Posted on 10/19/2011 9:35:02 PM PDT by sickoflibs
I want the off-set for Poverty to be tax free food.
I am fine with it, just don’t tax food and essential services.
I don’t know, something about it seems immoral to me.
Well I don't see it that way because each side of the payroll check is paying a part now. The employee at 6.2% and the employer at 6.2%. I see that as a 3.4% net gain. If it is to be deducted from payroll similar to what is done now, employers still have the burden of the accounting, but it should leave a 3.4% bump which, in theory, could go the employee. That in turn offsets somewhat the 9% they will be paying in some consumption taxes.
I am open to correction, clarification as I do not know all the details of the plan.
Where I do see a problem, as I posted above, is the non-deductability of payroll expenses. That is a job killer no two ways about it. Thinks of all the businesses that don't have high capital expenses but have high payroll. All the office towers in all of America are filled with labor. Factory floors have both capital equipment and people manning them. To tell manufacturers - especially the smaller ones who need the flexibility of labor to handle seasonal, temporary or other spurts in output demand, will simply go broke, or, will become significantly less competitive than the large companies with lots of equipment.
Imagine a growing manufacturing business, it needs to increase labor to meet demand, and won't want to invest in capital equipment until it is sure that the demand is there. Years ago I visited an inner-city manufacturing facility that is in the same line of work I am in. They had "old fashioned" or shall we say "simple, table top" equipment that cost, at the time, about $1200 each, and basically require 1-2 people to operate. Each table produced widgets at a rate of about 100 widgets per hour. We have 3 or 4 of those table top machines, but we also have 7 machines that can put out 100 widgets a minute. Those faster machines cost hundreds of thousands of dollars each. So that inner city company, without the deductability of payroll, would ultimately be better off to fire the 150-200 people I saw on their shop floor and replace them with the new, fast machines. How does this improve job creation? It doesn't.
Same with, say, a restaurant. Restaurants that do not simply heat frozen food made elsewhere generally have large kitchen staffs, waiting staffs, and bus boys etc. They also have cleaning crews, laundry service etc. Payroll is probably 30%-40% of their expense - more than food costs that is for sure - and also even if they outsource cleaning/laundry/delivery those subcontractors also have high labor cost. A cleaning company need people, not capital equipment. They would all have to raise prices 9%. That flies in the face of the claim that 999 would reduce prices.
This is just flat wrong. I cannot support 999 if this is the case. Payroll has to be deductible. Business profits need to be calculated roughly the same way they are now: Gross revenues minus operating costs (COGS, SG&A, Payroll, Rent, Utilities). If payroll is not deductible, Schiff is not only right the underlying assumptions of the plan are false. There won't be lower prices and there won't be greater employment.
Well, I am surprised. HermanCain.com has been updated since I last looked at it. Two weeks ago it seemed pretty clear that services were not included in the sales tax portion. It specifically said “new retail products” and didn’t mention services. Now the website doesn’t say one way or the other. Do you have a link to something that specifically says services are included ? Because it makes a huge difference. My statement that 70% of spending wouldn’t be taxed was based on services including rents not being taxed.
If essentially all consumption is subject to the 9% sales tax, then the ‘9-9-9’ plan is not revenue neutral. Each ‘9’ would have close to the same base and raise $1T each. It would raise $3T total rather than the $2.5T Cain claims. So something is way off.
As far as the business tax disallowing foreign inputs goes, it is no different than if your widgets had a customs duty on the foreign-made components that went into them. It raises the cost and if the business is not able to raise its prices so revenues are $1.1B rather than $1.B to pass along this increase, then they’ll go out of business. Keep in mind that the foreign competitor was given a tax break by their home country because they exported their products. This is one reason they can outcompete American producers. A Mercedes sells for 20% less in America than it does in Germany because Germany refunds their own VAT when a vehicle is exported. A Cadillac sells for @0% more in Germany than in the America because Germany adds their 20% VAT. This portion of the ‘9-9-9’ plan partially levels the playing field.
