Flat Tax Vs. Fair Tax Vs. Herman Cain's 9-9-9 Plan

Forbes ^ | 10/13/2011 | Nathan Lewis

[SeekAndFind]

For a number of years now, people have asked me whether I prefer a “flat tax” or a “fair tax.” Both are problematic.

The “flat tax” is typically conceived as a replacement for the existing personal income tax. This is fine, but it ignores the payroll tax, which is really just another form of income tax. So, it is only half of an income tax reform. In practice, quite a few countries have gone this route, beginning especially with Russia in 2001, and the results have been very good. These countries have generally replaced their income tax systems, but have kept what amounts to relatively high payroll taxes.

I would like to see a top-to-bottom income tax reform, which includes payroll taxes. Or, I should say, which does not include payroll taxes: I would like to see the payroll tax system eliminated entirely and integrated into a single income tax system. Neither Hong Kong nor Singapore, which are models of what can be achieved with a flat tax system (or nearly so in Singapore), have a payroll tax. The result is that taxation on the lowest incomes is very low, and the overall system has a high degree of progressivity despite modest top rates.

Hong Kong’s flat tax system, with no payroll or sales/VAT taxes, generates about 13% of GDP in revenue per year, with a top tax rate of 16%. This is quite good, and shows excellent efficiency and high compliance. However, 13% of GDP is still rather short of the 18.5% of GDP that the U.S. Federal tax system has generated over the past several decades. So, we would have to decide either to reduce spending considerably — which might be nice, but is a separate discussion — or generate more revenue somehow.

[JLS]

I think you are right about the government payment. If every quarter everyone in the country receives a check from the government rather than has to pay estimated income taxes, the the sales tax will be a very popular program.

The problem is getting there from here and assuring by constitutional amendment that the income tax is completely dead.

Other great things about a sales tax is that the exception carved out to the 5th amendment goes away too. A sales tax keeps the government much more out of everyones business.

[Atlas Sneezed]

That’s why I like the 999 plan as it keeps each tax low enough to make it easier to just pay it vs. trying to find ways around it.

---

I agree.

[Bitsy]

but with significant congressional oversight that would put a lot of stopbap measures in place to prevent easy access/change to the rates. Super majorities,

If I had complete faith, or even a little faith, in our government, I would be all for a simpler,fairer flat tax. You mention an oversight - a super majority - correct me if I am wrong, but didn't that majority bring us obamacare? If we were dealing with statesmen, I wouldn't be as apprehensive, but we are dealing with a bunch of career politicians and a democratic party that has been hijacked by leftists.

[longtermmemmory]

Truth is thre for ALL to read:

From the text of the proposed legislation under “fair tax act”
===== = =
SEC. 302. QUALIFIED FAMILY.
.....
`(d) Annual Registration- In order to receive the family consumption allowance provided by section 301, a qualified family must register with the sales tax administering authority in a form prescribed by the Secretary. The annual registration form shall provide—
`(1) the name of each family member who shared the qualified family’s residence on the family determination date,
`(2) the Social Security number of each family member on the family determination date who shared the qualified family’s residence on the family determination date,
`(3) the family member or family members to whom the family consumption allowance should be paid,
`(4) a certification that all listed family members are lawful residents of the United States,
`(5) a certification that all family members sharing the common residence are listed,
`(6) a certification that no family members were incarcerated on the family determination date (within the meaning of subsection (l)), and
`(7) the address of the qualified family.
Said registration shall be signed by all members of the qualified family that have attained the age of 21 years as of the date of filing.

... ...

====== = = =

But wait there is more:

+++ ++

`SEC. 502. REGISTRATION.

`(a) In General- Any person liable to collect and remit taxes pursuant to section 103(a) who is engaged in a trade or business shall register as a seller with the sales tax administering authority administering the taxes imposed by this subtitle.
`(b) Affiliated Firms- Affiliated firms shall be treated as 1 person for purposes of this section. Affiliated firms may elect, upon giving notice to the Secretary in a form prescribed by the Secretary, to treat separate firms as separate persons for purposes of this subtitle.
`(c) Designation of Tax Matters Person- Every person registered pursuant to subsection (a) shall designate a tax matters person who shall be an individual whom the sales tax administering authority may contact regarding tax matters. Each person registered must provide notice of a change in the identity of the tax matters person within 30 days of said change.
`(d) Effect of Failure To Register- Any person that is required to register and who fails to do so is prohibited from selling taxable property or services. The Secretary or a sales tax administering authority may bring an action seeking a temporary restraining order, an injunction, or such other order as may be appropriate to enforce this section.

+++ + + +++

You can plainly see ALL have to register and be part of the system in order to participate if your MERELY TRANSACT. It is every PERSON, not corporation, person.

Your comment has been disproven.

