Am not an economist. Have not read in any detail the 9-9-9 plan promoted by candidate Herman Cain. Just have my gut reaction to the idea.
My 59 second understanding of the plan is that the Federal Government tax system would be overhauled and replaced with 9% corporate income tax, 9% personal income tax and 9% sales tax.
The virtue of the plan is simplicity. As it is now, the tax code is loaded with deductions and credits and other adjustments that distort economic behavior.
In an ideal world, a tax system should accomplish two things:
(1) raise sufficient revenue to fund government services
(2) be simple so that there is reduced incentive to outright cheat (illegal) on taxes, engage in activity (legal) to shelter money from taxation and keeps compliance costs down.
"Fairness" of a tax system is a highly subjective criteria in comparison to the other two criteria.
Examples of "fairness" questions would be:
At what income level should someone begin to pay personal income taxes?
If someone makes more income, how much more should they pay?
Ironically, the desire to make the rich pay their "fair share," can cause problems which even LA Times lefty commentator George Skelton noted. Excerpt: If President Obama really wants to see the "Buffett Rule" in action,
he should look at California's tax system. The state has been plagued by
it for years. The revenue stream is unstable and the state budget has been a deficit disaster. Soaking the rich - relying heavily on them for income taxes - has
resulted in a precarious revenue roller coaster ride. It's either boom
or bust in Sacramento, depending on how the wealthy are faring in the
stock market and their other investments.
In any case 9-9-9 has the virtue of simplicity, criteria #2.
But how about criteria #1?
Does it raise enough money to fund the government?
The rate numbers could be raised up/down to bring the budget into balance.
In many ways, the greater question is how much do we want the government to spend and are we willing to have a tax system of whatever variety to bring in revenue to pay for it?
Matching revenue with spending is really the first question.
With that question answered, we can then move onto the second one of devising a system that raises revenue effectively without the distortions in economic behavior that the current system has.
In that regard, I think most simple systems with minimal credits and deductions would suffice: 9-9-9 mix of corporate, income and sales tax, national sales tax only with a rebate for low income, flat income tax with exception for low income, 3 income tax bracket, etc.
The challenge is that the current system has provisions put in by political winners to benefit their group and punishes political losers!
Sweeping away all those tax credits, deductions, loopholes and provisions would result in huge political battles.
If we can decide how much government we want and sweep out all the various competing interests baked into the tax code... that would really be something!
UPDATE: Conservative icon National Review is against 9-9-9. I didn't realize that the 9-9-9 plan is just a transition to a national sales tax only plan. In regards to the fairness issue, looks like 9-9-9 might be hard on the lower income folks. Also, there is the difficult political reality of going from our existing system to any proposed system that is radically different. As it is, if any change is to occur, the feasible practical thing to do would be paring back the various tax credits, deductions and loopholes of the existing system in exchange for lower rates rather than shoot-the-moon with a brand new system.
Cato's Dan Mitchell has mixed feelings about 9-9-9. Excerpt: After all, Europe’s welfare states began their march to fiscal collapse and economic stagnation after they added a version of a national sales tax on top of their pre-existing income taxes.
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