A Simple Tax Plan

by Ramesh Ponnuru

My new column for Bloomberg View looks at the fine print of Herman Cain’s “simple” and “transparent” plan:

[A] good chunk of his VAT would also be passed on to workers. Today’s corporate income tax allows companies to deduct wages. The VAT doesn’t: It is designed to be, at least partly, a tax on wages — just one that is collected from companies rather than earners. A portion of the VAT would also be passed on to consumers in the form of higher prices.

So in addition to paying new taxes on their purchases and losing the personal exemption and earned-income tax credit, people at the low end of the income scale would see their wages drop. The reduction in payroll taxes wouldn’t come close to making up for these hits. And there might be additional ones, as state and local governments raise taxes to pay for the sales taxes they would have to transfer to the federal government for their purchases.

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