Posted on 10/13/2011 5:19:07 AM PDT by Cincinatus' Wife
Herman Cain's "9-9-9" tax reform is attracting enough attention to become the focus of this week's Presidential debate. As a plan for overhauling revenues and unleashing the private sector, it's a bold gambit that shows Cain is willing to take chances and shake up the Capital.
The 9 percent business tax is a stroke of genius. It would give us the lowest business rates in the world and would make us the "tax haven" for investment from everywhere. The stock market would barely be able to stay abreast. The 9 percent personal income rate would eliminate all the deductions and put everyone on a level playing field. Tax collection from "the rich" would skyrocket because no one would hide income anymore, but "the other 99%" would make out as well. Cain's plan would fold in the 15 percent payroll tax so the new 9 percent rate would be an improvement - but would end the immunity that the bottom half has from paying any taxes at all. Altogether a good show.
The stickler is that 9 percent national sales tax. That's where things start to fall apart....
The sales tax has long been the preserve of the states and is now imposed in all but five of them (Alaska, Delaware, Montana, New Hampshire, and Oregon). The informal arrangement has been that the federal government gets income taxes, the states get the sales tax and local municipalities are granted the property tax. Often they poach. States and even cities have imposed income taxes and have also started trespassing on the property tax. But for the federal government to demand a 9 percent sales tax would be a whole new departure. Combined with state and city levies, it puts us near 20 percent, which is black market territory.
(Excerpt) Read more at spectator.org ...
Since you will no longer be a conduit for as much money transfering to the Federal government, the price you charge for your goods or services will go down. It will have to in order to remain competitive in the market place. Or you can maintain your price at its current level and lose business. That will also lower your gross income. Either way, the market will take care of lowering your gross in reaction to the changed conditions in the marketplace. That's how economics works.
Way to go with the strawman.
Why in the world would I argue that corporations would pass on all savings to the customers at the expense of reducing gross earnings and leaving profits flat?
That's just stupid, and I never said it and never would.
What I said was it is equally stupid to argue, as you have, that corporations would pass NONE of the cost savings on to customers.
Of course they would pass some of those savings on -- and they would pass more on the more they are pressured by pricing dynamics from competitors.
Please. Where do "gross earnings" and "profits" come from? Ultimately, sales. Sales are driven by price. Price and profits margins are always in tension and, the corporation hopes, in balance: the price is at a point where it drives maximum sales while at the same time the margin is at a point where it delivers maximum profit.
In a market where sales are flat, and where pricing might affect that, corporations will use pricing to drive sales to the extent that that positively (or at least doesn't negatively) affect profits.
This process of rebalancing sales (pricing dynamics) and profits (margins) occurs all the time! Every day there are things affecting profit margins (such as commodity prices) and things affecting pricing (competition, external upward/downward pressure on demand). This just doesn't happen in the environment when corporate tax rates are cut. The process views that as simply another factor that affects costs, and which then must be factored in to pricing AND desired profit margins.
Point being: every day the market provides evidence that lower costs can and do affect pricing.
And it's simply wrong to argue that because there is no absolute passing on of ALL savings that there is no, and no possibility of, passing on of some savings.
That's not true. Obama is talking about tax reform as well, with his raising taxes on those at the upper end of the economic spectrum. What both plans have in common is that they raise taxes and won't come anywhere near to delivering all the wild promises - 10% salary raises, falling prices, balanced budgets, millions of new jobs, whatever - that the men promoting it say they will. So what good is talking about tax reform when what you're shilling is basically unworkable and would probably cause more harm than good?
The status quo guarantees that taxes will increase for we 53% who are paying it all now. So why should we 53% vote for any candidate who refused to fundamentally reform the tax system?
I think your percentage is a bit high but hey, you yourself said you would vote to raise your taxes under certain circumstances. Who knows, maybe most people will vote to have their taxes raised and sweep Cain into office. I just doubt that will happen.
Sorry but I don't believe I said anything about the President controlling state and local taxes. My point is that I don't like the thought of adding 9% to my state/local taxes that are already too high.
But that's not the conclusion that is important in this case. The important conclusion is that there is virtually no evidence that lowering tax rates will lead to lower prices. That is the finding that invalidates Cain's claim. Lower overall rates, while a given, are a separate issue altogether.
First, it's sort of like Margaret Thatcher said: to get your policy right, you have to get your understanding of human nature right.
The error on equating lower corporate tax rates with permanent revenue losses is that fundamentally flawed. If this group can't get that right, I severely question any of their further analysis.
That said, let's talk about your statement that "there is virtually no evidence that lowering tax rates will lead to lower prices. That is the finding that invalidates Cain's claim."
For starters,the paper at the link you provided says otherwise. While it goes on to claim that this data is "questionable," it does at least acknowledge that "by some estimates, reducing the top corporate rate from 35 percent to 25 percent could yield about $60 billion of extra consumer spending."
