Flat Taxes…The Devil is in the Simplicity

Ever since Cain came out with his “9-9-9” plan and sparked an upwelling a support for him because of the simplicity of his reform and the fact he actually was giving solutions instead of just spouting out ideological points and bashing President Obama and other candidates (Seriously, Perry and Romney look like a bickering couple); the other candidates started to roll out their new tax reform.  I will only focus on Cain’s and Perry’s reform because until i see something change, these three are the only ones who have a shot at winning the nomination.  Romney, the other front-runner right now doesn’t have a specific flat tax plan yet but “likes” flat taxes as an idea.  This though could change any second because Romney’s opinions are as limp as a noodle.

Let’s first talk about each of the two candidates tax plans quickly because I’ll assume my reading audience knows the plans already.  Cain’s 9-9-9 plan is simple enough.  He wants to have a 9% income tax, 9% business tax, and 9% national sales tax on any new items (http://www.hermancain.com/999plan).  Some deductions may be possible but they have not been outlined really except for “Empowerment Zones” which he never explains on his website page explaining his plan.  He claims that it will increase the GDP by 2 trillion, create 6 million jobs, increase investment and increase wages by 10%.  Perry’s flat tax idea is even simpler, an optional 20% flat tax that you can pay instead of the current federal income tax.  There would be deductions for dependents, mortgages, other taxes, and charitable contributions( http://money.cnn.com/2011/10/31/news/economy/perry_flat_tax/index.htm).

Cain’s plan is seducing because it’s so simple.  One tax rate for all and no one is confused.  The issue behind this tax is multifold.  Independent analysis has shown that the rich would have a steep drop in taxes while the middle class and the working poor would see their taxes go up.  Also this tax plan does not tax capital gains and dividends.  This is how a lot of wealthy people make their money, not with wages.  And the taxable wages is at 9% and their business is taxed at 9%, that equals an 18% tax rate.  This sounds all fine and dandy but the current tax rate on the wealthy is 35%.  Do the math!  Even if you include the sales tax at 9% as a literal 9% tax (which it isn’t) they still pay less with the lack of taxes on capital gains and dividends and the tax rate would only be 27% on everything else compared to the 35% today.  The rich make out with a ton of money for sure.  The poor and the middle class though don’t get this benefit.  They lose out on all the deductions they have from this current income tax rate.  50% of Americans pay no income tax, now they have to pay a 9% income tax.  Yes they do lose out on the payroll tax but that tax is only at 6%, so it is a net increase of taxes.  Also a higher percentage of their money goes to buying goods that would be taxed at 9% now on top of the states sales taxes already.  Cain says that used goods would not be taxed again and says the poor should buy used goods.  The issue is that there is no way to get used food unless you like to eat shit, and used goods tend to break more often, meaning you have to pay for repairs or get another good all together, leading to increased spending on items people need potentially.  84% of people would see tax increases according to one study (somewhere on CNN, it’s about a 2 week old article and I can’t find it at this time).  I don’t know if 84% of people would actually see increases but this is for sure, the tax burden with this bill gets shifted to the poor and middle class.

Perry’s tax plan has a lot of the same faults that Cain’s tax has.  It is definitely more forgiving to the poor and middle class and families with the deductions it offers for all those who are making less that $500,00 a year.  But the wealthiest of Americans would see their taxes drop substantially because of cooperate gains and dividend taxes being tax-free and their base income tax rate drops from 35% to 20%.  Also this other tax possibility just makes the tax code more complex.  Now instead of having just one complex tax code you have two! tax codes.  And this plan does nothing to fix the complexity of the current tax code.  Overall there isn’t the worry that it will increase taxes on the middle and lower class as much as Cain’s plan will.  But it still will drop the tax rate on the wealthy substantially.

Under both of these tax plans the rich get richer and the poor either get poorer or stay level with their current level.  Both of these tax codes will increase the gap between the rich and the poor.  Our gap between the rich and poor is worse than fucking IRAN!  But its a least better than Uganda.  Yep that’s right, our gap in income between the rich and poor is being compared to developing nations!  How insane does it sound that Iran, an autocratic government ran by clerics has more equal wealth distribution that the United States, a republic?  Pretty insane to me.  Also these plans are proposed to increase job growth as well.  On paper that sounds like it could make sense, less taxes equal more money to hire people to work.  The issue with this argument is that businesses and corporations have RECORD profits!  And you know what they are doing with these profits?  Nothing.  Big business and corporations have actually be slashing their payroll.  In September their was 5000 jobs shed by big businesses and another 1000 last month.  No wonder Occupy Wall Street is pissed at big business, the big business are not hiring when they have the money to!

I’m not saying to keep the tax code as it is, it is unwieldy and complicated to no end.  My way to fix it would be first end the subsidies and loopholes for big businesses.  The rich and big business do not need our help to survive, they are fine on their own.  The second thing i would do a carrot and stick method to keep jobs in the United States.  For companies that hired in the US and paid them reasonable living wages, I would drop the tax rate of those companies proportionally to how many people they hired based on the size of the business.  For companies that continue to outsource jobs to other nations that we need in the US, I would jack up the tax rate proportionally to how many jobs shipped to other nations.  Third I would have a tax rate based on all total income.  No matter where your income came from, I would tax that income at the same rate.  These three things alone would increase revenue and simplify the tax code for the federal government and also give companies incentives to hire people in the United States.  What Perry’s and Cain’s tax code does is make the rich richer and is class warfare in its own right.  It’s an attack against the middle class and the poor by the wealthy.  We don’t need to help the wealthy, we need to help the people who are struggling.  I will support any tax change that helps the middle and lower classes out and closes this massive gap between them and the rich.  Neither plan does this.  Flat taxes punish the poor and give wealth to the rich.

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