See 20-20? Dial 9-9-9? Which plan is the right plan? — Updated

Posted by: Phineas on October 25, 2011 at 1:52 pm

**Posted by Phineas

One of the big issues on the Right side of American politics is large-scale tax reform: not just tinkering with rates or eliminating this or that deduction, but massive changes that would amount to junking the current byzantine progressive tax code that punishes wealth creation and saving and hobbles our economy by replacing it with something much simpler and, in the mind of most Americans, much fairer. Generally a flat income tax or a “fair tax” — a national sales tax.

Today Governor Rick Perry issued his proposals for tax reform to spur economic growth — the 20-20 Plan:

The plan starts with giving Americans a choice between a new, flat tax rate of 20% or their current income tax rate. The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents.

This simple 20% flat tax will allow Americans to file their taxes on a postcard, saving up to $483 billion in compliance costs. By eliminating the dozens of carve-outs that make the current code so incomprehensible, we will renew incentives for entrepreneurial risk-taking and investment that creates jobs, inspires Americans to work hard and forms the foundation of a strong economy. My plan also abolishes the death tax once and for all, providing needed certainty to American family farms and small businesses.

My plan restores American competitiveness in the global marketplace and provides strong incentives for U.S.-based employers to build new factories and create thousands of jobs here at home.

First, we will lower the corporate tax rate to 20%—dropping it from the second highest in the developed world to a rate on par with our global competitors. Second, we will encourage the swift repatriation of some of the $1.4 trillion estimated to be parked overseas by temporarily lowering the rate to 5.25%. And third, we will transition to a “territorial tax system”—as seen in Hong Kong and France, for example—that only taxes in-country income.

20-20 would also end the taxation of Social Security income, qualified dividends (It’s unclear what “qualified” means here), and long-term capital gains. A family of four would see their first $50,000 of income exempt from taxes, and the end of the death tax would mean that small family businesses wouldn’t have to be broken up to meet taxes.

One thing not often noted in reports I’ve seen is that 20-20 would cap spending would both cap spending at 18% of GDP, the modern historical average for tax revenues, and seek a balanced budget amendment. I consider these strong selling points, a simple fiscal restraint will take advantage of normal economic growth to balance the budget.

20-20 is in reply to Herman Cain’s 9-9-9 plan, which would impose a 9% personal income tax, 9% corporate income tax, and 9% national sales tax.

Let’s stipulate three things at the beginning: either plan would be better than the current mess, both have their strong points, and both have criticizable aspects.

Cain’s plan has been accused of disguising a Value-Added Tax (VAT) as a corporate income tax, and for giving the government an added revenue stream by creating both an income and a national sales tax. I also have constitutional questions about a national sales tax: where is the federal authority to tax any sales transactions, especially if they stay within the boundaries of a single state?

Supporters, on the other hand, correctly point out that Cain’s plan is a transitional phase to a single Fair Tax.

Perry’s plan, meanwhile, retains more deductions (home mortgage, charitable, &c.), which leaves room for special interests to game the system, as they do now. However, I don’t think it’s likely, politics being the art of the possible, that one will be able to eliminate the home mortgage exemption, for example, especially in bad economic times. In that regard, 20-20 may be more practical than 9-9-9.

So, which is better? I’m not sure (no one would ever accuse me of being a numbers-guy), but, like Dan Mitchell, I lean toward 20-20 because it aims for the same goals while avoiding the VAT and tricky constitutional questions. And I’ll note the Club For Growth has endorsed 20-20.

Like I said, though, in the end, either would be better than what we have.

Which do you prefer?

LINKS: Ed Morrissey on the Perry conference call about 20-20. Tom Maguire thinks it’s a gimmick. Perry supporter Bryan Preston provides more details.

PS: I looked through the Romney site and could find no mention of a tax reform plan. If I’ve missed it, please post a link in the comments and I’ll add an update.

UPDATE: Okay, I found Mitt’s tax plan. It’s on page 37 of his Plan for Jobs and Economic Growth. The first thing I see is that it retains the current marginal rates and sets a “flatter, fairer, simpler structure” as a long-term goal. Ummm…. No, thanks.

(Crossposted at Public Secrets)

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8 Responses to “See 20-20? Dial 9-9-9? Which plan is the right plan? — Updated”


  1. mtee says:

    Herman Cain is starting the process of the Fair Tax.. this is not a VAT tax. The Fair Tax is a very good idea. Please read the 2 books that explain. You only get a sales tax on NEW items. In the Fair Tax, families get a prebate based on their income for basic human necessities. This is good for lower income families. I ask you to read these books and see how you feel.

  2. H Hazell says:

    I believe article 1, section 8 of our Constitution would support a national sales tax within the powers of Congress. I think your point about products made and sold within a state is worth study, but ultimately, without any other stipulations preventing interstate commerce of those items, taxing them still seems within the Constitutional powers of Congress. Still worth some research of specific items: firearms immediately comes to mind. Ridding us of all the taxes on income and the associated enforcement regimes and agencies would be a God send in my opinion.

  3. Timbok says:

    The thing is – Perry’s plan has too many deductions, and it’s opt-in system is so damn stupid. Lower income folks will not join and it creates two seperate income tax codes…. Nice try.

