Don’t be VAT stupid (Cain was AGAINST a National Sales Tax last November)

There’s one message from the 2010 elections that many so-called policy makers, political elites and analysts did not hear. Namely, the American people are not as uninformed and stupid as they think we are.

President Obama’s Debt Commission and the Bipartisan Policy Center’s Debt Reduction Task Force have both floated its ideas for reducing our nation’s runaway national debt. .....

The worst idea is a proposed national sales tax, which is a disguised VAT (value added tax) on top of everything we already pay in federal taxes.

Here are three of the biggest reasons the national retail sales tax is the worst idea on the table.

First, we have a spending problem in Washington, D.C. not a revenue problem. ......

Even worse is reason number two: In every country that has established a VAT with the promise of reducing their national debt, the VAT has eventually gone up or expanded on top of the existing tax structure. ....

For the liberal naysayers who say that would not happen, you lose! Just look at the Social Security system, Medicare and Medicaid. Over the years since their inception, taxes have gone up, benefits have gone down and they are still on a path of insolvency.

Giving the administration and Congress another tool to tax us and confuse us is like giving an alcoholic a key to the liquor store with no supervision, only to discover that he locks the door after he is safely inside.

A national retail sales tax on top of all the confusing and unfair taxes we have today is insane! It gives the out-of-control bureaucrats and politicians in denial one more tool to lie, deceive, manipulate and destroy this country.

>> Please back off the shouting.

Sorry if it appears that way, because it’s not. Please understand that when I put SOME WORDS in upper case, it’s just emphasis. Like boldface or underline, when I’m lazy or in a hurry and don’t feel like doing html bolding. Which is USUALLY these days. I’m not shouting. If I’m shouting (which i’m usually NOT), the whole thing will be in uppercase. :-)

>> Is a “new” name for an “old” revenue stream a “new” tax?

Yes! New administration structure, new compliance requirements for business, new separate rate that can be diddled, new and more powerful enforcement police — it IS DEFINITELY a new tax. We’ll just have to agree to disagree on that one. If you like, you can hammer that it does away with certain OLD taxes (payroll tax). But, yes, it’s a NEW tax.

>> Now, will you agree with me that this “new” tax results in a lower effective tax rate and a lower overall tax burden on the economy

I could, if it were not for Cain’s own troublesome two words: “revenue neutral”. By definition, “revenue neutral” and a changing tax code means that the tax burden on the populus isn’t reduced, it’s just shifted around. For every dollar “won” (someone’s tax goes down) there will be a dollar “lost” (someone’s tax goes up).

Now, the argument as I understand it is that the “losers” will be those who pay very little tax now anyway, and that’s OK as far as it goes. Sadly, the typical attitude here on FR is that these are nothing but Democrat welfare queens and tax cheats.

But the fact is, there are a lot of “little guy” workers who aren’t ‘Rat welfare cheats that will see their tax burden go UP. There are old folks who are living off of their savings who pay little income tax but will pay a LOT of sales tax.

Let’s leave aside the “fairness” issues of this tax burden shift (on which it’s ALWAYS possible for reasonable minds to differ) and just consider the economic effects.

How does the populus “evade” the sales (consumption) tax? By reducing consumption, of course. Doing without. What does that do for businesses (and jobs)?

And as far as the argument that businesses’ reduced tax burden will allow them to drop prices by more than 9%, consider the following: to the extent that they employ those lower-compensated folks whose effective tax burden will go UP, those “tax losers” will demand more pay to make up for their screwing. Right? And if they don’t get it, they’ll go over to a business that does pay more. This is a simplistic example, but the point I’m trying to make is that BECAUSE society’s tax burden is not actually going down (just shifting around), the supposed benefits to the economy are (IMHO) not real.

Cutting spending and reducing OVERALL tax burden to society is growth-stimulative, and if we’re EVER to dig ourselves out of our debt we must grow our economy without simultaneously scaling up our public debt. Spending cuts, tax cuts, and regulatory reduction accomplish this. By comparison, 999 is (IMO) a marketing gimmick.

And that leaves aside the whole question of “can Cain even pull this off?” IMO the answer is “no”, so it’s not a serious proposal either.

Mind you, if Cain gets the nomination I will without hesitation vote for him. But I’m not “all in” on 999 and I’m not “all in” on Herman Cain at this moment.

FRegards

As to your last point first, I also am not all in on Cain or 999. However, I’m becoming more enthusiastic about both. And I am thrilled we are having a serious discussion about major tax reform.

Moreover, I don’t see anyone else worth supporting over Cain.

