Complexity Equals Corruption

Herman Cain's "9-9-9" plan isn't perfect, but it's less crazy than you might think

By Fareed Zakaria Monday, Oct. 31, 2011
    • John Raoux / AP

    (2 of 2)

    Cain's final 9 is actually a policy wonk's dream: a 9% consumption tax. The U.S. is the only rich country in the world without a national sales tax or value-added tax (VAT). Germany has one at 19%, Britain at 20% and Korea at 10%. What's the appeal of a consumption tax? First, it is efficient. Most studies, including the IRS's, suggest that the federal government loses several hundred billion dollars a year to tax fraud. This is tougher to pull off with a consumption tax. Second, it provides the government with a more stable source of revenue than income taxes, which fluctuate greatly between boom and bust years. Third, Americans consume too much, often using credit and leverage to do so. A consumption tax would moderate this behavior. Government will always get less of behaviors it taxes and more of what it subsidizes.

    Ironically, the heavy reliance on income taxes makes the American tax system more progressive than those in Europe. The federal government gets about 41% of its total tax revenue from taxes on individual incomes and profits, compared with 29% in Germany and 21% in France. (The balance for France and Germany comes from the VAT, which is highly regressive.) One recent Organisation for Economic Co-operation and Development study showed that the top 10% in America pay a larger share of total taxes (45.1%) than do the top 10% in any of the 24 countries examined. (In Germany they pay 31% of taxes; in France, 28%.)

    My version of Cain's proposal would be flatter but not flat: 9% for the first 90% of Americans, 18% for the next 9% (incomes starting at $150,000) and 27% for the top 1% (incomes starting at about $500,000). I would keep a few straightforward deductions--state and local income taxes and charitable contributions. I would lower the corporate rate to 18% and impose a VAT of 9%. Finally, I would enact a 50% inheritance tax, because nothing is more un-American than an inherited elite that perpetuates itself. So my proposal is a bit more complex--the 9-18-27-18-9-50 plan. Don't expect it to catch fire on the campaign trail anytime soon.

    3. 1
    4. 2
    5. Next Page