Wednesday, October 19, 2011

Be a simple kind of man...

...with a simple kind of plan.

Okay, Lynyrd Skynyrd never said the second part. But what they did say--in their classic hit "Simple Man"--is this:
Forget your lust for the rich man's gold
All that you need is in your soul
An easy bit of advice to give, a much harder one to live by. Nonetheless, there seems to be a lot of lusting going on these days, from the class warfare rhetoric of the admin and Democrats in Congress, to the Occupy Wall Street movement (which the previous two are desperately trying to take ownership of for obvious political purposes).

At the end of the day, the solutions to the unequal distribution of wealth in this country are bound up in government action: "regulating" and taxing the greedy 1% (or 4%, or 6%, or wherever one draws the line). So, we've heard plans for a "millionaires' tax," plans to cut away tax breaks for corporate jet owners, plans to have an "executive pay czar," plans to up capital gains tax rates and income tax rates (on the "wealthy"), and the like, with simultaneous calls for increased "stimulus" spending, increased entitlements, and extended unemployment benefits, all against the backdrop of a mounting debt problem that seems unlikely to get fixed in the near future.

Along comes a man with a simple plan, Herman Cain. I noted his plan in a previous bit and asked--in jest--if he was a buffoon or a visionary. Judging by the response to his plan, it looks like most political leaders and pundits have opted for the former. On the left, the criticism is built around Cain's plan being too "regressive," never mind his stipulation that the lowest income levels would pay no income taxes (and no payroll taxes). On the right, the criticism is built around--of all things--the simplicity of the plan. It's no good because it's simple.

That kind of criticism should be an eye-opener, with regard to those that have offered it. What exactly is wrong with simple plan, if it does what it needs to do?

Taxation has a simple goal: to fund the government. And it is based--in nations founded on a social compact theory--on a simple standard: pay for service rendered. Taxation is not tribute. Taxation is not punishment. Citizens pay taxes because the government serves their interests, provides security, and manages the laws and rules of society. That's all there is, there isn't anymore.

So, what would Cain's plan actually do? Arthur Laffer lays it all out--in a simple manner--in the WSJ:
The whole purpose of a flat tax, à la 9-9-9, is to lower marginal tax rates and simplify the tax code. With lower marginal tax rates (and boy will marginal tax rates be lower with the 9-9-9 plan), both the demand for and the supply of labor and capital will increase. Output will soar, as will jobs. Tax revenues will also increase enormously—not because tax rates have increased, but because marginal tax rates have decreased. 
By making the tax codes a lot simpler, we'd allow individuals and businesses to spend a lot less on maintaining tax records; filing taxes; hiring lawyers, accountants and tax-deferral experts; and lobbying Congress. As I wrote on this page earlier this year ("The 30-Cent Tax Premium," April 18), for every dollar of business and personal income taxes paid, some 30 cents in out-of-pocket expenses also were paid to comply with the tax code. Under 9-9-9, these expenses would plummet without a penny being lost to the U.S. Treasury. It's a win-win.
The money would be there to fund the government, especially when the economy revved up. This fixation on the flaws on Cain's plan--and it's by no means perfect--ignores the flaws of the tax code we now have in place. Currently, the incentives (remember what those are) all go the wrong way: minimize reportable income, maximize deductions, and look for loopholes. Those incentives mean lower revenues, as a matter of course. Cain's plan--or one very similar to it--would create the right kind of incentives, ones that would actually tend to increase revenue, since there would be no downside for the individual--or corporation--in trying to increase income.

Simple. Yet--apparently--far too sensible.

Cheers, all.

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