“There won’t be lower prices and there won’t be greater employment. “
I agree it doesn’t seem lower prices are likely. The government is currently taking $1T in taxes from businesses in the form of payroll and corporate profits taxes. The 9% Cain business tax seems to take roughly the same amount from businesses. That leaves only the reduction in tax complexity and compliance costs as a benefit to business. It also benefits the political system as businesses have one less reason to buy off politicians. But ... lower prices ? Maybe not.
It does favor productivity by reducing the tax that applies to profits from 35% to 9%. That means the more profits per dollar of labor, the better off the business will be from a tax standing. So businesses dependent on unskilled and low-skilled labor would not benefit as much as those utilizing highly skilled labor.
Poor people should vote but not pay taxes ?
they pay taxes
they should pay it on anything other than health care, meds, and food
Just like it is currently in most states who have sales tax, same rules.
And you continue to abide by the old maxim that "ignorance is bliss."
Nice response, by the way, to my pointing out the difference between "current accounts" and "capital accounts," which lies at the root of the error of a so-called trade deficit. Obviously, you don't understand the issue at all.
But they currently have to purchase those things AFTER they’ve paid income taxes and FICA taxes.
If the FICA taxes currently paid by the low income worker are replaced with the new 9% sales tax and food, meds, and healthcare are exempt, then you are advocating untaxing something that is currently taxed.
Even exempting previously owned houses and cars from the sales tax is effectively untaxing something currently purchased with after-FICA income.
Keep in mind that to collect $XX in tax, the rate must be higher the more things you remove from the list of taxable items. Removing food, meds, and healthcare from the taxable list would mean the sales tax on everything else would need to be 15% rather than 9%.
My understanding: the FICA Tax is being replaced by the 9% Income tax and the current Federal Income Tax is becoming a 9% Sales Tax.
“Well I don’t see it that way because each side of the payroll check is paying a part now. The employee at 6.2% and the employer at 6.2%. I see that as a 3.4% net gain.”
Just to clarify, the 6.2% is only the Social Security portion. The full rate each side pays is 7.65% because there is 1.45% going to Medicare. It is a 6.3% “net gain” from 9% to the current 15.3% total.
As far as who gets the benefit of this reduction, the ‘9-9-9’ plan is clear. The employee gets a reduction of the full FICA 7.65% so they have no payroll tax withheld from their paycheck anymore. The employer must pay 9% on his payroll as part of his 9% business tax. He is not allowed to reduce his workers’ pay by keeping the money from the workers’ payroll tax cut. He is expected to accept the increase in payroll tax rate as an offset to his lower tax rate on his profits.
Not if you look at the tax incidence — who pays what portion of total tax revenue.
The current individual income tax raises ~$1T, and the 9% flat rate income tax on individuals will replace that revenue almost exactly.
The current corporate profits tax plus employer-side of FICA raises ~$900B from businesses, and the new 9% “business tax” would raise about $900B from businesses.
The worker-side of FICA raises about $500B from workers, and the 9% sales tax must somehow replace that revenue from consumers.
You,re right, the website has changed. Before is was a blanket statement that it was a 9% sales tax on all purchases. It contained no exemption for used items, which people claimed the plan included. When challenged on that, the plan supporters pointed to Cain's own comments that it wouldn't include used items. Now that the Cain campaign has taken the time to update it one would think they would try and clear up the confusion by outlining the exemptions to the sales tax. But they didn't do that. So are used goods taxed or not? Who knows?
I submit that all we can do is go with the website, which does not state services are excluded. Cain himself has never stated, to my knowledge, that services are excluded. So I think it's a safe bet that repairs, medical visits, auto insurance, and every other service will be taxed at the 9% level.
If essentially all consumption is subject to the 9% sales tax, then the ‘9-9-9’ plan is not revenue neutral. Each ‘9’ would have close to the same base and raise $1T each. It would raise $3T total rather than the $2.5T Cain claims. So something is way off.
I doubt that we can really say one way or the other what revenues will be. The plan is constantly changing with Cain making stuff up as he goes along. Perhaps muddying the waters is deliberate on his part. It's harder for anyone to nail him down on anything.
