Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
How about Herman Cain. The Republican presidential candidate is suddenly drawing tons of media attention after winning a GOP straw poll in Florida. One thing the pundits are buzzing about is Cain’s proposed “999″ tax policy, the most straightforward, logical plan currently offered to voters.
Under the 999 plan Americans would pay:
Where did Cain come up with 9 percent? One of his campaign slogans is, “If 10 is good enough for God, then nine is good enough for Washington.” That’s great marketing, but there’s more to the explanation, and my bet is that is has roots in “Hauser’s Law.”
Economist William Hauser discovered that no matter what the top tax rate is, the federal government’s tax revenues equal roughly 19.5 percent of the Gross Domestic Product. When top rates were 92 percent in 1952, the U.S. collected roughly 19 percent of GDP. When top rates were 28 percent in 1988, the U.S. collected roughly 18 percent — almost the same amount despite drastically different rates.
By my calculations, Cain’s plan would generate $2.19 trillion in tax revenue in 2011.
Is that enough to run the country? The U.S. treasury had 2010 tax revenues of $2.16 trillion. So if Washington could get its deficit spending under control and sop up some of its debt, the government could function well on the revenue generated by the 999 plan. Plus — and this is a big plus — the new policy would prompt economic growth.
Under the 999 plan, the most heavily taxed families would see their rates go down. This would put more money in their pockets and make them feel wealthier and more confident. Those attitudes often lead to increased spending, which in turn prompts business to increase its capital spending and hire more workers to meet the new demand.
Increased business profits would result in increased tax revenues that (if wisely managed) could be used to get our debt and deficits under control.
Whether or not Cain makes it to the White House, the “999″ plan deserves consideration. Do you think you would pay more or less in taxes if this plan were to go into effect?
– By Wes Moss, for Atlanta Bargain Hunter