How Conservatives Kill Tax Reform

Conservatives like rail against our current anti-growth tax code. Despite loathing the tax code, conservatives invariably end up killing any fundamental overhaul of the system.

 Witness the current controversy over Republican Presidential Candidate Herman Cain’s 9-9-9 tax reform proposal with its 9% personal income tax, 9% corporate income tax, and 9% national retail sales tax.. Many of the objections raised to Cain’s plan are familiar to advocates of tax reform from Steve Forbes’ Flat Tax in the 1990s to the Fair Tax (which is Cain’s ultimate goal.).

 The current criticism of Cain’s 9-9-9 plan goes along the same lines. There are two big thrusts:

The fear of the unknown: 9-9-9 has had an immediate positive response from voters, but opponents have questioned that 9-9-9 might lead to higher rates in the future. What, for example might stop 9-9-9 from beginning 18-18-18?

Others such as Congresswoman Michele Bachmann (R-Mn.) are concerned that Cain’s 9-9-9 plan gives the federal government another revenue stream in the form of a sales tax, ignoring that Cain takes away four other revenue streams by abolishing taxes on capital gains, inheritance taxes, payroll taxes, and repatriated profits. 

Similarly, on the flat tax, it has been asked how the flat tax will remain flat? Columnist Mike Adams opines to flat tax supporters, “The IRS had changed the tax code 16,000 times in 22 years. They change the tax code twice as often as you change your underwear. How long do you think a flat tax would remain flat?”

With the Fair Tax, the worry is that after repealing the income tax and enacting a National Retail Sales Tax, that Congress would then bring back the income tax code unless the 16th Amendment is repealed, leading many to say that they won’t back the Fair Tax unless the 16th Amendment is repealed first with a 2/3 vote of Congress and 3/4 of the State Legislatures.  

Cain’s answers on how he plans to check nightmare scenarios on 9-9-9 haven’t satisfied critics. While Cain would like to get Congress to require a 2/3 majority to increase the rates, Congress has been very reluctant to limits its taxing authority. Cain also promises to veto any increase in the 9-9-9, but Cain could only be President for up to eight years.

The hard truth about tax reform is that there is no tax system that can remain solidly pro-growth without the vigilance and involvement of the American people to hold Congress’ feet to the fire. This is not a good reason to retain a tax code that’s not working.

The fear of some people losing: Whenever a major tax overhaul proposal is offered, opponents never make the argument, “This plan will be bad for our overall economy.”  Rather, they pick specific instances where somebody will be a loser or appear to lose.

In a recent debate, a moderator asked Cain what the sales tax would do to the nation’s automobile industry as used cars are not subject to the tax, and the car industry manufactures new cars. The question was born of the mindset of our current tax code which picks winners and losers.

The tax code includes a myriad of deductions and credits that are supposed to boost various industries and activities such as housing, oil exploration, green energy, higher education, and retirement.

Advocates of tax reform have the simple view that the purpose of a tax code ought to be to collect revenue in a way that allows the economy to grow.

However, tax winners seek to hold on to their deductions. Not all of these winners are on the left. Many businesses chafe against government overregulation and over-taxation, but would very much like to hang on to tax loopholes that have been won through expensive lobbying.

Perhaps the most common complaint is from those earning $50,000 or more who take advantage of the $200 billion  Home Mortgage Interest Deduction. Hugh Hewitt has dismissed the Fair Tax because of its lack of a home mortgage interest deduction, and any flat tax that has that has that mammoth deduction included will have such a high rate as to be unpalatable to the American people.

The sheer number of sacred cows protecting the tax code on both the left and the right frustrate any efforts to achieve serious reform.

Cain deserves credit for taking on this political hot potato and realizing the serious problem presented by current tax code and why reform is essential, even if it is politically difficult.

The cost of our current tax code is embedded in every product that we ship overseas which hurts our exports.  It makes the United States a less attractive place to do business, and discourages investment and economic achievement. Compliance with the code costs the U.S. Economy $340 billion pear year.

The tax code is holding back the U.S. economy and if it’s not replaced, our long term economic growth and prosperity will be at risk.

Rather than trying to imagine what horrors may come upon us from a future Congress or getting upset about what tax write-offs we’ll no longer be able to take, Conservatives should evaluate if a tax reform proposal is good for America as a whole. Will it create an environment where the economy can grow again and where businesses can hire people again?

The question we should ask about 9-9-9 is not , “Is this tax reform proposal perfect?” Instead we should ask, “Will this new tax system be better for America than what we have now?”

Read more at Adam’s Blog