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Wednesday, October 19, 2011

Cain's Stimulating '9-9-9' Tax Reform

First, let me say that I am not endorsing Herman Cain's economic plan or Herman Cain. I'm still undecided about the candidate I will be voting for in the primary.

I am posting this article because it is written by Art Laffer, famous for the Laffer Curve, and I found it interesting that he is endorsing this plan. - Reggie

A new sales tax could be raised in the future—but so can any other tax. And the low marginal rates would jump-start the economy.

It used to be that the sole purpose of the tax code was to raise the necessary funds to run government. But in today's world the tax mandate has many more facets. These include income redistribution, encouraging favored industries, and discouraging unfavorable behavior.

To make matters worse there are millions and millions of taxpayers who are highly motivated to reduce their tax liabilities. And, as those taxpayers finagle and connive to find ways around the tax code, government responds by propagating new rules, new interpretations of the code, and new taxes in a never-ending chase. In the process, we create ever-more arcane tax codes that do a poor job of achieving any of their mandates.

Republican presidential candidate Herman Cain's now famous "9-9-9" plan is his explicit proposal to right the wrongs of our federal tax code. He proposes a 9% flat-rate personal income tax with no deductions except for donations to charity; a 9% flat-rate tax on net business profits; and a new 9% national tax on retail sales.

Mr. Cain's 9-9-9 plan was designed to be what economists call "static revenue neutral," which means that if people didn't change what they do under his plan, total tax revenues would be the same as they are under our current tax code. I believe his plan would indeed be static revenue neutral, and with the boost it would give to economic growth it would bring in even more revenue than expected.

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