There are things we like and dislike about GOP frontrunner Herman Cain’s 9-9-9 plan and Texas Gov. Rick Perry’s newly-introduced flat tax, but to the credit of both of these candidates they have have rolled out sweeping reform blueprints.
And while we’ll be parsing the specifics of both plans, it goes without saying that the current tax code must be scrapped. Not only is it anti-competitive, it’s also expensive – costing hundreds of billions of dollars to enforce.
As the 2012 election season rolls on, here are a few “taxing principles” that we’ll be keeping an eye on …
It seems elementary, but the notion that there is an optimum rate of taxation – a.k.a. the “Laffer Curve” – is real. Here’s how it works: Once taxes get too high, they begin to choke off not only economic growth, but also (pay attention, liberals) government revenue. Arthur Laffer’s famous curve points to the existence of an “ideal” tax rate that provides the maximum rate of revenue – and needless to say, the United States is currently operating well above that rate.
Translation? One of the best ways to get rid of the deficit is to lower … not raise taxes.
On top of that, we must never forget that this ideal rate must be based on the amount of revenue government needs to perform core functions, not all of the things it’s doing today or hopes to do in the future.
REDUCE THE CORPORATE TAX
A primary example of the Laffer Curve at work is the United States’ excessively high corporate tax rate – which at 34.6 percent is effectively the fifth-highest rate in the world. This restrictive rate not only stifles the growth of domestic firms, it prohibits capital (and new jobs) from entering our country. Drastically lowering this rate would dramatically enhance our nation’s competitiveness.
Hell, even U.S. President Barack Obama’s fiscal commission endorsed lowering the corporate tax rate – although for reasons surpassing understanding Obama has chosen to continue pushing for new bureaucratic bailouts.
SCRAP REVENUE NEUTRALITY
More than any other political presumption, the doctrine of “revenue neutrality” is killing our nation’s economy while sustaining the unnecessary expansion of government. Simply put, revenue neutrality is the government-endorsed belief that to cut one tax, you have to raise another.
As we noted recently in critiquing former Utah Gov. Jon Huntsman’s plans, the doctrine of revenue neutrality “ignores the fact that the federal budget (like the federal government it funds) has assumed obscenely-large dimensions in recent years and is decades overdue for a draconian downsizing.”
“It also ignores the fact that the long-term key to reducing America’s deficit is a vibrant and prosperous economy – one which can only be achieved by broad-based tax relief that stimulates job growth and expanded private sector investment (thus reducing the number of people reliant on government aid),” we added.
DONT IGNORE ENTITLEMENTS
Just as entitlement spending cannot be ignored in the deficit cutting debate, it cannot be ignored when formulating a comprehensive tax plan. After all, payroll taxes are a huge part of America’s tax code as well as a popular bargaining chip – as evidenced by Obama’s attempts to temporarily extend existing payroll tax relief in exchange for new tax hikes on wealthier income earners.
To his credit, Perry’s plan addresses entitlements … taking a few baby steps toward the privatization of Social Security.
FOCUS ON WEALTH CREATION, CONSUMERISM
By far the most important objective of tax reform should be job creation – which stems from wealth creation and the empowerment of our nation’s consumer economy. That’s our basic problem with Cain’s 9-9-9 plan – it would create a lot of wealth by reducing taxes on high income earners, but it would also likely stifle consumerism by raising taxes on the middle class. Sure a lot of jobs would be created in the short-run, but you can’t turn the economy around on a long-term basis without empowering both job creators and everyday consumers.
Individual income tax relief up-and-down the socioeconomic ladder is what’s required to get this country’s economy moving again.