact Checker Glenn Kessler. According to Kessler:
The “9-9-9” label is actually a bit of misnomer. Cain would toss out much of the current federal tax code and replace it, eventually and only temporarily, with three taxes — a 9 percent income tax, a 9 percent business transactions tax and a 9 percent federal sales tax. On paper, the first two look like cuts, because payroll taxes for Social Security and Medicare (now nearly 15 percent, including corporate contributions) would be repealed. The sales tax would be new, on top of existing state sales taxes.
Cain’s plan would eliminate the current tax code, replacing it temporarily with a 9 percent income tax, 9 percent business transaction tax and 9 percent federal sales tax. Then, all taxes, including the 9 percent taxes, would be replaced with a single, national sales tax in the style of the “Fair Tax.”
Ultimately, while Cain promises a tax cut, his plan would actually mean a tax hike for millions of lower-income Americans who currently benefit from the earned-income tax credit and other deductions built into the existing tax code. And, as Kessler notes, it’s highly unlikely that, given the complex nature of the tax code and the numerous hoops changes to the code must go through, that a Cain Administration would be able to successfully implement changes three times over.
Regardless of where you stand on the 9-9-9 Plan, there’s no question Cain is thinking outside of the box when it comes to overhauling America's tax system. But what about the flat tax?
The flat tax: “I want to make the tax code so simple that even Timothy Geithner can file his taxes on time,” Rick Perry told an audience at the Western Republican Leadership Conference in Las Vegas Wednesday. The Washington Post’s Rachel Weiner reports that Perry proposes to place a flat tax at the heart of his economic recovery plan. The flat tax is, as the name suggests, a universal income-tax rate for all Americans. It would eliminate the progressive tax system currently in place, taking with it the complicated forms and costs incurred to implement a more complex tax system. The flat tax differs from the Fair Tax in that it would be a tax on income, rather than a national sales tax.
The flat tax has been proposed by political office seekers before, including publisher Steve Forbes, Sen. Phil Gramm (R-Tex.) and California Gov. Jerry Brown (D). But the tax proposal is a double-edged sword politically. As the Post’s Jia Lynn Yang writes:
The allure of the flat tax is that it promises to wipe clean the complicated tax code. But it does this by throwing out some popular tax deductions, including breaks for mortgage interest payments, charitable giving and employer-paid health care.
The flat tax is merely a part of Perry’s economic recovery plan, the details of which he will make available next week. The plan will also include spending cuts and entitlement reform. But, as with Cain’s 9-9-9 Plan, a flat tax has been criticized as regressive, burdening lower-income Americans with higher taxes.
The Fair Tax, which Cain’s 9-9-9 plan would ultimately implement, is younger than the flat tax. After all, the United States implemented a flat tax immediately following the Civil War. But, the nation’s economic health and its tax policy are far more complicated today. Is the implementation of a flat tax more or less innovative in this current climate than Cain’s “9-9-9,” Fair Tax-style option? We leave that to you.
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