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 ...
Um, because past performance is no guarantee of future results?
As I posted earlier, first, there is no comparison between the response to a temporary tax provision and permanent tax provision, on the part of either individuals or corporations.
Secondly, good grief! You're mired in more black-and-white thinking -- it's all corporations pass on "none" of their cost savings or they pass on "all" of their cost savings.
The fact is they pass on various amounts of their costs savings depending on an incredibly complex set of ever-changing variables that they evaluate as they go along day by day.
Logically, you could only claim corporations *always* respond to x (lower costs) with y (padding investors and not lowering costs at all -- or, for that matter, lowering costs and not padding investors at all) if you could prove that z (every complex factor that goes into a corporation's pricing decisions, earnings goals, etc. etc. ad infinatum) was static or *identical* in the situations you are comparing.
No way.
And even then there's the fact that corporations are run by human beings, and different human beings over time. These human beings have their own ideas about how to respond to cost cuts. They don't always make the same call the dude before them did.
The black market has nothing to do with your payroll taxes. The black market is about when something becomes financially viable for cheating.
What I have read is that as a sales tax approaches 20% that it becomes worth the risk of cheating to find black market means to avoid that tax.
So, rather than pay $240 bucks to get your brakes done at the shop, you have the mechanic visit your house after hours for a cash transaction of $200 or less. You just saved 40 bucks.
You have a shop owner that begins getting shelf supplies through other than kosher distribution, and to those he’s comfortable with, he gives them $240 worth of purchases for $210, pocketing both his profit and $10 extra for helping you avoid the tax.
I’m sure there are more lucrative examples than I’ve shown. If a $200,000 house would end up being $240,000 bucks, then 40,000 in tax is paid. Playing with the price of the house between buyer and seller on the sly could make thousands of dollars worth of difference.
Please stop with the absolutist arguments or I'm going to get miffed at you! ;)
NO. I have told you over and over again that I am not saying that prices will *always* go down when costs go down.
I am saying that they can and often will and that is true.
You have one example where cost cuts were not passed on to the customers. SO WHAT? How does that prove that corporations never pass on cost savings?
Are you really wanting to argue that prices are *never* affected by costs?
Yes, taxes affect behavior!
It’s a wonder that I find myself arguing that clearly established point on this thread, tho. (Not with you, obviously.)
Every system eventually needs massive reform. Every massive reform will be vehemently resisted by the special interest groups feeding on the system as it is.
That’s also just the way it works.
But if the system is going to crash without massive reform, then it’s pick your poison. Try to manage the reform or wait and try to respond to the crash.
I have my own ties with what used to be called the Big Eight accounting firms in their overseas operations and ex-pat tax collection. I know what you’re talking about.
I still call it the same way.
P.S. I do agree with you that there would be a catcalysmic shift in the white collar economy with so many tax accountants, lawyers, compliance officers, etc. being put out of those jobs because their work became an historical anachronism.
Not pretty. But again, it happens with every economic reset. There were thousands and thousands of liverymen and livery owners, buggy makers, stables, latern makers, hay balers, pooper-scoopers and so on put out of business when the automobile was invented and went into mass production.
Sometimes there is no way out but through.
You’re correct.
What we are disagreeing on, maybe, to some extent is whether or not the 999 gets us into that territory or not.
Again, I don’t think it would be accurate just to add up the percentages of sales tax. The underlying cost of the good would have to be a factor.
Although, are you saying this argument you’re referencing says 20% sales tax leads to a black market regardless of the underlying cost of goods?
—There were thousands and thousands of liverymen and livery owners, buggy makers, stables, latern makers, hay balers, pooper-scoopers and so on put out of business when the automobile was invented and went into mass production.—
But this was natural. Like what is happening to the USPS right now. It is not a “government policiy” thing that changes the world overnight via law. Rather, it is the market talking. And these people still had jobs for a time while they retrained, etc. And to re-iterate, the reason for the economic reset is paramount here.
The kind of economic reset that will bring the kind of change 999 or ANY flat tax wants will be similar to the one Germany went through in the mid-1940’s. It is never by choice.
I would have to go find it again to check for certain, but I’d think it would have to be product based. I doubt folks will be getting black market potato chips, but there are some things that might go the route that tobacco has.
Prime candidates in my mind would be big ticket items (house, car, boat, etc.), sin tax items like tobacco, alcohol; and bulk items. I can see lots of freezers stuffed with meat purchased on the hoof or out the back door of the grocery store.
You're right about that and I agree with you that there is a distinction.
However, I think if it's a mountain to climb to get a flat tax or similiar, it would be even harder to get it implemented "overnight." In fact, I don't think anyone would push for that.
Even Reagan's tax cuts did not take effect until two years after they were passed, IIRC.
Someone on this thread was talking about some of the excellent thinking on transition that has gone into development of the idea of the flat tax. I'm not familiar with this aspect. But I have been working under the premise that this change, though cataclysmic, would be graduated in somehow, with some grandfathering and all the usual transition stuff.
Anyway, while an interesting and helpful point to discuss, I don't want to see process issues cloud the first order of business which is to understand how 999/flat tax plans work and affect the economy in the first place.
Then focus on HOW to implement in an orderly, least disruptive way.
Probably the biggest factor in whether a corporation passes costs cuts on to consumers, and if so in what amount, is whether or not the corporation concludes that lower prices will drive sales volume high enough to make a sufficient profit.
