Wall Street Journal, Jan. 31, 2012
Gingrich's Tax Plan Beats Romney's"
by Arthur Laffer
Mr. Laffer, chairman of Laffer Associates, is co-author with Stephen
Moore of "Return to Prosperity: How America Can Regain Its Economic
Superpower Status" (Threshold, 2010).
In the article Mr. Laffer uses the economic proposals of the presidential
contenders to expound upon his support for a low-rate flat income tax.
... Mr. Gingrich's optional 15% flat tax for individuals and his
12.5% flat tax for business. Each of these taxes has been tried and tested
and found to be enormously successful.
... Fairness in taxation means that people and businesses in like
circumstances have similar tax burdens. A flat tax, whether on business or
individuals, achieves fairness in spades. A person who makes 10 times as
much as another person should pay 10 times more in taxes.
... It is also patently obvious that it is unfair to tax some
people's income twice, three times or more after it has been earned, as is
the case with the death tax.
Mr. Laffer contends that it â€œis also patently obvious that it is unfair
to tax some people's income twice, three times or more after it has been
earned, as is the case with the death taxâ€ [and presumably the gift tax].
Mr. Laffer seems blinded by wealth and does not realize that you canâ€™t take
it with you. When you die you are not taxed. The estate pays and the dead
donâ€™t feel the pinch at all. Nevertheless, it might be better to encourage a
system whereby wealth might be given more freely and taxed more gradually.
Laffer seems to be among those that believe wealth, once accumulated,
should be beyond the taxing powers of the government. I feel that a primary
task of the federal government is to defend the wealth of the country and
that the amount of oneâ€™s net wealth is a fairer measure of who should pay
for this service (and for maintaining the infrastructure that makes wealth
Tax Law professors view income as the sum of consumption and any change
in net worth. The government may tax wealth, consumption and/or income to
produce the needed revenue. At the risk of oversimplification, one may
contrast an income tax rate of 28% with a combined income tax rate of 8% and
a 2% net wealth tax for each of the next 10 years. The latter enables a
person to keep 20% more when it is earned and taxes only 2% of the amount not
consumed in later years. The combined tax structure encourages the early
accumulation of wealth and the payment of a bit more in taxes only after
wealth has been accumulated.
The 2-4-8 Tax Plan is a simple mix of three flat rate taxes: 2% on
individual net wealth, 4% on retail sales and 8% on individual and corporate
income. The exact same rates apply to the rich and poor. There are no
different tax brackets, deductions or credits, and no favoritism.
The three taxes would yield about $2.6 trillion per year (slightly
more than the current combination of Income, Social Security, gasoline and
other federal taxes and fees).
It is hard to imagine anyone that wouldnâ€™t welcome a 2% tax on net
wealth and a small 4% sales tax, in exchange for drastically reduced 8%
individual income tax rate. Even Bill Oâ€™Reilly (a/k/a the â€œFactorâ€) supports
a national sales tax (of 3%) as part of much needed tax reform. The
concurrent elimination of social security, capital gains and estate taxes
and a significant reduction of the corporate income tax rate to 8% should
guarantee near universal support for the 2-4-8 Tax Plan from liberals and
Eugene Patrick Devany JD, MPA