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GOP presidential candidate Herman Cain is promoting fundamental tax reform. Bravo! Somebody needs to do it.Like most ideas designed to appeal to Joe-the-Plumber types, Cain's proposal is charmingly simple yet fundamentally flawed. It's called the "999 Plan." It would repeal the current income tax code and replace it with a 9% flat tax for individuals, a 9% flat tax for corporations, and a 9% federal retail sales tax (RST).We don't yet know too many details about the 999 Plan. Cain says it would eliminate both estate taxes and payroll taxes (i.e., social security and Medicare contributions). He adds that capital gains would be excluded from the definition of taxable income, and that the double taxation of corporate earnings would be relieved by giving companies a deduction for dividends paid to shareholders. Cain insists his plan is revenue neutral. These days revenue neutrality is a practical necessity for any tax reform proposal due to the deficit.I will leave it to others to assail the 999 Plan as it applies to income taxes. (Most critics dismiss the concept as a political gimmick.) My sole purpose here is to remind Cain -- and any other wannabee tax reformers out there -- that the RST is an epic failure on tax policy grounds. True, America needs to start taxing consumption at the federal level. In fact, I happen to believe that very strongly. But the RST is the wrong way to go about it. VAT is the correct way to tax consumption.....
View TaxAnalysts' the VAT Bastard's opinion in its entirety on TAX.com.
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