[longtermmemmory]

Truth is thre for ALL to read:

From the text of the proposed legislation under “fair tax act”
===== = =
SEC. 302. QUALIFIED FAMILY.
.....
`(d) Annual Registration- In order to receive the family consumption allowance provided by section 301, a qualified family must register with the sales tax administering authority in a form prescribed by the Secretary. The annual registration form shall provide—
`(1) the name of each family member who shared the qualified family’s residence on the family determination date,
`(2) the Social Security number of each family member on the family determination date who shared the qualified family’s residence on the family determination date,
`(3) the family member or family members to whom the family consumption allowance should be paid,
`(4) a certification that all listed family members are lawful residents of the United States,
`(5) a certification that all family members sharing the common residence are listed,
`(6) a certification that no family members were incarcerated on the family determination date (within the meaning of subsection (l)), and
`(7) the address of the qualified family.
Said registration shall be signed by all members of the qualified family that have attained the age of 21 years as of the date of filing.

... ...

====== = = =

But wait there is more:

+++ ++

`SEC. 502. REGISTRATION.

`(a) In General- Any person liable to collect and remit taxes pursuant to section 103(a) who is engaged in a trade or business shall register as a seller with the sales tax administering authority administering the taxes imposed by this subtitle.
`(b) Affiliated Firms- Affiliated firms shall be treated as 1 person for purposes of this section. Affiliated firms may elect, upon giving notice to the Secretary in a form prescribed by the Secretary, to treat separate firms as separate persons for purposes of this subtitle.
`(c) Designation of Tax Matters Person- Every person registered pursuant to subsection (a) shall designate a tax matters person who shall be an individual whom the sales tax administering authority may contact regarding tax matters. Each person registered must provide notice of a change in the identity of the tax matters person within 30 days of said change.
`(d) Effect of Failure To Register- Any person that is required to register and who fails to do so is prohibited from selling taxable property or services. The Secretary or a sales tax administering authority may bring an action seeking a temporary restraining order, an injunction, or such other order as may be appropriate to enforce this section.

+++ + + +++

You can plainly see ALL have to register and be part of the system in order to participate if your MERELY TRANSACT. It is every PERSON, not corporation, person.

Your comment has been disproven.

[GatorGirl]

What is the rationale for that? I understand that there are necessities and it helps people out, but why don’t just exempt food and medicine?

I am extremely uncomfortable with everyone getting a check from the government. Too bureaucratic and big brother-ish.

[Armando Guerra]

15% - 23% - 30% - whatever. All these arguments that it is too high actually make the argument in favor of the FairTax. The rate is set to be revenue neutral meaning you already pay that anyway. If you think it is too high you are right. However, that is not the fault of the FairTax. That is the cost of the government you have. To me the brilliance of it is the transparency. When people see the tax bill on everything they buy on a daily basis they will demand accountability. Taxes are a business cost and get passed on. Whether it is employer paid FICA tax or corporate income tax it is coming from somewhere in the form of depressed wages or higher prices. Progressives love taxes that can be hidden and people don't realize they are paying. I am all for people looking at their receipts and saying “that is too high.”

[Bigun]

Perhaps YOU should learn how to read and interpret the plain English!

"Annual Registration- In order to receive the family consumption allowance provided by section 301, a qualified family must register with the sales tax administering authority in a form prescribed by the Secretary"

If you don't want a prebate check then you need not register just as I said!

"Any person liable to collect and remit taxes pursuant to section 103(a) who is engaged in a trade or business shall register as a seller with the sales tax administering authority administering the taxes imposed by this subtitle."

That is an number FAR fewer than your EVERYONE liar!

[Armando Guerra]

No one is talking about “cutting” the Fed budget!!

Why has the fed budget ballooned? 1) Because you have people that are taking from the system who don't pay into the current system; and 2) People paying into the system who don't realize what they are truly paying.

Progressives hate the FairTax because everyone will have to pay and everyone will see exactly how much. How many people here have objected to the FairTax because of the rate? The rate is revenue neutral so we already pay that whether directly or in the form of depressed wages or higher prices. I want people to look at their sales receipts and say "that is too much." Then is when we will truly get everyone interested in cutting the Federal budget.

[Bigun]

Amen Armando! AMEN!

[lewislynn]

Why does this article say the Fair Tax will be 30% tax rate? I thought it was more like 15%?

The Fairtax rate is 23%.
23% is not the sales tax rate. 23% is the rate the business pays of their gross income.
For a business to break even they would have to collect 30% tax on their sales.

$100.00 sale + 30% tax = $130.00 gross.
23% of the gross (.23 X $130.00) = $30.00 (rounded)

Also this article fails to understand the prebate of the Fair Tax...where the poor (everyone for that matter) gets a check so that in effect all the stuff you buy for the essentials in a year aren’t taxed.

If the "prebate" is such a good idea they should at least double the amount.

Btw, what are my essentials and what do they cost me exactly?

Also, if Cain's plan is strutured the same as the Fairtax, the sales tax rate would have to be 9.9%...IOW, 10% more than everyone thinks it is.

[Victor]

"...You mention an oversight - a super majority - correct me if I am wrong, but didn't that majority bring us obamacare?..."

