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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
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Tax evasion is a potential drawback of both the FairTax and Kotlikoff’s Purple Tax. The rates would be so high that people would have a strong incentive to dodge the levies. One option is to impose them as value-added taxes, as more than 100 other countries do. The VAT is collected incrementally at each stage of production, creating a paper trail and shrinking the sales tax imposed at the cash register. But both Linbeck and Kotlikoff argue that’s not necessary.
The usual rap on consumption taxes is that they are bound to fall more heavily on poor people than the current tax code does. But that flaw can be corrected by paying people a lump sum to lighten the burden. Linbeck’s group, Americans for Fair Taxation, calls it a “prebate,” while Kotlikoff calls it a “demogrant.” Cain’s 9-9-9 Plan doesn’t appear to offer a lump sum, which helps account for its regressivity.
Why doesn’t Cain go straight to the FairTax, if he thinks it’s a better solution? Richard Lowrie, Cain’s adviser on economic issues, responds in an e-mail saying, “The country is tired of economists passing up something great, while they hold out for their own view of perfect, and in doing so, sentence the country to more of the same.” The tax plan that sounds like a pizza price is, evidently, not going away.
The bottom line: Cain’s 9-9-9 Plan amounts to a 27 percent tax on wages. It isn’t taken as seriously by economists as his less-publicized FairTax.
With John McCormick
Coy is Bloomberg Businessweek's Economics editor.