In this economy, for example, there is, relatively speaking, very little demand for discretionary consumer items. This really isn't all that related to pricing; it has to do with a bunch of other things about the economy (such as not having a job or feeling crummy about your home losing 40% of its value). Therefore, lowering the price on certain goods or services may not increase sales anyway. So in that case, of course, a corporation may use cost cuts for something other than lowering prices.
OTOH, in an economy where that corporation's goods or services are still selling well as priced, the corporation also would be unlikely to use costs cuts to lower prices. Why? It's stuff is selling fine already and the corporation doesn't need to juice sales with lower prices. (Although it may decide it simply wants more profit! Yay!)
But when the conditions are such that lower prices will juice sales and increased sales are needed or desired — and this varies from sector to sector and by goods and services for sale — it just makes sense that corporations will lower prices.
Look at a consumer item that people enjoy buying, but expenditures for which they quickly adjust up or down depending upon pricing: the restaurant meal.
If Applebee’s, say, could start offering a whole slew of new low-priced specials, I do believe more people would go out to eat at Applebee’s. Because, good times or bad (maybe even more in bad times), people like to go out to eat and they absolutely will go out to eat if they can afford to do so.
If IHOP offered a $5.00 all-you-can-eat pancake buffet, I believe it would see a high sales volume.
The same calculus would take place across the real economy. And where lower prices would work to drive sales, lower prices would be put in place.
I'm confused as well. Are you saying that the GOP has no attraction for the average working person in the country? That only people making $100K and above are GOP voters? Or are you saying that every person who doesn't pay taxes is a welfare parasite who is locked into the Democrat plantation? If so, do some investigating.
The median household income in this country is $49,500. The average size family is a wife and two kids. Why are you surprised that people like this might vote GOP? Under the current tax law, such a family almost certainly pays no income tax. The 5.65% they pay in FICA is much less than the 9% income tax and 9% sales tax will impose. Why should they support a candidate who wants to double their taxes?
1. What's the evidence that the 999 plan increases the overall tax burden on the majority of individuals who are already taxpayers?
Do the math. For the 47% or so who don't pay income tax, Cain's plan is almost certainly a tax increase. Then those who do pay income tax but don't pay a large enough percentage for that amount plus FICA to exceed the amount a 9% income and 9% sales tax comprise another percentage, certainly at least 3% of taxpayers and likely a much higher percentage than that. Likely most people with an income tax of 13% or less would be in that group. Overall, it would not be inaccurate to say that Cain's plan is a tax increase for most people. Over 50%. Maybe 60% or more.
2. What's the evidence that the 999 plan will not free up price competition in consumer markets?
Because business spending cuts have not cause companies to cut prices in the past. Why should we assume it will happen in the future? 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.
If you are paying 5.65% of your income in federal taxes now and suddenly start paying upwards of 18% of your income in taxes after Cain is in office you would not consider that a 'tax increase'? What would you call it?
The fact is that many taxpaying voters will be *motivated* to vote for a plan that broadens the tax base.
Those whose rates go down? I believe you are correct. Those who see their taxes double? Not so much.
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.
Again, I doubt that those who are trying to raise families and who see their taxes double will agree with you.
But it's a good indicator. Better, I submit, than wishful thinking.
I did.
The author would rather go with a carbon tax? As if that would be any easier.
No plan will be perfect. I’m willing to discuss what will work..and what needs work in the 9 9 9. And I’m willing hear Perry’s plan and Romney’s. I think there will be similar themes among all of them. Let’s take up the discussion once all plans are on the table and debate on their merits before we shoot holes in any of them.
Excellent post.
Please make sure you save it as you will be needing to repost it, or a version of it, throughout the coming months!
Most will value a fair tax rate for all people where everyone tax rate are the same over their personal tax rate.
A lot of people today making $50,000 dollars that pay $3000.00 in taxes don't like fact that people that make $40,000 pay no taxes. If their tax goes up 100 dollars for a fair system they may be ok with that.
Most people will be willing to pay more taxes if in the end of the day they have more money. This plan will promote business in US, more jobs, higher paying jobs, less cost for business to make things,
If I'm thinking I pay 15% taxes on $50,000 ($7,500) dollars and options are for a chance to pay 18% on 75,000 (13,500) dollars, I'll take the $61,500 with higher tax rate then take home pay of $42,500 with lower tax rate.
Cain plan is very simple tax plan
Same for all people
Same for all business
Simple for all people to understand
A plan that anyone can see is better for business
A plan anyone can see would help Nations economy
When they see that they see chances of making more money are a lot better then current system.
An example of how people think:
Today in our current economy studies have show a majority of unemployed workers are against extending unemployment benefits. Why, they would rather policy be focused on strong economy then their own personal income
You might be interested in this post (#29) about the sales tax and tax evasion from another thread I’m on right now:
http://www.freerepublic.com/focus/f-news/2792755/posts?page=29#29
Thanks Jag. You are right. Excellent article and in line with what I had read about sales tax rates, although approached from a different angle.
I believe years ago I read a history in college (very, very long, long ago :>) about the reforms of Solon in ancient Greece. Somewhere in the recesses of my memory, I remember the prof saying something to the effect that in an agricultural society, taking more than a fifth of a farmer’s production was a prescription for destruction of that farm, farmer, and society.
Just a curiosity that might or might not be applicable to today.
That’s fascinating. I do think there are sort of immutable economic truths that arise from immutable characteristics of human nature.
Looks like this idea of people being willing to give it up to 20% or so may be one of those things.
That’s fascinating. I do think there are sort of immutable economic truths that arise from immutable characteristics of human nature.
Looks like this idea of people being willing to give it up to 20% or so may be one of those things.
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