THE 2012 TAXES SMACKDOWN
I'm going to start with Buddy Roemer, because I suspect that he started the tax plan smackdown. (Just
because you've never heard of  former Congressman and Governor Buddy Roemer, who is in a media
black hole, doesn't mean that other campaigns aren't watching him very closely.) Along with restoring
American jobs, Buddy wants to curb corporate special interest power, particularly over the tax code.
Buddy has been running on this platform since his presidential campaign announcement in July, 2011.
Here are two of his comments.

"You can not read our tax code... You know why? It was written by lobbyists, special interests that paid
big checks to politicians to get their little special deal in the code. We have billion dollar corporations
that don't pay a penny in taxes. It's not right. Everybody should pay something, as little as possible, but
we're in this together. I would rewrite the tax code, 15% corporate instead of 35, but nobody gets away
with zero." (Buddy Roemer, "Governor Roemer on the Tax Code," YouTube, Oct. 8, 2011).

"We actually pay American firms to build plants in China. We tax American firms that have firms here and
it's tax free in China. That's what we did. So I'm not here blaming the Chinese, I'm talking about us... Our
political leaders want the checks. They want GE to pay them a big check, $4.3 million four years ago, in
politics, that's what GE paid the politicians. And in return, GE moves a plant overseas, and gets tax
benefits for it. It's wrong... (I would) change the tax code that has to do with foreign tax credit, no longer
can a big company, living in America, enjoying its benefits, charge off foreign taxes against the taxes
paid in America... Number 2, you can no longer deduct expenses overseas. It's just that simple. You
build a plant in America, you can deduct it. You build it overseas, lots of luck, you're free to do it, but
we're not going to pay for it..." ("It's Not Funny Anymore. I'm Not Laughing." - Gov. Buddy Roemer,
YouTube, Oct 23, 2011).  

To evaluate Buddy's plan, we need an overall look at federal taxation. Taxes have shifted away from
corporations to individuals in the last 60 years.

"The individual income tax has consistently provided nearly half of total federal revenue since 1950,
while other revenue sources have waxed and waned. Excise taxes brought in 19 percent of total
revenue in 1950 but only about 3 percent in recent years. The share of revenue coming from the
corporate income tax dropped from about one-third in the early 1950s to less than one-sixth in 2008. In
contrast, payroll taxes provided more than one-third of revenue in 2008, compared with just one-tenth
in the early 1950s." (Tax Policy Center, Urban Institute and Brookings Institution, "The Numbers: What
are the federal government’s sources of revenue?," undated).

For 2008, individual income tax provided 45% of the federal government's total income. Payroll taxes,
primarily for Medicare and Social Security, provided another 36%. (Ibid). Adding the numbers, individuals
were supporting 81% of the cost of government in 2008. This compares to about 50% in 1950. In 1950,
corporations supported about one-third, 33%, of the cost of government compared to just 12% now.
(Ibid).

Some of this reflects the increased cost of Medicare and Social Security. But the dropping corporate tax
percent also reflects the exemptions that special interests have added to the tax code. Corporations
are simply paying less taxes.

"Revenue from the corporate income tax fell from between 5 and 6 percent of GDP in the early 1950s to
2.1 percent of GDP in 2008." (Ibid).  

I like Buddy Roemer's ideas on taxes for several reasons. First, it's unlikely to do much harm, since it
leaves the majority of the federal government's income intact. (Since government spending will likely
exceed revenue by at least $1.5 trillion in 2012, there must not be less revenue.) Second, it's likely to
generate more revenue from corporations even with a reduction in the corporate tax rate to 15%. (I
suspect that over the years there have been a lot of special interest deals.) Third, repealing tax breaks
for overseas corporations will slow (and maybe even stop) the loss of jobs overseas. Finally, dropping
the corporate tax rate will stimulate economic growth in America. It's all good.

The next candidate with a tax plan was Herman Cain, who seems to have introduced his 9-9-9 plan in
September, 2011. I had serious reservations about the 9-9-9 tax plan going in and they seemed justified
by the first paragraph of his introduction.

