How About 6-6-6?
Ok. Let's get any talk of the devil out of the way. I'm not talking about THAT 666 -- I'm talking a serious alternative to 9-9-9.
Herman Cain's 9-9-9- tax plan, which he has called a "bold" rewriting of the tax code, has gained a lot of attention because of its inherent strength and simplicity. It is indeed a step in the right direction, imposing a flat 9% tax on individuals and corporations while greatly simplifying the tax code by eliminating most deductions. The problem is the third 9% -- a national sales tax that nobody wants.
So maybe Cain's plan is not bold enough. A revision to the tax code that imposed a 6% tax on individuals and corporations coupled with a 6% reduction in federal spending would accomplish the same goals without a national sales tax.
That's a 6% cut with no future increases in federal spending beyond inflation. Coupled with 6% tax rates across the board, an actual 6% cut in spending -- not a cut in projected baseline spending or other Capitol Hill gimmicks -- would soon balance the federal budget, spur growth, and reduce unemployment.
The 6% corporate rate in particular would generate growth, jobs, and prosperity on an unimaginable scale. Corporations now sheltering $1.4 trillion overseas, unwilling to bring that money home because of a high tax rate of 35%, would return much of it to the U.S. to expand operations here. Foreign companies, seizing the opportunity of permanently low tax rates, would move their operations to the U.S. as well. There would be full employment, businesses large and small would prosper, entrepreneurial activity would explode, pension funds and retirement accounts would mushroom, and all would be well again in America.
This may sound a bit overblown, but the facts back it up. Arthur Laffer points out that Cain's 9-9-9 plan is more than revenue neutral, if analyzed in dynamic rather than static economic terms. It not only balances the federal budget, it does so and then some.
6-6-6 would do so as well, especially if one takes in to account the economic effect of tax simplification. As Laffer demonstrated in an April 18 Wall Street Journal column ("The 30-Cent Tax Premium"), businesses and individuals pay an additional 30 cents in compliance costs for every dollar of tax collected. In other words, 5.538% of the entire economy, or over 10% if one includes state and local taxes, is sacrificed to tax compliance costs. (This, of course, does not include the cost of the IRS bureaucracy itself, or the even larger burden of federal and state regulatory costs unrelated to tax collection. Those regulatory costs would be reduced along with cuts in the overall size of government.)
Reducing the size of government and eliminating most of the compliance costs necessitated by our byzantine tax code would make this country the economic powerhouse it once was. Tax simplification would greatly reduce the "30-cent premium." Rate reduction, meanwhile, would spur economic growth by reversing tax avoidance strategies that distort capital markets and discourage work. If made permanent, rate reductions would increase business confidence and unleash "animal spirits," two extremely important intangible factors in economic growth. These factors are closely connected with the willingness of business to expand and with a greater level of spending and investment on the part of individuals.
As for the 6% cut in federal spending, it is long overdue. Everyone outside of Washington understands that the federal bureaucracy is bloated and wasteful to an unimaginable degree. As Ron Paul has pointed out, entire departments, including Education, Health and Human Services, and Commerce, could be eliminated with no loss in services. Indeed, with an improvement in service, since the federal government would then be getting out of the way of the private sector in areas like energy, education, and human services.
And did we mention the virtual elimination of the IRS and EPA? With a dramatic simplification of the tax code, eliminating all deductions and credits, the IRS would have little to do except check total income and calculate 6%. A single computer could do that.
As for the EPA, its mischievous behavior has been a drag on the economy for decades, but in the past three years it's been acting like lord of the manor, accountable to no one and with no concern for the economic well-being of the American people. The EPA is a monstrous parasite sucking the blood out of the American economy. It's time to eliminate this destructive agency and delegate its legitimate functions-the preservation of clean air and water-to a department that might act in a more accountable and cost-effective manner. As it stands, the EPA is always going to be biased toward greater regulation because its single-minded mandate results in its being directed and staffed by dedicated environmentalist activists. The only way to dispel the insufferable arrogance of this agency is to cut it out root and branch.
Herman Cain should be praised for introducing the 9-9-9- plan and with it galvanizing the discussion of tax reform. But 9-9-9 doesn't go far enough, and the idea of a national sales tax sends chills up my spine. If one of the GOP candidates, perhaps Cain himself, would drop the sales tax and go with 6-6-6, a plan which includes real spending cuts, the country would be a lot better off.
Jeffrey Folks is author of many books and articles on American culture and politics.