  4. Sarah says:

    I’m a small business owner and the 20% with limited deductions on top of the 15.3% self employment tax I’d still have to pay is a non-starter. I would end staying up with the same freaking tax system we have today.

  5. Carlos says:

    Anything that would rid us of the “Tax Preparers’ Vacation and Retirement System,” a.k.a. the present tax code, would be a blessing.

    However, think of the thousands of tax preparers (think H & R Block) out of work, and the tens of thousands of IRS agents who would have to find real jobs that didn’t involve extortion…

  6. jussayin' says:

    I don’t get overly concerned about any ideas floated by a Presidential campaign. The idea has to be enacted by Congress, so while it is great to see ideas like these floated out there to change the tax system, I just don’t worry about the details of them.

    It is good to be talking about tax reform. It is great to have the ideas being brought up in these campaigns so that they might end up going to congress. Something needs to be done, and these ideas start the conversation. A true leader type President can help push this to legislation, but it will change and mold to the Congress’s idea of implementation.

    The sales tax scares me a bit, not because of the principle of it, but because even if conservatives take over congress, eventually liberals will take it back. Once they do, the sales tax will rise, and just be another means of taking the public’s money.

    It all really comes down to getting the conversation started and the people behind the conversation to get change done.

    In any event, we know that the system is broke now, it needs to change and the starting point for change is dialog and leadership.

  7. Dave B says:

    Every election season candidates come up with “X” point plans that will theoretically move the ecomony forward and equalize all the injustices within the current system. They promise things that only a dictator or King could possibly accomplish without like-minded super majorities in both the Senate and House. When they get in office the Democrats fight them tooth and nail, the media mocks and perverts everything they try to do to the point they wither and compromise. Legislation that actually passes both houses are mere skeletons and shadows of the ideas that once exited us.
    Next year, however, is different. We saw a President that was considered untouchable by the media,supported by super majorities led by senile but powerful vindictive people pass laws, impose regulations, appoint czars, judges, and squander our hard-earned cash. We watched them bring this nation to her knees while housewives and mothers wept at town meetings, while hard working Americans were forced to beg their Congressmen to do the right thing, veterans cried, tens of thousands of peace officers and active soldiers felt compelled to declare publicly that they would honor their oaths to the Constitution in case the government got any funny ideas. We saw patriotic Americans called racists because they saw what this President and the leftists were doing to their children and grandchildren and dared to reject it. Never, in my lifetime, has it been made so clear to everyday people that work hard, pay taxes, and don’t have time to watch their government every day, just exactly what is going on and the situation we’re in at this moment in history. The disbelief that a man elected President of the United States that actually wanted her to fail, that wanted to eliminate the middle class and turn us into a socialists European-like nation would somehow slip through the cracks has waned. We have seen it with our own eyes and felt it in our pocketbooks. We have heard our own President use third world dictator terms like “millionares and billionares”, “corporate jet owners”, and so on with our own ears. We have seen our allies slapped in the face while our enemies are emboldened. We have witnessed citizens lining up for miles like dogs for “Obama cash” unable to articulate where it supposedly came from and thinking it came from his own pocket to help them. I could go on and on. Next year will be different. Our base is already exited. We already know the stakes. The idea is to nominate a candidate that understands what is going on and there isn’t a single Republican candidate that doesn’t so we don’t have that problem. The next idea is to nominate the candidate that will steal votes from the middle, people that aren’t frightened by a candidate who offers them hope for a better future. Finally we want a candidate that won’t infuriate the left to the point they come out in droves to repel a “bogeyman”. We all know who that is, whether we want to admit it, whether we like it or not. It’s Romney. Just because the “Republican elite” piss us off doesn’t mean they’re wrong. This time they’re right. We’re trying to unseat an incumbent President with a large warchest that has the entire MSM on his side supporting his re-election despite what he’s done to this country. After the beating Romney has taken on his “Romneycare” who else in the field would be the most compelled to repeal Obamacare ASAP than Romney? I’ve seen this guy in action in Massachusetts and he stood tall against unbelievable odds and lowered taxes, balanced budgets, and wore out his veto pen. The first thing he did, before all of that was that he got elected in a state where Democrats outnumber Republicans 10 to one. Ronald Reagan couldn’t have done that at that time. Romney did it. We’re in the same position as a country that Massachusetts was in at that time. I’m as conservative as a person could be. I’m comfortable with Romney because I had the experience of seeing him in action on a daily basis. Except for Huntsman I like all our candidates. Romney is a lot more conservative than what is being portrayed and I believe that he is the man for the job at this time. I hope every candidate is a member of his cabinet and Cain, Newt, or Bachman is is VP choice.

  8. PE says:

    Where does this fit within our hierarchy of needs? I believe that there aint no tax plan nowhere that a corrupt or pixilated congress can’t screw up six ways to Sunday. Low hanging fruit should be a first priority, such as repealing Obama Care and cutting back on the size of the government and related expenditures. Airtight balanced budget amendment should be a pre requisite of any tax reform, which in turn should enable virtual elimination of the IRS and the savings thereof.