Texas Gov. and Republican presidential candidate Rick Perry has given GOP activists an indication he is going to propose a flat-tax, similar to his rival Herman Cain’s 9-9-9 plan that has gained so much attention in recent weeks. Perry told those gathered at the Western Republican Leadership Conference on Wednesday that he plans to unveil his plan next week in South Carolina.
“It starts with scrapping the three million words of the current tax code, and starting over with something much simpler: a flat tax,” Perry told an enthusiastic audience in Las Vegas. I want to make the tax code so simple that even Timothy Geithner can file his taxes on time.”
Perry is being advised by Steve Forbes, the publisher of Forbes Magazine and a former Republican presidential candidate who first pushed the idea of a flat-tax in the 1990s. While popular with conservative activists, the idea has never been seriously proposed by congressional leadership of either party.
A flat tax is simply a level percentage that every taxpayer, regardless of income pays in personal taxes. The resistance to the concept comes mainly from Democrats who say the plan is regressive since lower income earners pay the same as millionaires.
Cain’s 9-9-9 plan has struck a chord with voters who are hoping for a flatter and fairer tax code and the Atlanta businessman got early accolades for his proposal. However, he recently has taken a few hits of his own over the sales tax portion of the plan in Tuesday’s CNN presidential debate.
Adding fuel to the fire, one of the economists who helped craft the plan for Cain is now saying the sales tax may have to go.
“I’ve come to the conclusion that the American people and the voters do not want a national sales tax,” Stephen Moore, a senior editorial board member for The Wall Street Journal, said on the Saturday edition of The Larry Kudlow Show.
Moore, who once held the position of president of the conservative organization, Club for Growth, worked with former Reagan policy adviser Arthur Laffer and Cain’s senior economic adviser, Rich Lowrie, to craft the plan.
The basis of the plan is a 9 percent income tax, a 9 percent corporate tax and a 9 percent national sales tax. Almost every Republican primary candidate, including Perry and former Massachusetts Gov. Mitt Romney, has criticized Cain’s plan, and specifically the sales tax component.
“He’s going to have to replace that nine percent sales tax with a nine percent payroll tax,” said Moore on Kudlow’s show. “If you do that, it’s a total winner.”
Laurence Kotlikoff, a professor of economics at Boston University plugged the numbers into a formula and determined that while some super wealthy taxpayers would pay more, the moderately wealthy households fair better and households on the lower end of the scale – for example those earning in the neighborhood of $15,000 annually, would pay more because of the national sales tax that would be placed on top of state and local sales tax.
However, the Tax Policy Center’s analysis does agree that Cain’s 9-9-9 proposal would raise about the same amount of revenue as does the current tax system.
Rep. Ron Paul (R-Texas), long known for his anti-tax positions, called the 9-9-9 plan “dangerous,” arguing the plan could easily open the door for what is known as a “value added tax.”
“It would be very, very unpopular, and, matter of fact, I think the more people know about it, the more questions will be asked,” Paul said on CNN’s American Morning on Tuesday.
With all the chaos around the issue, one of Cain’s fiscal architects is holding firm on the plan’s effectiveness.
“Mr. Cain's 9-9-9 plan was designed to be what economists call ‘static revenue neutral,’" which means that if people didn't change what they do under his plan, total tax revenues would be the same as they are under our current tax code,” wrote Laffer in a WSJ op-ed on Wednesday. “I believe his plan would indeed be static revenue neutral, and with the boost it would give to economic growth it would bring in even more revenue than expected.”
Sen. John Cornyn (R-Texas), meanwhile, welcomed Perry’s proposal for a fairer, flatter tax.
“The enthusiasm people have shown for the 9-9-9 plan and other proposals demonstrates a universal hatred that people have for our current flawed tax system,” Cornyn told reporters in a Wednesday conference call. “I welcome the governor’s proposal along with these others that are in the mix to simplify the tax code.”