"The major tax reform proposals have at least two significant goals: (1) to simplify the tax system and (2)
to promote U.S. savings investment and growth. They also seek to replace the existing federal personal
and corporate income taxes, estate and gift taxes, and payroll taxes." (found on Herman Cain website,
Fiscal Associates, Inc., 999_Scoring_Report.pdf, Sept. 2011, p. 2).

Back in my corporate youth, 35 years ago, I took a course in business management that was full of
buzzwords. One of the buzzwords was slot-machine-management. This referred to management that
changed too many things at once, sent all the wheels spinning, and the warning was that just as in a slot
machine, when all the wheels are spinning, the results are unpredictable. Sometimes you win, but most
often you lose.

As it is presented, swapping out all existing taxes for Herman Cains 9-9-9 tax plan is sure to have
unintended consequences. After Congress rips it apart and reassembles it to their liking, it may not
resemble the original much, and then there's no limit to the unintended consequences.

I had a problem with the rest of the report itself also. I was a National Merit Scholarship semi-finalist and
I have a degree from U. Maine in Mathematics. (Amo Paul Bishop, 1964). I found the report as hard to
understand as some of my advanced mathematics text books. As a general rule, I believe that if it's a
struggle for me to understand a report, it's written not to educate, but to confuse.

For example, here's the third paragraph of the introduction. (You should be able to understand the
introduction, right?)

"Official revenue estimates are done on a static basis. Government forecasters first project a baseline
of total economic activity over the next five to ten years. Revenue implications of proposed changes
are then evaluated against that same baseline. In other words, a static forecast would not take into
account any growth effects that might occur if a new tax system were implemented. (Government
estimators reject the notion that their analysis is static, indicating that they make second order
adjustments while holding only total output constant. Despite protestations, output remains unchanged,
that is, static.)" (Ibid.)

The report goes on to get worst, unrelenting technospeak. Praise the Lord, I don't have to pass an exam
on this thing, so I don't have to struggle to understand its intricacies. I did however check its
conclusions.

Basically, at the bottom of Table 10c, under the heading, Combined Reform Proposals, it showed a line
that said, Business Transactions Plus Factor Income Plus Sales Tax,   25,453.7 (Base)   9.1% (Rate). (Ibid,
999_Scoring_Tables.pdf, Sept. 2011, p. 8). My best guess is that this is supposed to prove that the 9-9-9
plan will generate almost the same revenue as our current tax plan. Indeed, Cain claims that the plan is
"revenue neutral" and will produce the same revenue as our current tax plan.

Based on the conclusions of the report, the Cain website claims: "According to former Reagan Treasury
official Gary Robbins, of Fiscal Associates, the 9-9-9 Plan will expand GDP by $2 trillion, create 6 million
new jobs, increase business investment by one third, and increase wages by 10%."

I can only note that the report also claims that "official static reports will shape the final form of any tax
reform bill that might emerge from Congress." (Ibid,  999_Scoring_Report.pdf, Sept. 2011, p. 2). That's
certainly the triumph of hope over experience. Can anyone say special interests?

According to tax reform history, the Republican party has believed that reducing taxes on the rich will
cause them to invest in American. That was certainly the theory when Bush reduced taxes for the rich in
2001 and 2003. Just as certainly, the Bush tax cuts did not work. (For full details, see No. 132, "Jobs And
Failed Policy" on this website.)

There have been many claims that the 9-9-9 plan raises taxes on the middle class and the poor. I'm will
only look at what it does for the rich. Fortunately, the Congressional Research Service has just
produced a report on who paid what taxes in 2006, which I assume is the most recent year that has
available figures.

The relevant tax figures are based on Adjusted Gross Income, which is gross income reduced by
personal deductions and itemized deductions for charitable contributions, state taxes and mortgage
interest. Excluding the top 10% and the bottom 10%, tax payers earning less than $100,000 paid almost
19% of their adjusted gross income in income and payroll taxes. The bottom 10% of taxpayers earning
less than $100,000 paid less than 9%, the top 10% paid over 26%. (Thomas L. Hungerford, "An Analysis of
the "Buffett Rule"," Congressional Research Service, Oct. 7, 2011, p. 11, see Table 3A).

