There has been a failure to communicate. The Cain plan may be a sound plan if politically unpalatable. But Laffer needs to analyze it, not his own flavor. This does not reflect badly on Cain, but on Laffer, which is a pity because Laffer gave us the Laffer curve which explained why Reagan’s tax rate cuts paradoxically boosted tax revenues.
So, if he would make the proper adjustments to his plan everyone would love it?
The virtue, as I understand it, of Cain’s plan is that he wants to overhaul the tax system, get rid of all the hidden taxes that Americans are paying for anyway and put it in front where you can see it in the form of a sales tax, where politicians cannot, on the sly, bump it up at will.
If it’s in a visible sales tax, it’s much harder to raise. Not saying what that sales tax should be, or if there should be one, but seeing how much the price of something is in the form of a tax is not a bad idea.
The far left one is a Mexican National.
It's been a few years since I took Accounting, but I thought that labor (wages) allocable to goods made (here $400) can be legitimately added onto the cost of goods (here also $400) to make cost of goods sold. If this is the case, the basis for the 9% would be $200 rather than $600, making the tax bill $18. Which is correct?
Well.
Dr. Laffer received a B.A. in economics from Yale University in 1963. He received a MBA and a Ph.D. in economics from Stanford University in 1965 and 1972 respectively.
I spent a few minutes clicking around the NRO site to find young Mr. Barro’s bio, and came up empty. So, before we accept his opinion(s), could you please tell us where he earned his PhD in Economics or otherwise acquired the credibility he professes to have?
That is kinda important, in my view, when you go out accusing others of “spouting nonsense”.
So if a business is taxed dont they just pass that cost on to the consumers?
And as I understand it the hidden taxes which drive up the cost of goods disappear, thus lowering the price on goods ...also if you buy used you pay no tax at all
The greatest paean to Cain's plan is the following nugget excerpt in the article:
[The static summation of the 999 plan taxes] 25.38 percent is lower than the marginal income and payroll tax rate that many American taxpayers face today (though, for most middle-class taxpayers, it wouldn’t be lower by much). And because 9-9-9 would not tax returns to capital, it would encourage investment.You betcha it would ENCOURAGE INVESTMENT!
If the 999 became law tomorrow by some magic, distributed INVESTMENTS. The investments that will create massive hiring.
The poor no longer have a big daddy government (which as a Dad, government is heartless, uncaring and either ammoral or immoral.). Instead they'll have to find investors willing to stake them to establish enterprise.
Cain's plan is morally uplifting.
If it is supposed to be 9% on net corporate profit, like the 35% tax rate today, then why didn’t Laffer and Lowerie write it like that to begin with?
That’s what I assumed they meant until reading the definition.
Is see National Review is still running interference for their establishment boy Mittens.
Cain’s 999 plan is a fine bridge to the Fair Tax. Herman admits that. Everyone that has studied the Fair Tax likes it. Everyone who dislikes it either gains from the present tax code or doesn’t understand it. 999 is temporary until America becomes educated on the Fair Tax and insists on passing it. A flat tax is a bad idea only because the present code started out as a tiered flat tax and now it’s out of control.
I think Barro’s analysis is pretty accurate. Cain’s plan would have to be adjusted somewhat to keep taxes on the poor from being significantly higher than they are now, perhaps by exempting a certain amount of earned income from the 9% personal income tax.
What Barro skips over is Laffer’s analysis in the original article where he discusses total tax revenue from each income stream in a top-down manner. In that calculation, it’s apparent that Laffer is looking at the business tax as a value-added tax, because he’s claiming it will raise upwards of $800 billion. There is simply no way a 9% tax on straight business profits would raise that much money.
He has each tax stream raising around $800 bn, a little less for the personal income tax and a little extra for the VAT (though he fails to call it a VAT.) And that’s how a massive change in tax law should be evaluated, in a top-down manner so that we have some idea of the total dollars likely to be raised initially.
Soon, the incentive effects of a flat rate would kick in (assuming they exist) and the tax take would increase as economic activity increased. On top of all this, one has to remember that Cain views this as a transitional step to a Fair Tax structure, which would make it possible to dump most of the current tax code.
And, lastly, it’s a credit to Cain that he’s elevated the tax discussion to a front and center position in the national debate. I just wish he’d become a bit more familiar with it himself before he says much more about it, so that he doesn’t injure his prospects of being nominated. If he fails to do so, the last cutting line of the NRO article is going to ring truer and truer with each passing day. I know he’s got me worried...
I’m assuming that if the manufacturer sold $1000 of goods, and spent $400 on materials, plus $400 on robot leases and the energy to run them, the 999 plan would treat that as $200 to be taxed at the corporate tax rate of 9%, or $18.
I also assume that if the company bought goods overseas for $800 (using Chinese labor) and sold them for $1000, they’d pay the same tax.
But with the US labor example, it’s clear that the business pays a 9% profits tax, and a 9% payroll tax. I think it confuses the issue to call this a VAT, because US companies currently pay a profits tax and a payroll tax, and no one calls this a VAT.
It encourages international outsourcing, but then again so does the current system.
I’m a Cain supporter, and the NST component is what I like the best, because it makes ALL Americans into TAXPAYERS (from the welfare recipient, to the cranky old retired Freepers).
GOOD POST!
Great sum up of the problems with 9 9 9 in simple terms.
If it is not a tax on profits only, it is a VAT and then the whole system gets taxes, sure as sunshine!
Don’t be blind to history and Europe, you know exactly what will happen with lots of these types of things.
