Forbes: Fundamental Tax Reform Is Now Unstoppable

It would appear that Rick Perry and Herman Cain have started something that may be reform finally.  Now we can only hope it will be something that truly is "fair" where everyone pays in by the same percentage (which in and of itself will be graduated since those who earn more would pay more and those who earn less would pay less).  No one should be allowed a voice about taxes unless they actually pay taxes and support the benefits they receive.


Fundamental Tax Reform Is Now Unstoppable


With Rick Perry’s call for a 20% Flat Tax, the movement for fundamental, pro-growth tax reform became unstoppable. Perry, Herman Cain, and Mitt Romney are now the only viable candidates for the Republican presidential nomination remaining. With both Cain and Perry now offering dramatic pro-growth tax reform proposals, Romney will either jump on the tax reform bandwagon or be left in the dust (or possibly both).

The only pro-growth tax cuts in Romney’s 59-point economic plan are a reduction in the corporate income tax rate to 25% (from 35% today) and the elimination of the death tax. However, both Perry and Cain are similarly calling for repeal of the death tax. Also, Perry’s plan would cut the corporate income tax rate to 20%, and Cain’s plan would reduce it to the equivalent of 9%.

Romney is advocating eliminating taxes on interest, dividends, and capital gains, but only for people making less than $200,000 a year. This “cap” would vitiate any benefit to economic growth. Worse, this element of Romney’s plan implicitly validates Obama’s “class warfare” rhetoric.

With 75% of Americans saying that the country is “on the wrong track”, Progressives have started to pin their hopes for the 2012 elections on the notion that the American people don’t want pro-growth tax cuts, and would instead prefer to punish “the rich” via tax increases.

In an article published on RealClearPolitics on October 24, E.J. Dionne, a Progressive columnist, predicted that, “…Cain’s 9-9-9 plan and Perry’s flat tax are doomed to fail.” Dionne noted that, “…candidates who pushed flat taxes in the past saw their campaigns flat-line, most prominently businessman Steve Forbes in 1996 and again in 2000.” This, Dionne argues, was because, “Voters are shrewd in figuring out whether tax proposals really benefit them.”

What Dionne and other Progressives are missing is the stark difference between today’s economic situation and the conditions that prevailed in 1995 (and 1999). Let’s compare the past three years (ending with September, 2011) with the same period in the 1996 election cycle, when Steve Forbes was promoting his Flat Tax plan.

Over the past three years, real economic growth has averaged 0.12%. The comparable number for the same period in the 1996 election cycle was 4.30%. During the three years ending with September 1996, total employment rose by 6.4 million and the unemployment rate declined by 2.0 percentage points. During the past three years, America has lost net 5.0 million jobs and unemployment has gone up by 2.9 percentage points.

In other words, when Steve Forbes was running for president on his Flat Tax plan in 1996, the public saw no burning need for fundamental tax reform, and no reason to put up with the inequities (even minor ones) that reform invariably brings. The situation is entirely different today. The public finds Obama’s “New Normal” economy intolerable, and it believes that drastic change is required.

Once the electorate concludes that drastic change is needed, they will elect someone promising drastic change. In terms of tax policy, right now, only Perry and Cain are advocating drastic change. Romney is currently offering an economic program that involves minor tinkering at the margins of the tax code. Meanwhile, Obama is promising to fight for tax increases that would make the economy worse.

Under current circumstances, it will do Progressives no good to point out flaws in Cain’s 9-9-9 program, or in Perry’s Flat Tax plan. The voters know that major tax reform would have to be enacted by Congress, and that the problems and inequities of any outline would be ironed out during the legislative process. They also realize that by the time that the crucial details of fundamental tax reform would be decided, a new president would have had another 15 months to refine his proposal.

Accordingly, what the electorate is listening for right now is the candidates’ level of commitment to major pro-growth economic policy reforms, and a sense of how they view the world and make decisions. The voters are not particularly concerned about the details of any particular plan, because they know that the plans being offered on the campaign trail are not what will emerge from Congress.

The electorate knows that America needs a sustained period of very fast economic growth. Only prolonged, rapid GDP growth can create the 15 million good, high paying, permanent jobs that we need to get back to full employment. And only fast economic expansion will make it possible for the nation to afford Social Security and Medicare without painful cuts in benefits. The voters also know that raising marginal tax rates would just make all of our problems worse.

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