As far as the business tax disallowing foreign inputs goes, it is no different than if your widgets had a customs duty on the foreign-made components that went into them.
Which is a tax on business, and let's face it there are many critical items that don't have a U.S. manufacturer. But what about this question. Will oil companies not be able to deduct the cost of foreign oil from their gross receipts? If so, that will mean that Mobile and Exxon will be pay business taxes on it since under Cain's plan imported goods get taxed as part of gross income. So what does that do to their profits? And the price of gas?
I learned that about 40 years ago, jackass.
The difference is that I went on to learn other things as well, including the ability to separate relevant from irrelevant concepts with respect to addressing a particular question.
Why don't you go to your Econ professor and after class sit him down and explain your theory that we should not make changes in the tax code that would make our domestic production more competitive, because it would offend the law of comparative advantage?
LOL.
This point he has made absolutely clear over and over, that used goods are NOT taxed.
Then why not say so on his website? He recently updated it, yet he didn't include that exception. So is it because that at some point in some future interview Cain will want the change to retract that exception if expedient?
Exactly. It shouldn't take a rocket scientist to figure out a national priority must be to make US labor MORE competitive not more expensive.. The Democrats are experts at driving up the costs of hiring employees, that is their big mistake. If he would fix this it would be easier to make a positive case for the plan.
Also his plan needs to be phased in over a number of years allowing the market forces to react properly to reduce unintended undesired short term effects that could cause a political backlash and reverse the whole reform. Ohio and Wisconsin governments are under siege by the unions, the Democrats and leftists; and some of their upcoming special elections to reverse all progress have me worried.
To me it is immoral to pay no taxes to a gobvernment that you are endlessly making demands on.
As to your complaint about high-payroll businesses such as a restaurant or cleaning service:
Yes, there is in effect a 9% tax on gross payroll under the plan by not making labor costs deductible, but on the other hand there is removed the combined employer/employee 15.3% tax hit on gross payroll.
Since a rational employee is concerned with what his after-tax pay is, it is reasonable to look at the full 15.3% as a cost borne by the employer before arriving at an after-payroll tax salary that is sufficient to attract employees.
So even for labor-intensive businesses, the 9-9-9 plan makes it slightly more attractive for businesses to use a labor input by shifting the 6.3% portion of the current direct tax on labor away from a direct tax on labor and onto a tax on sales. This lowers the gross cost to the business of the payroll required to attract a given employee looking to maximize his net payroll received.
You say businesses would have an incentive under Cain’s plan to shift inputs from labor to capital equipment, hurting employment. But there is an even GREATER incentive today in favor of substituting capital equipment for labor than under Cain’s plan, since the cost of capital equipment today does not bear the 15.3% combined tax on gross payroll that a labor input does. Under Cain’s plan that would only be 9%.
(Although it should also be mentioned that, if I understand Cain’s plan correctly, the cost of all capital equipment is fully deducted in the year of acquisition and not amortized over a period of years as is generally the case in the current tax system, so there would be a bias in favor of capital equipment arising from that aspect.)
Now if we look at the position of an individual restaurant or cleaning service employee, there is imposed a flat rate of 9% income tax on their wages. Whether that is more or less than the income tax paid by them under the current system depends on their total earnings and to what extent they currently benefit from items such as the mortgage interest deduction. And as to how much such employees will end up paying in the new sales taxes for purchases they make, that depends on how it ultimately shakes out between lowering the price of goods by reducing embedded taxes and increasing the price of goods by reason of the new sales tax.
In any event, it seems likely that more people will end up being tax payers under the new system, but that is a desirable outcome from a political perspective in order to have more of the population bear at least some burden in paying for the government and have an interest that the government not be lavishly funded.
See my post above. Cain's plan moves from a 15.3% direct tax on labor (under the combined employer/employee payroll tax) to a 9% direct tax on labor (under the Cain plan by not making labor deductible).
So Cain's plan DOES make labor more competitive and not more expensive.
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