By Tera Ertz
Taking a brief break from the language lessons today, my eye attention and imagination was taken by another topic. With Mr. Cain’s meteoric rise in the polls, and the large amount of time spent jumping all over his tax proposal during that last GOP debate, there has been a lot of chatter and analysis of this unique plan Mr. Cain refers to as 9-9-9. A couple of key points to clear up some misconceptions:
- It is not true that all economists are saying this is a bad plan that will lead to horrible revenue problems, people starving to death because they can’t afford food, or grandma being forced to choose between her cat food and her medicine (okay, so those are slight exaggerations of the claims being made, but you get the drift). I have read several articles that make it appear that most economists, on both sides of the political spectrum, have nothing but criticism for Mr. Cain’s plan. I beg to differ. For those of you who know anything about the economic policies of President Reagan, you probably know the name of Art Laffer. This is the gentleman for whom the Laffer curve is named. For those of you less familiar with the folks behind Reagan’s economic policies, the Laffer curve was the supply side economic model that illustrated the negative revenue effects on the government as marginal tax rates rise. In other words, Laffer was what some call the father of supply side economic theory, but was in fact just that generation’s whiz kid at translating complex economic activity into understandable and visual explanations. It was his advice, along with Reagan’s skill and determination that led this country to one of its longest periods of sustained economic growth. Yesterday, Mr. Laffer noted that Mr. Cain’s plan was workable, far better than our current system, and would definitely boost the flagging American economy.
Today, another noted economist, that I’m sure pretty much everyone knows, also stated that it was a solid and credible plan to restructure our tax code. That would be Mr. Paul Ryan. Yes, he of the dreamboat eyes, wonderful smile, and razor sharp economic mind. The Paul Ryan who designed The Road to Prosperity. The Paul Ryan that the Tea Party was drooling over in the hopes he would throw his hat in the ring for the contest for President. The Paul Ryan who became a smash YouTube hit with short, easy to understand, videos on economics of all things. Now, Mr. Ryan did include the caveat that he’s a flat tax kind of guy, and that isn’t the ultimate goal of the 9-9-9 plan. But, if Mr. Laffer, Mr. Ryan and for good measure we’ll toss in Mr. Dick Morris from the other side of the spectrum, then I’d have to say that of the economists I actually know anything about that believe in a free market system, they all say Mr. Cain’s plan has legs.
- Next up, “I’d rather have the Fair Tax.” Well, my friends, so would Mr. Cain. If you take the time to go to his website you will see that Mr. Cain describes the 9-9-9 plan as Phase I. Being a savvy businessman, and having dealt with Americans from all walks of life for a long time, he understands that big changes take time, and it’s easier to educate people in small pieces when the goal you’re trying to achieve is foreign to them. There was once a tax system in this country that did not include income taxes. One would assume that the government derived its taxes from somewhere during those 150 years or so, and I’m guessing it was some form of tax on commerce. Most states have some kind of income tax as part of their support system. But, we’ve had the income tax and corporate tax as the largest and most visible tax system for nearly 100 years now. We’ve had it long enough that no one remembers when we didn’t and we’ve had it long enough that no one remembers the income tax was originally only supposed to be a 1% tax on the wealthiest 1% of the populace. Leading the country to adopt the Fair Tax, which many tax experts believe is a far better system than the income tax, will take three things. First it will take someone with a soapbox to educate the populace both on the tax itself and the process of passing the necessary Constitutional Amendment that is part of it. Second, it will take demonstrating how that tax will work. Third it will take an immediate and sweeping fix for the system we have both to boost the economy and to clean up the incestuous relationship between Congress and business that has been enabled by the current tax code. These last two is where 9-9-9 comes in. So, if you truly support the Fair Tax, then Herman is your man.
- One more for tonight. “The 9-9-9 plan is regressive. It’ll make poor people and the middle class have to pay more in taxes.” Now, as far as the middle class goes, I don’t honestly think those complaints add up, but for those who are currently paying no taxes, or actually getting money back from the government every year above and beyond what they’ve paid, this is undoubtedly true. And being among that number, I’ll take a page from the likes of Buffet and say please go ahead and pass this. This is not regressive, it is equal application of the law. The law states that each person must make some contribution to the upkeep of their government. But beyond that, I have an interesting theory regarding progressive taxation.
Economists and politicians from across the spectrum understand one basic thing about taxation and subsidizing, though the liberals will deny it. If you want more of something, you subsidize it. If want less of something, you tax it. This is the reason why liberal taxes on behavior, such as cigarette taxes, consistently fall short of their projected revenue. Don’t believe that both sides know it, and that it works? Liberals decided they didn’t like carbon based fuels and that they like renewable sources. So, they taxed gas and oil and coal, and because it is a necessity of life in this country, it hasn’t gone away, but usage has decreased to some degree, and plants have been forced to close in some places. They subsidized renewable energy because they wanted more of it. Sure enough we had companies springing up all across the fruited plains hawking renewables from solar to wind to biofuels. Granted, many of those companies failed, and more of them would if those subsidies were removed, but they got more people making the kinds of things they wanted made. They didn’t like smoke, or salt, or fats, so they’ve instituted taxes on these things, ostensibly to pay for health care costs and such, but the reality is that people stop using them as much in the areas where they are taxed the highest (or they go across state lines to get their contraband). Conservatives apply the same principle, usually in reverse. They know that taxing something reduces it, so they see high taxes on industry and high unemployment, and they lower tax rates to spur increased industry to in turn lower unemployment. And this too works over time. I’m sure there are subsidies as well on the Republican side of the aisle, such as agriculture stuff, but you get the gist of what I’m saying. Everyone who knows anything about economies and human behavior recognizes this basic economic law.
So my question becomes this, if we truly want to reduce poverty and increase the middle class, why are we employing the exact opposite strategy through the progressive tax system? The complaint is that poor people will be harmed because this tax will make them start paying into the system. But, given the economic reality of this principle, doesn’t it seem more likely that government subsidizing poverty has actually created more poverty, and that government taxing poverty would in all likelihood actually reduce it? Given the success of welfare reform in the 90s, where subsidizing of poverty was actually greatly reduced, and income levels correspondingly increased, I’d say this theory is at least worthy of study and experimentation. And I’d say Mr. Cain’s 9-9-9 plan would make a good start on that study.