So this group, which can't get a fundamental economic principle correct, disagrees with the findings of others that "by some estimates, reducing the top corporate rate from 35 percent to 25 percent could yield about $60 billion of extra consumer spending," but it at least acknowledges these findings. Which is far different from claiming there is "virtually no evidence that lowering tax rates will lead to lower prices."
There is evidence, it's just that you disagree with it. Which is okay. Just don't argue that there's no evidence counterveiling your point.
Also note that the data they were evaluating found that reducing the corporate tax rate from "35 percent to 25 percent could yield about $60 billion of extra consumer spending." Cain's plan would reduce the corporate tax rate to 9%.
So if Cain is right and this group you've cited is wrong, his plan could yield substantially more than $60 billion in extra consumer spending.
Then you're smarter most of Cain's supporters. Most of them claim that prices would magically go down by 26%. Actually, depending on when you catch him Cain either says prices will go down 26% or he admits that there is a chance that they might not go down at all. All depends on who he is talking to.
What I said was it is equally stupid to argue, as you have, that corporations would pass NONE of the cost savings on to customers.
Why is that a stupid argument when past evidence and economic studies support it? Look no further than the 2004 tax holiday on foreign profits. Something like $360 billion in foreign profits brought home at a nominal tax rate - far more money than Cain's tax plan will save business in an average year. Did the 800 corporations who benefited use that money to lower prices? No. Did they use it to increase hiring? No. That money went to improve margins and raise stock prices. Countries in Europe went through a series of business tax rate cuts in the past decade. The U.S. cut its rates during the early Bush years. Did any of those result in companies announcing that they were cutting their prices? No. So why should we expect any other tax cut would cause different results?
Point being: every day the market provides evidence that lower costs can and do affect pricing.
Example please.
Let me provide a counter example. My company cut wages across the board a couple of years ago. The announced reason was the need to cut costs, even though the company was well in the black. Did those cost savings result in a reduction in prices we charged out client? No. Prices remained the same, costs went down, margins went up, all in violation of what you believe should have happened.
I misunderstood your point, thanks for clarifying.
A 9% tax would not be “added” on top of things the way they are now. Your entire federal tax burden would change.
So, just picking random numbers, if you were paying a total of 30% federal taxes on top of whatever you pay for state and local taxes now and under Cain’s plan you paid a total of 18% on top of whatever you pay for state and local taxes now, you’d come out ahead, right?
But that’s no different from our present tax situation. Yet under the sales tax, because everyone pays it and because it’s not hidden (it is shown on the receipt for everything you purchase), it would be a lot harder for congresscritters to vote to increase it. A lot more people would have a stake in the tax rate.
As it stands now, at least 50% of the constituents of Congress actively SUPPORT tax increases — because they are NOT paying taxes at all and it’s the other guy’s money that gets robbed.
I’m sure glad primary season comes only every four years. I tire myself to the bone arguing fundamental points over and over again!
But, yeah. It’s important to bring what you can to the table.
Sorry.
I still think that’s funny.
Those who see their income tax rate go from 31% to 9% with no payroll tax would happily and cheerfully pay an additional 9% for their vehicle.
So yeah when I’m taking home 29.65% more income I will gladly pay 9% sales tax.
—You pay it at the point of purchase, just like state and local sales taxes and federal fuel surcharges.
It would be stated at the bottom of your receipt.—
Yes, but if you enter into a transaction with a local where you DON’T pay it, if you pay cash the transaction cannot be traced back to you. That’s all I meant. Income is harder to hide than outgo.
Wait. I'm confused. I thought you just said in your other post that those who are not paying taxes now would vote for the GOP nom.
The vast majority of the people who may pay taxes for the first time in their life is probably not going to vote for the GOP nom anyway. That's my point. That's why I said what you said was really funny.
But the larger point is: So what? That's situation normal. Doesn't matter WHY they won't vote for the GOP, they just won't. It somehow hasn't prevented us from electing Republican presidents in the past.
Now if your point is that there is a large segment of voters who actually WOULD vote GOP *but for* the Cain plan, in your view "raising their taxes," you've got two hurdles to overcome:
1. What's the evidence that the 999 plan increases the overall tax burden on the majority of individuals who are already taxpayers?
2. What's the evidence that the 999 plan will not free up price competition in consumer markets?
If you are claiming the Cain plain "raises taxes on individuals" because it would make people who paid no taxes now pay some, analytically, I don't think that constitutes a "tax increase." The imposition of taxes for the first time is simply not comparable to (claiming there will be) "tax increases" on those individuals who are present taxpayers.
And I don't think it's intellectually honest to claim, essentially and for purposes of argument, that since the 999 plan *imposes* taxes for the first time on people that probably wouldn't vote for Cain or any other Republican anyway, that voters who are taxpayers and whose overall tax burden would be lowered by the 999 plan won't vote for Cain because it *imposes* taxes on those not presently paying taxes.
