Let the tax system reform begin! The Republican party candidates for President have understandably made tax reform one of their major topics. I say understandably only because the current taxing system has been created specifically as a short-term fix. The first decade of the 21st century saw a rampage of tax change. Every year had new rates, deduction limits, rollover rules, credits, etc. And all of these adjustments were made with "sunset" provisions, forcing more changes. President Obama led the current administration to extend the most significant changes through 2012. That has given us a three-year period to catch our breath before we start the next set of changes.
The most publicized offering from the Republicans has been Herman Cain's 9-9-9 tax plan. When first announced, this plan evoked either overall hatred or a deep love. Simplifying the tax system is certainly something most Americans would love to do. However, this plan obviously proposes a consumer tax that shifts a major tax burden from the few insanely rich, to the working class majority. Based on my vote counting as much as Bill Gates', it would seem this plan would not be a good political move. So then why has Mr. Cain seemingly moved to the head of the Republican race for Presidential candidate in 2012?
Cain's tax plan calls for a 9% business income tax, a 9% personal income (less charitable contributions) tax and a 9% sales tax. Mr. Cain's plan is extremely popular because most Americans believe that they currently pay enough over the 9% income tax to cover the 9% sales tax. Most Americans would be wrong. Assuming that your itemized deductions, other than charitable donations (mortgage interest, real estate tax, vehicle excise tax, state income tax, etc.), are approximately 20% of your income, a married couple would reach the 9% income tax somewhere between $105,000 and $115,000 of total income. Most Americans would actually pay more income tax, and have the burden of the new federal sales tax, if Cain's plan were to be instituted.
Any new tax plan has to not only be workable for the people of the United States, but also has to fund the government of the United States. The 9-9-9 tax would cause a shift in tax planning. Currently, most business owners shift income from corporate entities to themselves individually due to the unfavorable corporate tax structure. The 9-9-9 system would reverse that thinking. Business owners would gladly pay a 9% corporate tax to relieve themselves of some of the burden of Social Security and Medicare taxes. It is well documented that the Social Security and Medicare system is financially weak. Mr. Cain's new tax system could potentially cause our skyrocketing deficit to shoot even higher.
So, if not 9-9-9 tax, then what? A former boss of mine liked to say, "Negotiations are done when both sides are a little unhappy." I think we could argue that the United States government and the United States taxpayers are both a little unhappy. Therefore, current tax structure doesn't need a major overhaul. Simplicity would be great. But why would change create that? Minor adjustments and some consistency would go a long way to achieve simplicity. Instead of tax change, for my vote, I will be much more interested in the candidate who has a plan to cut expenses. Major reform on the Social Security system is much more important to our country's stability than a new tax structure. Social Security costs me 10.4% of every dollar I make. I don't plan on seeing that money again, so it is useless to me. Herman Cain, find a way to continue to serve the people who rely on Social Security, while removing the burden from people like me who do not have any dreams of that plan helping them retire, and you will have my vote.
