Despite the criticism Mr. Cain has received for his plan to raise taxes on most Americans while cutting them on the top .01 percent-top .01 percent even more than the top 1 percent of Occupy Wall Street fame-it turns out he has an advocate. Someone likes his plan very much: none other than Arthur Laffer, of the famous Laffer Curve.
For more on the Laugh Curve, as in it sends the rich laughing all the way to the bank, please click here
http://en.wikipedia.org/wiki/Laffer_curve
Today in the Wall Street Journal (10/19/11 pg. A15, the Editorial page) Laffer wrote a glowing editorial about it's supposed stimulative effects. First of all it will be revenue neutral. Then, "With lower marginal tax rates (and boy will marginal tax rates be lower with the 9-9-9 plan), both the demand for and the supply of labor and capital will increase. Output will soar, as will jobs. Tax revenues will also increase enormously-not because of tax rates increased, but because marginal tax rates have decreased."
"A static revenue-neutral tax change requires static winners and losers." Of course it does-if the plan is truly revenue neutral much less "static revenue-neutral" how else could it be? Yet he assures us these losers of the Cain plan won't be the poor: "this 9-9-9 plan has made certain that even on static terms those below the poverty line will be better off-period. Once the dynamics take hold, many of those below the poverty line will find good jobs and thus will rise above the poverty line and start paying taxes."
Wow this plan excites Mr. Laffer! Is this not the sound of a kid in a candy store: boy will marginal tax rates be lower with the 9-9-9 plan. His claim though that "even on static terms those below the poverty line will be better off-period" cannot stand up to scrutiny and indeed was refuted even in today's Wall Street Journal just 4 pages away from his editorial on pg. A5. As to his talk about "Once the dynamics take hold, many of those below the poverty line will find good jobs and thus will rise above the poverty line and start paying taxes" this is just typical supply side delusions. In the 80s we heard the same promises about Reagan's tax cuts and to be sure guys like Laffer, Steve Forbes, Stephen Moore, and Larry Kudlow continue to claim that Reagan's tax cuts "payed for themselves with interest" but this it simply false. Bruce Bartlett-who was there for the Reagan tax cuts- is pretty clear that the Reagan tax cuts came nowhere close to paying for themselves-though he makes the interesting point that part of this is because no one guessed that inflation would come down as hard and fast as it did.
http://capitalgainsandgames.com/blog/bruce-bartlett/2343/why-reagan-tax-cut-worked-1981-and-why-it-wouldn%E2%80%99t-work-today
As it turns out the truth is quite different on the 9-9-9. According to the Tax Policy Center, 90 percent of taxpayers who earn less than $37,090-the bottom 40% of earners-would see a tax increase under Cain's plan. Those who earn less than $17,900 a year-the bottom 20%-would pay $1,854 more per year in U.S. sales taxes and income tax levies that many now are exempt from paying. As to that tax increase from Cain's U.S. sales tax, bear in mind that this isn't even factoring the state sales tax that most Americans already pay or for that matter state and local income and property taxes.
Essentially the Cain plan raises taxes on the poor and middle class and lowers it on the-very rich. But this is no surprise as fiscal conservatives "often bristle at the fact that almost half of U.S. taxpayers-mostly lower and middle income households-don't have to pay federal income tax under the current rules." Of course, what these fiscal conservatives don't consider is that these "freeloaders" do pay considerable payroll taxes as well as state income, property and sales taxes. Cain's plan combines two very bad ideas that conservative circles have wanted for years-a flat tax and national sales tax. They claim it will serve as an incentive for higher savings and investment. Haven't we had enough saving already? As it is banks are hoarding cash and nobody can get a loan, and consumers aren't spending, but these guys want more savings?!
Mr. Laffer finishes his laudatory piece with a whopper: "Still, a number of my fellow economists don't like the retail sales component of the 9-9-9 plan. they argue that, once in place, the retail rate could be raised to the moon. They are correct, but what they miss is that any tax could be instituted in the future at a higher rate. If I could figure a way to stop future Congresses from ever raising taxes I'd do it every day of the week and twice on Sunday. Until then, let's not make the perfect the enemy of the good."
Here Laffer is doing more than not discussing any of the relevant criticisms of the bill which he does throughout the entire piece. To the contrary, he is being willfully misleading. The concern that "once in place, the retail rate could be raised to the moon" is not some hypothetical scenario, it is actually the next phase of Mr. Cain's plan. While the "9-9-9" name of the tax plan has caught on as it sounds (misleadingly simple) and is easy to remember, in fact, 9-9-9 is only phase 2 of Cain's 3 phase plan. Phase 3 is a 30% across the board national sales tax for everyone. In addition to state and local. We have seen the (conservative) future and it is dismal.
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