Republican presidential candidates are now unanimously supporting a flat tax system. Every economist that has reviewed Herman Cain’s, and now Rick Perry’s tax proposals have reported that the flat tax would result in raising taxes on the working class and lower and/or eliminate taxes for the wealthy through zeroing out capital gains or income earned from money.
The flat tax would tax only income from a person’s salary and would bring down taxes on capital gains to zero. What a majority of working class do not understand is that the wealthy make most of their money off money and not a salary.
Robert Borosage, a contributor to Politico, recently wrote about this: A flat tax, sculpted to delight the wealthy…..a flat income tax would apply only to income from work, exempting income earned from wealth, including interest, dividends and capital gains. Since the wealthy make most of their income in capital gains, this could mean a massive tax break to the wealthiest Americans — and a tax hike to working families.
The Washington Post, a conservative-leaning publication, reported, “The 400 richest taxpayers in 2008 counted 60 percent of their income in the form of capital gains and 8 percent from salary and wages. The rest of the country reported 5 percent in capital gains and 72 percent in salary.” Also between 2001 and 2007 the 400 richest taxpayers saw their incomes double to an average of $345 million even as their effective tax rate was virtually halved.
Herman Cain’s 9-9-9 flat tax
The flat tax proposal by Herman Cain, the 9-9-9 plan, has been analyzed by non-partisan economists. The effect of his plan would be to raise taxes on the middle and lower classes and cut taxes on the wealthy.
Citizens for Tax Justice came out with their analysis of his plan and it shows that if 9-9-9 was in effect today, “the richest one percent of taxpayers would each pay $210,000 less in annual taxeson average, while the poorest 60 percent of taxpayers would each pay about $2,000 more in annual taxes on average, than they do now.”
The Tax Policy Center has said that “a taxpayer in the top 0.1% (who makes more than $2.7 million) would enjoy an average tax cut of nearly $1.4 million, increasing his after-tax income by nearly 27 percent” under Cain’s plan.
Mr. Borosage wrote about Cain’s plan: Policy groups and the press analyzed his plan — discovering that it would lower after-tax incomes of the working poor (incomes under $30,000) by 16 percent to 20 percent, while increasing the incomes of wealthier households (incomes above 200,000) by 5 percent to 22 percent. Roughly 95 percent of those earning more than a million would average an annual tax cut of $487,300.
Rick Perry’s Cut, Balance, and Grow flat tax
In a recent article Jon Perr brought up a few key points in Perry’s flat tax proposal:
Flat taxes, by definition, raise taxes on middle-income and working people — the very people who have been hit the hardest over the past decades. This doesn’t require higher math to understand.
Governor Perry’s ” Cut, Balance and Grow” scheme would undermine Social Security, produce mountains of debt and require draconian spending cuts, all while ensuring a massive windfall for the wealthy.
His optional 20% flat tax rate would allow the top income earners to pay Uncle Sam at a much lower rate than the already low 35% level they pay currently. And Perry would not merely eliminate the estate tax, he would zero out the capital gains tax as well.
As the Washington Post recently explained, “For the very richest Americans, low tax rates on capital gains are better than any Christmas gift”:
While it’s true that many middle-class Americans own stocks or bonds, they tend to stash them in tax-sheltered retirement accounts, where the capital gains rate does not apply. By contrast, the richest Americans reap huge benefits. Over the past 20 years, more than 80 percent of the capital gains income realized in the United States has gone to 5 percent of the people; about half of all the capital gains have gone to the wealthiest 0.1 percent.
In an interview on CNBC, Rick Perry was asked by John Harwood, why — in an era of massive income inequality — the rich should be given a tax break worth “hundreds of thousands, maybe even millions of dollars,” Perry replied, “but I don’t care about that. What I care about is them having the dollars to invest in their companies.”
HARWOOD: Dividends, capital gains, interest income taxes would provide a huge tax cut for wealthy people in this country. Given what’s happened with income inequality, why is that a good idea?
PERRY: We’re trying to get this country working again. And that’s what I focus on. As a matter of fact, as we looked and as we talked and as we went through what are the ways to really get incentives to those who are going to risk their capital to create the jobs. […] Those that want to get into the class warfare and talk about ‘oh my goodness,’ there are going to be some folks here who make more money out of this or have access to more money, I’ll let them do that. I’m worried about that man or woman sitting around the coffee table tonight or in their kitchen talking about how are we going to get to work, how are we going to have the dignity to take care of our family. This plan does that. And it also is a tax cut across the board, it doesn’t make any difference what strata you’re in. It gives a tax cut across the board.
HARWOOD: But for those at the top, it is hundreds of thousands, maybe even millions of dollars for them.
PERRY: But I don’t care about that. What I care about is them having the dollars to invest in their companies.