Alex Hern covers the economic incompetency of the hard-right republican Tea Party’s presidential candidates and Herman Cain and Rick Perry’s crazy tax plans.
It has long been the case that where the American right treads, the Tory right follows; that is why the 2010 Conservative intake has such a strong Tea Party tendency, for instance.
But if the Tories want to keep any shred of economic trust – admittedly, it’s not clear if they have any left – they probably shouldn’t head down the path currently being blazed by the Republican’s top-polling candidate, pizza mogul Herman Cain, and his competitor for the Tea Party vote Texan governor Rick Perry.
Both men have proposed, as their keystone economic strategies, variants of the flat tax idea. Cain has proposed the “9-9-9” plan, calling for a nine per cent sales tax, a nine per cent business tax, and a nine per cent flat tax, while Perry has proposed a 20 per cent flat tax which would be opt-in.
Broadly, both these plans hinge on the argument that the American tax system is both overly complicated (having, as ours does, income tax bands) and unfair (because rich people should pay the same percentage of tax as the poor), but as Syracuse University Professor Leonard Burman said on Radio 5 last night, it is more complex than it sounds:
“A flat tax is just a kind of VAT where the wage part of the tax is payed by workers and the basic idea is that you do that so that you can allow an exemption so that it’s not quite as regressive as a sales tax is, whereas a sales tax would be overall.
“The wrinkle in Rick Perry’s plan is that he allows the option of paying tax under our old complicated income tax for people who like that better. The concern a lot of us have is that a flat tax is regressive, kind of unfair, it’s a huge tax cut for high income people…
“[It’s regressive because] it’s basically a sales tax, and while we can think of it as a wage tax and a cash-flow tax on businesses, but, y’know, if you look at wages for high-income people, wages are half of their income, for low income people its all of their income.
“If you look at spending, high income people spend only a fraction of their income because they’re rich enough to be able to save most of it, low income people spend all of their income, so both Herman Cain’s sales tax/flat tax – Herman Cain’s plan is really a hodgepodge, it’s actually three different kinds of sales taxes labelled as an income tax and a business tax and a sales tax, I think he figured out that calling it a 999 plan would be saleable than calling it a 25% sales tax, which is actually what it is.
“Cain’s plan at least has the advantage that it could plausibly pay for the government, because it’s got a very very broad base and a pretty high tax rate. The problem with Perry’s plan is that it would produce enormous deficits.
“High income people would all choose the option of paying 20 per cent wage tax rather than the 35 per cent that they pay now on all of their income including interest and dividends, and other capital income, so it’s fiscally irresponsible.
“It’s actually more complicated than the current system, because you have to choose between the new flat tax and the old complicated income tax, and from my perspective at least it’s really unfair because it would produce huge tax cuts for high income people. That’s not really our biggest problem right now, that high income people pay too much tax.”
Perry’s plan is torn apart by Jared Bernstein, a member of Obama’s economic team, who argues that it only makes sense if you believe the following things are the problems with America’s tax system:
• The tax code is too simple;
• Rich people need more after-tax income;
• There’s too much retirement security in America;
• Multinationals aren’t creating enough jobs abroad.
These problems pale in comparison to those of Herman Cain’s, however. Yes, Perry’s will probably bankrupt America, but for Cain, a picture is worth a thousand words:
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• Unions need to win over the public if they’re to avoid a repeat of Wisconsin – Amelia Peterson, September 25th 2011
• Huhne attacks “Tea Party Tories” – who on Earth does he mean?! – Alex Hern, September 20th 2011
• Obama mocks the mad Right and makes the case for the State – Shamik Das, September 9th 2011
• Crisis caused by Cable’s “right-wing US nutters” is welcomed by Tory backbenches – Daniel Elton, July 25th 2011
• Republican elephants enter the room as rivals to Obama – Dominic Browne, May 26th 2011