NCPA - National Center for Policy Analysis

How about 15-15-15?

October 25, 2011

Presidential candidate Herman Cain has made a splash with his 9-9-9 tax reform plan, evinced by his drastic gains in the polls for GOP nomination hopefuls.  However, two of the three components of the 9-9-9 plan (a flat 9 percent income tax, a 9 percent national retail sales tax and a 9 percent business tax) are unappetizing and dangerous to efforts to control excessive spending.  These portions, the retail sales tax and the business tax, will kill the plan for conservatives and cause more problems in the long run than they resolve now, says Chris Edwards, director of tax policy studies at the Cato Institute.

The true danger of a national retail sales tax is not in the amount, but in the principle.

  • By creating an entirely new revenue stream for Washington, the second 9 of the 9-9-9 plan threatens to facilitate even further out-of-control spending that has plagued the federal government.
  • In proposing such a measure, Cain is offering to liberals a conservative cover for increased expenditures in the future and is extinguishing motivation to tighten the belt of the federal government, specifically in regards to entitlement programs.

The 9 percent business tax is often viewed in a positive light because it is substantially lower than the current 35 percent corporate income tax.  However, the two are different in many aspects that disguise the detrimental impact of the business tax.  It would eliminate deductions for wages and apply to all businesses (including those currently exempted from the corporate income tax), thereby broadening the tax base.  However, this tax would leave businesses with a substantial tax burden on workers' wages that would make it more expensive to employ additional people.

Instead of 9-9-9, Cain should consider a 15-15-15 plan, rethinking his revenue sources and his rates.

  • This would include a flat 15 percent income tax (substantially higher than his rate, but the increase covers the difference in other components).
  • It would also retain a corporate income tax at 15 percent (as opposed to a business tax), which is a much lower rate than the current 35-percent rate.
  • Finally, it would keep a 15 percent payroll tax, displayed clearly on employee pay stubs, to remind workers of the real cost of entitlement programs.

Source: Chris Edwards, "Herman Cain: How about 15-15-15?" Daily Caller, October 14, 2011.

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