The tax rates for adjusted gross incomes between $100,000 and $350,000 ranged between 18% and 33%.  
The range of tax rates for adjusted gross incomes of $350,000 to $1,000,000 were 25% to 34%. The range
of tax rates for adjusted gross incomes of $1,000,000 to $5,000,000 were 24% to 35%. Adjusted gross
income over $5,000,000 had a tax rate range of between 23% and 36%. (Ibid). Note that the variance in
percentages within each category seems to come from special treatment of some sources of income,
for example, some income is taxed at a lower rate as capital gains.

(About these figures: the bottom of the range is actually an average of the tax rate for the lowest 10% of
tax payers in the range, the top of the range is the average of the top 10% of tax payers in the range. So
at least the middle 90% of tax payers fall within the range figures I just quoted. While this is not a true
range, it is close enough for comparison between our current tax plan and the 9-9-9 plan.)

Cain's income tax rate of 9% is obviously a huge tax break for most people who earn over $100,000. The
9% federal sales tax may up their taxes some, but it won't raise their taxes to 18% unless they spend all
their income on taxable purchases, and that won't happen. Corporate taxes won't raise the tax rate of
the rich much.
So, if this is really a revenue neutral tax plan, the tax payers with less than $100,000
adjusted gross income will have to pay higher taxes to compensate for the tax breaks given to the tax
payers earning over $100,000
. Many other analysts have claimed that the 9-9-9 tax plan does raise taxes
on the poor and the middle class and I believe them. Shame on you, Herman Cain!

Without much specificity that I could find, Herman Cain says that Phase 2 of his tax plan will be a fair tax,
which is a national sales tax, with a rebate to the poor based on family size. In general, this kind of tax
discourages sales of high ticket American items. A 10% luxury tax was tried in 1991 with major
unintended consequences.

"Starting in 1991, Washington levied a 10 percent tax on cars valued above $30,000, boats above
$100,000, jewelry and furs above $10,000 and private planes above $250,000... The taxes took in $97
million less in their first year than had been projected — for the simple reason that people were buying
a lot fewer of these goods. Boat building... was particularly hard hit. Yacht retailers reported a 77
percent drop in sales that year, while boat builders estimated layoffs at 25,000." (Greg Pierce, "Inside
Politics: A hard-earned lesson," The Washington Times, January 7, 2003). Bottom line: consumption
based taxes are dangerous to even a robust economy.

Rick Perry has a flat tax plan. He plans to "institute flat income tax rate of 20%, allow individuals to
choose existing tax code or simple flat tax system, preserve deductions for mortgage interest, charity
and state/local taxes, include standard deduction for individuals/dependents of $12,500... Eliminate tax
on Social Security Benefits... (and) Dividends and Capital Gains... (and) Death Tax... Reduce Corporate
Tax Rate to 20%..." (Rick Perry website, "Cut-Balance-and-Grow-Summary.pdf," p. 1, undated).

Perry also has some good ideas in this summary, but based on his tax plan, he'll bankrupt the country
before he can implement them. First, it appears that he is planning to increase the standard deductions
for individuals/dependents to $12,500 if they choose the flat 20% plan.

"Lower- and middle-income families will be able to take advantage of an optional 20% flat tax rate that
includes generous standard exemptions of $12,500 for individuals and their dependents, as well as
deductions for mortgage interest, charitable contributions, and state and local taxes." (Rick Perry
website, "Cut Balance and Grow," undated).

The average tax payer earning less than $100,000 pays around 18% to 19% now, so this might reduce
taxes for individual tax payers, but probably would not benefit low income families with one or more
children. (Estimated averages from: Thomas L. Hungerford, "An Analysis of the "Buffett Rule","
Congressional Research Service, Oct. 7, 2011, p. 11, see Table 3A).

