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Posted on 11/09/2011 5:02:50 PM PST by chuckles
I just wanted to put a pencil to the 9-9-9- plan to see just what it would really look like. I hear a bunch of spin that is obviously spin, so I just wanted to take a clear look at it and what it really does.
One thing first, I'm voting for Newt if I get the chance, but Cain would be #2. This is not a hit piece on Cain, just a look at the plan.
The first thing I noticed after the plan was announced, was the talking heads concentrating on the sales tax because that just about made the plan a non starter to them. After looking at the effects of the plan, I thought, lets plug in some numbers. Let's say hypothetically I want to buy a tire. The tire today is $100. ( my math is not good, so let's use round numbers.) This $100 price reflects a 35% possible income tax today. I know many businesses don't pay the top rate, but let's just keep it simple.
Now the 9-9-9 plan is in effect so the tire would cost $65 to make, plus 9% tax makes the final cost at the tire store $71. Now when I pay the 9% tax on the tire, my cost is $78. ( rounding off to keep it simple)
Looking back to the "good ole days" before the pesky 9% sales tax, the tire would cost $100. ( state taxes remain the same) Looks like the 9-9-9 plan just saved me money, a good bit of money.
Another aspect of this tax treatment is import prices. Can we not agree that a foreign tire would have to compete with the $65 wholesale price? If Goodyear sells the tire for $65, then would not the Yokahama tire have to compete with $65 and not $100? That looks good for American business to me. That's just the corporate effect on prices.
What about paying the sales tax for individuals? If I buy used equipment, there is NO tax. I also have the choice of not spending any money and saving the 9%. What if I chose to save 10% of my income for retirement? I was paying 13% for payroll tax, between my employer and myself, and that was on 100% of all my paycheck. Everything being equal, I should get a 6% increase in my pay from the boss, and 6% more from a non deduction in my check. If I chose to spend 100% of my check, I would pay 9% on it, not the 13% I'm paying now. If you add on top of that that I have the option of not paying the 9% on at least some of my money, that looks good to me. I'm pretty sure there are exemptions for charity and possibly an income exception, I may not pay much at all.
I'm sure there are more knowledgeable people than me on the subject, but it seems Cain either can't explain it well enough, or someone is sabotaging him on the talking heads shows. I'm not saying it's great or terrible, but I'm inclined to support it just to get the dope heads, illegals and whores to "Pay their fair share".
What got all this started was Krouthammer on Foxnews saying the lower price was "Deflationary". I about jumped out of my LazyBoy. It's nor deflationary to save tax money. The tire company still gets the same money it takes to pay their taxes, wages, insurance, and profits. It just makes them more competitive in my mind. That's when I knew it was an intentional hit on Cain.
However, that is not a trivial assumption.
Good catch. I'm in an apparent minority of FReepers who likes Krauthammer, but he is terrible on economics. Lower prices are not deflationary; deflation can only happen when government decisions restrict or reduce the supply of money.
Price decreases, by themselves, represent an increase in money's purchasing power. Krauthammer did not distinguish himself with his remark.
Imagine the fight in congress considering what is going on today. Even with the high taxation and spending of today, the Repubs are talking about NEW revenues to the Fed Govt, and the Dems won't cut a penny.
I thing your getting the hang of the 9-9-9 plan. Although, I’m not a fan of the plan. I would prefer replacing all current federal taxes with a national sales tax with no exceptions. Every POS for end user of goods and services reprogrammed in less than two years. What is really needed is a Constitution Amendment stating that the Federal Government (1)can collect no more than and no less 15% from the end user of goods and services. (2) All federal taxes will be paid at point of sales from end user of goods and services.
If you have ANY questions about the 999 - watch this. This is a Q&A with the author of the plan. It is excellent!
http://www.c-spanvideo.org/program/CainsTa
I have faith in capitalism to believe that EVENTUALLY, everyone would have to compete with the low cost leader and lower their price accordingly. If Walmart raised a price 10 cents, then every mom and pop store in the neighborhood would raise their price 10 cents. WalMart keeps the prices low to keep mom and pop in a vice. At some point after a few thousand tires being sold, the price would stabilize to the point that would be necessary to stay in business. That is the level they are now, but the tax is 35%, not 9%. The consumer pays ALL corporate taxes, the company doesn't. When people say they want zero corporate taxes, the wall street occupiers go nuts, but most people understand the corporation pays no taxes anyway. We just decide how much higher we want our products to be compared to other countries. The beauty of corporations paying less taxes is it makes them competitive with Singapore and other low tax places.
Now the 9-9-9 plan is in effect so the tire would cost $65 to make, plus 9% tax makes the final cost at the tire store $71. Now when I pay the 9% tax on the tire, my cost is $78. ( rounding off to keep it simple)
Looking back to the "good ole days" before the pesky 9% sales tax, the tire would cost $100. ( state taxes remain the same) Looks like the 9-9-9 plan just saved me money, a good bit of money.
Your analysis is wrong in several ways. First, corporate income tax is computed on the profit of the business, not the gross revenue. For simplicity lets assume the tire seller is also the tire manufacturer, so only one corporation is making and selling the tire. If the tire sells for $100, the corporation is probably making a profit of about $10, namely the selling price of $100 minus all the costs of making and selling the tire - the raw materials, the rent for the factory and the store, the salaries of the employees, the electric bill, and so on.
So the corporate income tax, at 35% is in the order of $3.50. For real businesses the actual tax burden is often even less as a percentage of sales. Assuming the company cuts the selling price by the reduction in corporate income tax, then you would pay $96.50 + 9% which is $105.18.