No, the Dems did that with simple majorities in both houses plus a Dem President. Even now, tax law is not easily changed. Perhaps *super majority* is the wrong choice of words...but I believe that a HUGE amount of congressional oversight with constitutional application at every turn in the road is called for whenever *they the lawmakers* want to stick it to *we the people.

It's that old "taxation without representation" thing....

[Bitsy]

HUGE amount of congressional oversight with constitutional application at every turn in the road is called for whenever *they the lawmakers* want to stick it to *we the people.

Yes, with emphasis on the word HUGE. I think OUR governmental officials need a good spank from We the People so they pay attention to us and not their careers. Maybe when they are voted out of office, they will have time to reflect on their sins against Americans - or maybe not. In any case, middle Americans are NOW aware we have to be dilligent in holding their feet to the fire on EVERYTHING that involves us because they proved they are not out for our best interest i.e. taxation without representation.

[mrreaganaut]

However, 13% of GDP is still rather short of the 18.5% of GDP that the U.S. Federal tax system has generated over the past several decades. So, we would have to decide either to reduce spending considerably — which might be nice, but is a separate discussion — or generate more revenue somehow.

NO! Spending is NOT a separate discussion - it is the ONLY discussion. How to fund spending cannot come in a bubble, untouched by reality. If 13% is all that can be justly taxed, then THAT'S ALL they can JUSTLY SPEND. Conversely, if we're fighting a war and can spare no expense, then justice cannot delay spending; how to pay for emergency spending must wait for a peaceful day.

Now, we have the worst of both: impossible amounts of unplanned spending, and no just way to pay. We must control spending before debating taxing; indeed, the debate between the fair and flat taxes loses importance if spending is small enough. Remember, the whole government ran on just the revenue from import duties, once.

[Pecos]

I believe that you have mis-understood my position. To re-state - Becaues Congress plays will-nilly with tax rates, allowing them to legitimize an ADDITIONAL revenue stream is the wrong answer. Repeasl the 16thm, and then we can talk about a consumption tax.

[sickoflibs]

RE :”However, 13% of GDP is still rather short of the 18.5% of GDP that the U.S. Federal tax system has generated over the past several decades. So, we would have to decide either to reduce spending considerably — which might be nice, but is a separate discussion — or generate more revenue somehow.”

This sounds useful except I bet the Federal government is NOT getting 18.5% now nor will it in the near future.

I think the ultimate purpose of Cain's plan(campaign proposal) is to stir economic growth and make us more competitive in the world economy we must live in. It is a pro-growth proposal.

To the extent that Cain's plan looks like a tax revenue cut, he makes the argument that the more efficient tax system will stir economic growth and increase revenues beyond that estimated by CBO static analysis. My being a natural skeptic I assume he is overestimating the revenue growth effect of this just as the CBO overestimates the revenue increases from taxing the rich by using static analysis.

Given that Cain is the only one with a real proposal he is going to make it optimistic sounding to try to head off the multiple attacks. Yesterday a Perry-dacyls was making the argument to me that Cain proposing ANYTHING was a sign that he is not ready to beat Obama, and that Perry has the right approach: PROPOSE NOTHING('except have a heart' LOL) to beat Obama!

Good luck getting spending cuts. Both parties pushed that till 2013.

[longtermmemmory]

what is a necessity?

cell phone companies will want cell phones as a tax exempt necessity.

car makers will want cars as exempt, government sanctioned green cars have a bonus prebate, GM double bonus prebate.

Video rentals are needed.

Internet access is a necessity.

computers are a necessity.

each industry will have a lobyist army to demand prebate status.

[Bigun]

I understand that there are necessities and it helps people out, but why don’t just exempt food and medicine?

Because when you do that you have just reopened the door for every lobbyist in Washington to work toward getting a tax exemption for HIS client! Much better to let YOU decide for yourself what YOUR necessities are and that is exactly what the fairtax does!

[longtermmemmory]

How about this simple law.

We have nutrition lablels,

how about tax labels?

Every time a citizen pulls up to fill up with gas, a prominent sign must indicate how much is taxes out of the price.

same for food, same for products, same for been and wine. (or is that whine)

AND IT MUST BE prominent and written in plain english. Not in gibberish like a phone bill. (see algore tax)

[sickoflibs]

RE :”Now, we have the worst of both: impossible amounts of unplanned spending, and no just way to pay. We must control spending before debating taxing; indeed, the debate between the fair and flat taxes loses importance if spending is small enough. Remember, the whole government ran on just the revenue from import duties, once.”

If we wait till there are significant spending cuts before they fix the tax system then nothing will happen(which is probably the case regardless) with taxes. Too many Voters are too used to free government.

Leon Panetta has been on TV complaining that the defense trigger cuts will devastate the military. But it was his boss Obama that demanded that they be put in there in the first place, now they are crying fire to intimidate Republicans (super-committee) to made a deal on tax increases and spending cuts+increases.

Are any Republican candidates even talking about specific spending cuts beyond that SS mini-debate? I know they all are hiding from the Ryan Medicare reform plan, hoping voters forgot it already.