Like Cain, Perry is planning to give almost every high income tax payer a big tax break. For example: the
tax break would be about a quarter (27% rate reduced to 20% rate) for the top 10% of tax payers with
adjusted gross income less than $100,000. The tax break would be a third for the top 1%, the average tax
payers earning over $350,000 adjusted gross income (30% average rate reduced to 20%). Individual high
end tax payers with rates up to 35% will do even better, getting a tax break of up to 40%. (Estimated
averages from: Ibid).

Given budget shortfalls in excess of a trillion dollars for the last few years, this tax plan is fiscal insanity.
The plan is wrapped in an appealing package of budget balancing, and regulation slashing, and an end
of ear marks and bailouts. (Dream along with me!!) No matter! It is still nuts!!

Mitt Romney also has a tax plan. He plans to maintain the Bush tax cuts of 2003 and 2004, "eliminate
taxation on capital gains, dividends and interest for any taxpayer with an adjusted gross income of
under $200,000... eliminate the death tax," and reduce the maximum corporate tax rate from 35% to 25%.
(Mitt Romney, "Believe in America: Mitt Romney’s Plan for Jobs and Economic Growth," Sept. 1, 2011, p.
41,42)

It's hard to criticize Mitt Romney, because he is so moderate, so my criticisms will be mild. I think his tax
plan is based on failed policy. The idea that lower taxes for the rich will cause them to invest in America
has not stood the test of time. (See No. 132, "Jobs And Failed Policy" on this website.)

Romney's plan to eliminate the death tax represents a substantial tax reduction for the wealthy,
particularly the top 1%. So does continuing the Bush tax cuts, which cut taxes for high income tax payers
by 3% to 4.6% and cut the rate for long term capital gains by 5% to 10%.

And I think that the corporate tax rate should be reduced even more, and the reduction should be tied
to closing the tax loopholes that special interests have put in the tax code. After all, as of 2008,
corporations were only paying about 2% of GDP in taxes even with the 35% rate.

But wait, you ask, won't Obama raise taxes on the rich? After all, in September 2011, Obama proposed a
new tax plan to put a minimum tax on millionaires. The key to Obama as a tax cutter is to ignore what he
says and watch what he does.

An act that extended the Bush tax cuts for the wealthy was passed by the United States Congress on
December 16, 2010 and signed into law by President Barack Obama on December 17, 2010. (See
Wikipedia, "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.")

Most media experts see Obama's plan to tax the super-rich as campaign rhetoric, and I'm inclined to
agree. Obama's tax plan has no chance of Congressional approval and tellingly, it hasn't stopped the Big
Money Boys from aggressively supporting Obama's reelection. To date, Obama's campaign has collected
over $86 million.

So all in all, I understand why candidates like Cain, Perry, Romney and Obama get the big bucks from the
rich. It's an investment in low taxes, and everyone knows that the rich like to invest... in low taxes, and
in politicians, and don't forget... in China.

I even understand why reformers like Buddy Roemer face continually rising requirements that keep him
out of the debates and why he has been refused a spot on the primary ballot in Florida.

What I understand is this, the super rich are greedy and arrogant and determined to continue running
America into the ground so they can get richer. If that means shutting out real reformers, then they will
bend the rules to do so. I understand, but I'm fed up. If I see two friends of the rich squaring off against
each other in the fall of 2012, I probably won't forgive.

In conclusion: I remind all who conspire to undermine the integrity of the electoral process of the words
of Thomas Jefferson. "The tree of liberty must be refreshed from time to time with the blood of patriots
and tyrants."

Amo Paul Bishop Roden

PS: I have recently looked over Newt Gingrich's Tax Plan as well. Because Gingrich's plan has an
optional rate of 15% instead on Perry's optional rate of 20%, it will be a bigger tax break for the rich and
generate even less federal revenue than Perry's tax plan. So while I consider Perry's tax plan to be
fiscal insanity, I consider Gingrich's tax plan to be fiscal insanity squared.