Also, you are incorrect when you say that the payroll tax is cut for both you and your employer. The "9" corporate tax applies to all of the salaries paid by the employer, so instead of paying 6.5% the employer will be paying 9% on your payroll - a tax increase for the employer. Together you will be paying 18% on your salary, 5% more than the payroll taxes you pay now. (I am referring to the same FICA and Medicare payroll taxes you refer to - not the personal income tax. In essence the 999 plan keeps the current payroll tax for individuals of 6.5%, plus the Medicare tax, and adds a few percent flat income tax for individuals.)
Mr. Cain states that his plan will generate as much revenue as the current system, so it won't cut your taxes or anybody else's. And it won't be any simpler than the current tax system. Imagine the complexity of tracking and reporting sales of "new" versus "used" products.
We don't KNOW that. We could have more people paying which would make more revenue at a lower rate. More jobs, more business, less hand outs, ect, would all have an effect on the total budget. I wouldn't assume it means more debt.
One thing I have learned over the years is to separate taxes from spending. Make your taxes amount to what you think is prudent to extract from the economy and learn to live on that. Spending must be limited to what you need for basics, and quit worrying about "paying" for spending. Just quit spending. If we went to war, are we going to worry about what it costs, or just borrow the money? Taxes should limit what we spend, but if it needs to be spent, then we must regulate taxes accordingly. Pretty soon, people start to equate spending plans with less money in my bank account and they vote against spending.
This is why EVERYONE needs to pay something. Even a wino gets $5 together for his MD 20-20. If he though he was going to have to get $20 together to pay his taxes, maybe he would vote against sending money to the UN or something.
Nein Nein Nein
I was assuming the 35% would be added in as the tire was manufactured. Rubber, chemicals, labor, ect, then it would end up being 35% or there abouts. Stupid mistake thinking taxes would be paid all throughout the manufacture.
You are closer, but still incorrect.
You omitted the FICA that the employer pays on the labor costs in the tire.
If the tire company is selling the tire for $100 and their gross profit was $10 of that, then their Corporate Income tax was $3.50 and net profit $6.50 ... but you have to figure the 7.65% FICA they paid on their payroll which was probably $40 so the payroll tax was another $3.06 for a total tax bill of $3.50+$3.06=$6.56.
The Cain business tax applies to profits and payroll, but not expenditures to other businesses, which in this case was $47. So the Cain tire selling price would be 1.09*($6.50prof+$40payroll) + $47 non-payroll costs = $90.69.
The customer then pays 9% sales tax on $90.69, making the total customer cost $98.85.
At the same time, the customer earning $1000 under the current system took home $923.50 if he paid only FICA. The tire would represent $100/923.50=10.83% of his take home pay. He’d take $823.50 if he had an effective 10% income tax rate. The tire would then represent $100/823.50=12.14% of his take home pay.
Under Cain’s personal income tax of 9%, he’d take home $910. The new tire price of $98.85 represents $98.85/$910=10.86% of his take home pay.
So to buy this tire, the person who currently pays zero income tax would pay 10.86% of his take home pay instead of 10.83% — he takes a slight hit under the Cain plan. The person who currently pays income tax would benefit under the Cain plan; exactly how much depends on how much income tax he pays under the current system.
bookmark
Now, subtract the direct cost of the IRS.
After that, subtract the indirect cost of IRS compliance in the non government sector.
The problem would be that millions of well paid tax specialists would be rendered jobless. They would no longer pay taxes as well. ALL that money would flood into the rest of the economy.
The Cain ‘9-9-9’ plan doesn’t eliminate the IRS. The lower direct costs of enforcing the business tax and income tax would be lost in the new costs of enforcing the sales tax.
Corporations would save most of the $5B/yr they spend on compliance, but as a percentage of the total $15T in revenue, it would lower prices negligibly.
Individuals, however would save the implied costs of the time they spent preparing taxes. Although the value of that time is often quoted as hundreds of billions of dollars, nothing says that saved time will be spent productively adding to economic output or personal income. The direct expense of professional tax preparation or software purchase might amount to $50/yr on average. That’s nice, but not a significant increase in spending power.
You forget that taxes are applied to profits. So if you are buying something that has a 10% profit margin then the taxes amount to only 3.5% of the cost of the item (35% taxes on 10% of the sales price.)
Also under the existing tax plan the tire company is taxed only on its profits. Under the 9-9-9 plan, since tires are imported, the tire company is taxed on every dollar of revenue it pulls in. In all likelihood even with the lower percentage the taxes the company pays will be as high or higher than before. So you can forget the savings.
Another aspect of this tax treatment is import prices. Can we not agree that a foreign tire would have to compete with the $65 wholesale price? If Goodyear sells the tire for $65, then would not the Yokahama tire have to compete with $65 and not $100? That looks good for American business to me. That's just the corporate effect on prices.
Virtually none of the tires sold in this country are made in this country.
If I buy used equipment, there is NO tax. I also have the choice of not spending any money and saving the 9%.
What percentage of the goods you buy today are used goods?
Everything being equal, I should get a 6% increase in my pay from the boss, and 6% more from a non deduction in my check.
Do you honestly expect that to happen? By that logic, if you choose not to participate in your company health insurance plan then the company should give you the money that they would have paid in insurance policy since that is part of your compensation. Do they do that?
I'm sure there are more knowledgeable people than me on the subject, but it seems Cain either can't explain it well enough, or someone is sabotaging him on the talking heads shows.
He explains if just fine. It's just that what he is explaining makes no sense.
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