The fact is that many taxpaying voters will be *motivated* to vote for a plan that broadens the tax base.
Hell's Bells, the parasites have been voting for years to stick it to the producers so as to get more free stuff out of them. You can be sure that producers will vote to make the parasites contribute if they ever have the chance to do so.
So the fact that the 999 plan may "raise" (more accurately: "impose") taxes on some individuals -- BECAUSE THEY WERE PAYING NO TAXES -- is actually a positive, not a negative in terms of voter intensity among present.taxpayers.
I don’t think you can just add your state tax and a NST and say that’s going to be your tax burden.
Several other things about your financial situation will change.
For example, if you are employed, you are now paying payroll (”Social Security”) tax, sometimes listed on your pay stub as FICA.
That is around 7%, although presently it’s temporarily lower as part of a “stimulus” program. (BTW, ironic isn’t it, that even President Obama agrees that lowering the payroll tax helps the real economy. I guess Cain’s idea on this point isn’t so looney after all, eh? :O )
Under 999, that payroll tax is eliminated. You would no longer pay that 7% (just using a round number). Now remember that was 7% on every dime you earned, whereas the NST would be on every purchase you *decided* to make.
I think if you do your numbers, you’ll find that getting 7% more of your pay compared to paying 9% on your consumer purchases (which are majority discretionary) works out well for you.
And that doesn’t factor in that lower corporate tax rates under 999 would free up corporations to drive sales through lower prices if they wish or are “forced” into it by competition.
Yes, yesterday, today, tomorrow there are ways to evade paying income taxes.
However, it is getting harder and harder on sales of goods, at least not between individuals.
What can happen is bartering and so on.
I’ve lived in countries with huge black markets, so I know what you’re talking about.
I just don’t think, though, this plan gets us anywhere near engendering substantially more tax evasion than is usually present in any system.
Laffer would say, I think, that one of the beauties of a plan such as 999 is that it engenders compliance, not evasion. That’s one of the mechanisms by which a plan such as this results in increased tax revenues — there’s actually more, not less, compliance (and compliance comes cheaper because it’s volutary).
—Laffer would say, I think, that one of the beauties of a plan such as 999 is that it engenders compliance, not evasion. That’s one of the mechanisms by which a plan such as this results in increased tax revenues — there’s actually more, not less, compliance (and compliance comes cheaper because it’s volutary).—
Yep. That is as it should be in a “benign” government. And in that paragraph is the core reason that when NY significantly increased the tax on cigarettes, tax revenues went DOWN. :-D
Come on. You know you can't equate any type of temporary tax provision with a permanent change.
Neither corporations nor individuals react the same way to temporary tax "holidays" as they do to permanent changes in tax law that they can rely upon and use as a basis for longterm decision-making and strategy.
That's one of the reasons the article you cited was not very useful: it was evaluating the effect of lowering corporate tax rates *temporarily* for the purpose of attempting a *short-term stimulus.*
—State and local governments do it every day, on every purchase. Some online retailers collect state taxes nationwide and manage to pay them to the respective states.—
It’s even worse, and they do it. A particular city can have a different tax rate in a shopping mall than in the rest of the city. I used to work with the tax department at a multinational. Tax collection within the US is a nightmare, but we did it. It costs a LOT of money and there are a LOT of employees, including a whole section of the company’s legal department, devoted to tax.
If our tax system ever got REALLY streamlined, we’d have hundreds of thousands of white collar jobs go up in smoke. And since a large portion of them are attorneys, you can bet legal action would be vicious to keep it from happening and maybe even moreso afterward, if it did.
999 will not fly, even if it is the greatest tax plan in the history of man. Our system would have to INVOLUNTARILY crash (thereby losing it’s power) before it would be seriously considered. That’s just the way the world works.
I predict that the “poor” will get tax credits for their federal sales tax, leaving the “rich” paying an even greater portion of the taxes.
I don’t trust the government and you can’t convince me that giving them a new way to tax me will end up helping me or the country in the long run.
I cited you to your own link, wherein the group evaluated the findings that a 10% cut in corporate tax rates (from 35 to 25%) could generate $60 billion in extra consumer spending.
The fact that you can find studies (if you can) to support the idea that a corporation NEVER passes on ANY of its cost savings to consumers doesn't close the debate.
As your own citation shows, there is evidence on the other side, yet you are continuing to make conclusory absolutist arguments as if that counterveiling evidence simply does not exist.
Further, as I thought I was pointing out previously, it's just nonsensical to claim anything in a dynamic process such as corporate pricing is all one way or the other. That's just not solid reasoning, and you don't need any papers one way or the other to figure that out.
You'd do well to concede the obvious -- that corporations may indeed lower prices in response to lowered costs -- and then make whatever arguments qualifying that you want to from there.
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