As for your analysis, you seem to be taking total issue with the Laffer Curve, which says if you broaden tax rates, which 999 does, and lower tax rates, which 999 does, it booms the economy and increases tax revenues.

Sure, there are economists who dispute the Laffer Curve, but I find their critiques fall short.

I need more time than I have now to digest the other points of your argument, but I’m not sure you’re talking about “revenue neutrality” in the way that applies here. That said, again the overarching point is that if the Laffer Curve is correct (at least to a majority extent), then that in of itself predicts the impact of 999.

All of your arguments (and I agree with you that there are a variety of situations causing people to not pay taxes at the present) go against the Laffer Curve principles by focusing on an overall reduction in the tax burden on society, as opposed to a broader base and lower rates. Now, I’m not sure you’re correct that those latter don’t reduce the overall tax burden (IOW, that you’re relating that correctly to revenue neutrality), but if the principles of the LC are fulfilled, the impact of the LC should result.

I’ll BBL - just don’t have the time to mull your arugments more at the moment.

Thank you for your kind words. Backatcha!

Here just for a minute, maybe. I'm going to post this reply to your substantive analysis, since that's what it pertains to. Still thinking about your point on revenue neutrality, because, as I said, I think it missed the mark a bit:

You wrote:

Revenue neutrality looks at the effect of the tax change/increase on tax revenues, i.e., revenues available for use by Fedzilla, in this case.

Here's a source (from an org flacking for the carbon tax, but still!) that has a very clear definition:

"Revenue-neutral means that little if any of the tax revenues raised by taxing [whatever] would be retained by government. The vast majority of the revenues would be returned to the public . . .."

You can see that this is a very different concept than saying it means the overall tax burden remains the same, it just shifts around.

You are correct, however, that that is often the *example* given for a revenue neutral tax change, as here, where it defines a revenue neutral tax change:

a "[t]axing procedure that allows the government to still receive the same amount of revenue despite changes in tax laws. [Here comes one example of how that MAY be accomplished:] The government may lower taxes for one group of people, but raise taxes for others. This allows the revenue that they receive to remain neutral (unchanged)."

However, this shifting around of the tax burden, as you posited and as was given in example above, is *not the only way a tax change can be revenue neutral.*

The whole point of the Laffer Curve, which embodies the principles driving 999, is that tax rates change behaviors.

That is a completely different mechanism for revenue neutrality than simply shifting the tax burden around, raising taxes on some and lowering them on others. (Of course, 999 does some of that, but what you and I are talking about is whether the majority of people under 999 would pay lower taxes.)

The 9% rate, according to some calcuation by experts, is a "revenue neutral" rate. Higher than that and Fedzilla starts to get revenue strictly from the increase in tax rates.

The problem comes in that increasing tax revenues the above way (by charging a non-revenue neutral tax rate) affects overall behaviors negatively, to the point of eventually decreasing revenues because of tax avoidance behavior. This is the system we have now.

Under the LC principles, tax revenues are increased, not by Fedzilla soaking a self-defeating surcharge onto the tax rates, but by economically freeing people to pursue productive behaviors.

IOW, the LC uses a revenue neutral tax rate to increase tax revenues through positive economic behavior across society. (Not through shifting around the previous overall tax burden.)

This is similar to a merchant using lower pricing to drive volume sales. He charges less, but he makes a greater profit because the price incentivizes positive economic behaviors. (He doesn't make more because he charges more for other items to make up the difference.)

The only way the LC works is if it engenders positive economic behaviors. It would only work to engender positive economic behaviors if most individuals and corporations *benefited* from the new tax structure.

So when you analyze it from the top down, so to speak -- what are the principles that underlie 999 (the LC), how do those principles function to create the impact the Curve says they will -- it seems to me one has to conclude that, however counterintuitive it may be when you come up with various scenarios as you have done, the majority of people benefit from the new (:)) tax structure.

Another way of saying this is if your analysis is correct, the Laffer Curve would never work. But it does work!

D’oh.

Cain was and is against a national sales tax that is a disgused VAT. The relative clause is restrictive (badly punctuated, to be sure). Not all national sales taxes necessarily must be disgused VATs. Some might be, some might not be.

The issue is whether the 9 % national sales tax Cain currently proposes is a disguised VAT. You take that as axiomatic. And then cite some tendentious analysis that says, at most, that it opens the door to a VAT. Which is not the same as saying that it is a disgused VAT.

How about giving some real evidence that Cain’s current sales tax proposal disguises, right now, as proposed, a VAT??????

Now, having dealt with that, why DO you viscerally despise Cain? Just curious??

Enjoy your guy Romney cuz that’s who you are going to get. Mitt Romney.

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