Public obsession with Flat Tax

http://www.drnoie.com/drnoie.htmHerman Cain's standing in the polls for the 2012 Republican presidential nomination is rising. Many believe this popularity is primarily due to his “9-9-9” tax plan suggestion, which has become his signature issue. Ordinarily, flat tax proposals would not get much attention during presidential debates. Senator Bob Dole was the last political candidate who campaigned for a 15 percent flat tax during his 1996 bid for presidency. His flat tax did not raise much interest among voters. He eventually lost that election to Bill Clinton and is now mostly remembered for his battle with ED and endorsement of the drug Viagra than his flat tax.
A world of loss
A lot has changed in the past decade. A few ticking bombs have gone off in the same time period. In spring of 2001, the dot-com bubble officially burst. Many working people lost their retirement savings along with their trust in Wall Street establishments. On September 11 that same year Americans, along with many other nations, lost their sense of personal security. We realized that were not as safe as we once thought. On October 2007—following the worst financial meltdown our nation has seen since the Great Depression—we lost our faith in two other key institutions: banks and government.
Cain’s claim
Cain's 9-9-9 plan claims that it will level the taxation playing field by replacing the current complicated tax codes with an easy to understand plan. He also claims that his proposed plan will save us around $430 billion dollars a year. That is supposedly how much we spend to file our taxes each year. His plan seems simplistic, making it appealing to middle class Americans who are increasingly frustrated with the nation's labyrinthine tax system. There are a few financial experts who like his plan. But, a much longer list of economists say Cain’s plan would be a tax hike for the lower and middle class and a tax windfall for the wealthy.
The (boring) math
I decided to do the math myself. I found out that under current tax laws a family of four with an annual income of $50,000 are paying an average of $3,850 dollars in federal income taxes. Under Cain’s plan, they would be taxed at 9 percent or $4,500 dollars. In addition, they will pay 9 percent in federal sales tax on top of their existing state sales tax. For Texas that would be 17.25 percent combined sales tax on everything we buy. Simply put, the cost of everything will go up by 9 percent cross the board. The average family of four will have to cut back on their spending by 11 percent to compensate for this spending tax. On the other end of spectrum, Warren Buffet (who has graciously made his tax returns accessible) has to spend about 40 million dollars a year to pay the same income tax that he pays under current system. That is just not a realistic scenario.
Bottom line
Mr. Cain's plan sounds catchy and strikes a chord with many average citizens who are tired of not understanding how our tax system works. But, unfortunately the math is just not there. Governor Perry just revealed his proposed flat tax plan. His plan needs to be further researched before any conclusions are drawn. He might have found the magic formula—or maybe his campaign decided to capitalize on public distrust of the tax system as well.
My take
It is true that income in America is skewed toward the rich. But taxes are skewed far, far more in that direction. “The top five percent pays well over half the income taxes,” says economist Stephen Moore in The American Spectator. There are lots of loopholes in the tax code. But things are not as bad as people think. The Alternative Minimum Tax limits the amount of tax breaks an individual or corporation can receive.
Thousands of revisions and provisions have turned our tax system into a scary abyss. Most people simply don't understand or trust the fairness of the taxation process. I believe such mistrust is the root cause of "Occupy Wall Street" movements cross the country. It's hard to defend Cain's tax reform proposals. His plan is flawed and overall bizarre. But the momentum behind it—tax simplification and reform—is not.