The Challenge of Creating an Economically Sound, Simpler, and More Just Tax Code (Part 1 of 3)
If there is one positive thing Herman Cain has contributed to the national debate it would be this renewed discussion about tax reform. While I am skeptical of some of the specifics of his 9-9-9 plan, if nothing else, Cain has forced the other candidates to come out with proposals of their own. Gov. Rick Perry in a seemingly desperate move to remain relevant proposed an alternative 20% flat tax – a single rate that’s less than the sum of all of Cain’s 9’s.
Before I was aware of and became a supporter of the Fair Tax (a 23% consumption tax that would replace the income tax, payroll tax and all other federal taxes; Gary Johnson and Herman Cain* both support the Fair Tax) I was a supporter of the Flat Tax as proposed by Steve Forbes in his 2000 presidential bid. If we must be subject to an income tax, it seems only fair that everyone pay the same tax rate. None of these proposed plans are perfect but at least everyone is subject to the same rates.
But apparently my definition of “fair” differs quite a bit from those who think a “progressive” tax (i.e. the more you make, the more the government will take) is fair. Take this article from Politico for example:
Taxing the poor has become a badge of honor among conservatives. When Occupy Wall Street protesters launched their cry of “We are the 99 percent,” the right-wing blogosphere responded, “We are the 53 percent,” meaning the 53 percent of American households that they say pay federal income taxes.
Conservatives have become fixated on the notion that largely because of the Earned Income Tax Credit — passed under Ronald Reagan and expanded under Bill Clinton — almost half of all Americans pay no income taxes.
Perry launched his presidential campaign expressing dismay at the “injustice that nearly half of all Americans don’t even pay any income tax.” And he was not alone. Every major candidate — Rep. Michele Bachmann (R-Minn.), Mitt Romney and Cain — has suggested that too many of the working poor aren’t paying income taxes, a position The Wall Street Journal describes as “GOP doctrine.”
The argument is disingenuous. Working poor people do pay taxes. They pay a larger portion of their incomes in payroll taxes and sales taxes than the wealthy. And they pay property taxes indirectly in their rental costs. Poor workers pay about one-eighth of their incomes in taxes, on average.
For the sake of argument, I will assume that the author’s assertion is correct that the working poor pay a greater share of their incomes than the wealthy counting both direct and indirect taxes. Indeed there are all sorts of hidden taxes that are embedded in every good or service we all buy.
Regulations on business (which the author of this article undoubtedly supports) that contributes to the overall cost of employing a worker** are potential earnings the worker might otherwise be paid. » Read more