Perry’s flat tax is simplification but not reform
Posted: Tuesday, November 1, 2011 7:02 pm
By DICK MORRIS
and EILEEN MCGANN
I used to like the flat tax. In fact, I used to propose exactly what Rick Perry is now pushing: an optional flat tax allowing taxpayers to either make their way through the labyrinth of IRS fine print in search of deductions or simply pay a flat percent of their income in taxes and be done with it.
But then came 2007 and 2008, and the flaws in our economy became glaringly apparent: the pursuit of wealth through loopholes in the tax code and other speculative devices rather than through productive investment in economic growth. So when Herman Cain proposed 9-9-9, I was — and still am — ready to embrace the idea.
Though imitation is the sincerest form of flattery, Perry’s rush to put his own tax reform on the table is an obvious attempt to horn in on Cain’s limelight. But the proposals are just not comparable.
Cain’s goal is to reduce the drag that the income tax puts on entrepreneurial initiative and hard work. By effectively slashing the income tax rate in half, he makes it that much more worthwhile to get up in the morning, take risks, work hard, take chances and invest in progress. By eliminating the capital gains tax, he rewards investment and ownership and makes it possible for people to move up the economic ladder — and not through phony teaser Fannie Mae mortgages but through smart purchases and skillful investing.
The goal of Perry’s proposal is far more modest: He wants to cut our paperwork. He wants to make it possible to file one’s taxes in a few minutes rather than devote days and weeks to the task. He proposes, essentially, a short form for middle-income and rich people so tax preparation won’t consume their lives.
It’s a worthy goal. We need to trim the ranks of IRS auditors and staff and free people to make sound investment decisions regardless of the tax consequences. We need to get the IRS out of our lives, and a flat tax is a good way to do it.
But Cain’s proposal is so very much more important. Perry will nibble around the edges, freeing valuable hours from tax preparation to be available for wealth creation. But Cain would establish America as a beacon for investors, entrepreneurs, inventors, creative business people and all manner of upwardly mobile, ambitious men and women. He would give the U.S. the lowest personal and corporate tax rates in the world and make it the only place where investment earnings are tax-free.
In the process, Cain and his plan would kindle decades of robust economic growth. He would make the next few decades a continuation of the American Century.
To trivialize Cain’s big idea by comparing it to Perry’s small one does 9-9-9 a vast disservice. Perry would not reduce the amount of money taken in by income and corporate profit taxation. He would just shift it to shorter forms and a nominally — but not truly — lower rate. Taxes would appear to be cut, but the amount we would have to pay would be more or less the same. Perry even strives to have his program seen as revenue-neutral.
Cain would shift about half of our nation’s tax revenues to consumption taxes and away from income taxes. He would vastly reduce the disincentive to earn and encourage savings and investment by taxing spending.
It is not enough to undo the damage Obama has done to the economy by repealing his spending, taxing, health care and regulatory actions. All that will do is dial us back to the sick economy Bush bequeathed to America. The diseases of the first decade of the 21st century will still be with us. But Cain’s ideas really get at the heart of the problem, in much the same way that Reagan’s reduction of the top personal tax rate from 70 percent to 28 percent solved the stagflation of the ‘70s.
Cain’s reforms are the real deal. Perry’s are a pale imitation.
Dick Morris, a Fox News commentator, was a long-time advisor to President BIll Clinton. Published in The Messenger 11.1.11