Peter, the reason is to fundamentally re-claim manufacturing businesses in America.
We are becoming a service economy nation of hamburger-flippers and tax accountants.
We need to return to an economy of capital investment-intensive manufacturing in order to have a foundation that can support our standard of living and support service jobs in the secondary economy.
Fifty thousand plants and factories have shut down in the last ten years.
As Pat Buchanan pointed out in his book "Suicide of a Superpower", manufacturing fell behind health care and education in 2001, retail sales in 2002, local government in 2006, leisure and hospitality in 2008, all for the first time.
We have run a trade deficit in recent years just in advanced technology products in the hundreds of billions of dollars.
We MUST return manufacturing to the United States, and that is why the 9-9-9 allows deductions for capital equipment but not for labor - in order to dramatically reclaim manufacturing jobs in the United States and start us on the path of returning to a manufacturing economy and not merely a service economy.
I been defending 9-9-9 for the reason that it makes us more competitive than the current system. But with the current unemployment stuck where it is Schiff has uncovered a serious flaw that should be corrected. That tax deduction he eliminates also makes us more competitive with other countries labor.
Pat Buchanan is an economics moron on a par with Donald Trump. Neither knows a thing about economics, and both are stuck in a kind of pre-Adam Smith mercantilist mindset. That actually might be their appeal to so many people.
The cry that U.S. "manufacturing fell behind" this or that other sector would make sense if it were also true that U.S. productivity declined; but it hasn't. U.S. productivity -- the amount of stuff that a worker can produce with modern computerized equipment -- has not only increased over the past decades, but, at present, it is soaring, and is, in fact, the highest in the world . . . thanks to business investment of capital, mainly in the form of newer and better technology, per worker. Conclusion: manufacturing in the U.S. is going, and will continue to go, the way of agriculture in the U.S.: higher and higher productivity per acre (and higher and higher productivity per worker), therefore necessitating fewer and fewer acres to produce all the food we need domestically and for export (and fewer and fewer manufacturing jobs to make the things we need domestically and for export).
It's called THE LAW OF COMPARATIVE ADVANTAGE. It's stupid, inefficient, and therefore wasteful of scarce resources, including labor to hire U.S. workers to snap together plastic and metal parts for manufacturing smartphones when we ought to be doing more of the high-value work -- designing smartphones -- and letting other labor markets -- like, for example, China -- do the dumb lower-value stuff of snapping the parts together. We BOTH get wealthier by concentrating on tasks that add the most value; conversely, we BOTH get poorer when we try to be self-sufficient and do everything ourselves just because we can.
I suppose I can understand the stubborn ignorance of media whores like Trump and Buchanan; they never needed to learn anything about Economics 101 in the first place so why bother learning it now? But I certainly cannot understand the popularity of 16th-century mercantilist fallacies -- long ago exploded by Adam Smith and others -- by many of the posters on FreeRepublic. If they wish to learn something about basic economics, I can recommend several resources, many of them free PDF downloads or free video lectures. In any case, they should know better.
By disallowing the deduction for payroll expenses, the 9% “business tax” really means replacing the 7.65% employer-paid payroll tax with a 9% payroll tax. It is actually worse than that, since the first 6.2% of the payroll tax only applies to SOME of the payroll while the 9% tax applies to ALL payroll. Instead of employers multiplying salaries by 1.0765 they’ll have to figure a higher multiple of 1.09 to get the total cost for that employee.
So ... how does having a HIGHER payroll tax encourage American manufacturing jobs ? I am not following your logic.
I can see how reducing the tax on Corporate PROFITS from 35% to 9% will encourage American business, but I’m not seeing the higher payroll tax as a jobs advantage.
A number on this ping have read me preach about needing to change back to a producer based economy more than they probably thought they needed, it was Schiff that put that bug in my head years ago,.
I like the consumption tax (Cain) over the income tax and I like broadening the tax base (including more taxpayers) but the effective payroll tax increase is counter-productive. Ending the middle class home owner deductions is not politically realistic to do, and especially given the current economic climate. But I agree with it in concept.
Given that we are now dependent on a sick consumption/service economy and we want to transition to a producer economy it tells me that the change in subsidies from one to the other must be done gradually (in phases) to avoid a huge political backlash (as a result of a sharp jump in unemployment) that reverses it and makes fixing anything impossible. I made similar points about the Ryan medicare reform proposal, it would need to be phased in (for everyone)
Lastly Schiff did not do a hit job on 9-9-9 like the others are doing.
A number on this ping have read me preach about needing to change back to a producer based economy more than they probably thought they needed, it was Schiff that put that bug in my head years ago,.
I like the consumption tax (Cain) over the income tax and I like broadening the tax base (including more taxpayers) but the effective payroll tax increase is counter-productive. Ending the middle class home owner deductions is not politically realistic to do, and especially given the current economic climate. But I agree with it in concept.
Given that we are now dependent on a sick consumption/service economy and we want to transition to a producer economy it tells me that the change in subsidies from one to the other must be done gradually (in phases) to avoid a huge political backlash (as a result of a sharp jump in unemployment) that reverses it and makes fixing anything impossible. I made similar points about the Ryan medicare reform proposal, it would need to be phased in (for everyone)
Lastly Schiff did not do a hit job on 9-9-9 like the others are doing.
Peter Schiff is right. I have supported Cain’s 999 plan pending more details. If employers cannot deduct the cost of payroll, this will not help manufacturing jobs in any way. In fact it will encourage manufacturing to automate, and get rid of labor.
The only way I can support 999 if the business tax means “gross revenues minus expenses”, where expenses means cost of goods, SG&A, payroll, rent etc. If businesses cannot deduct the cost of labor, then not only do businesses have the least incentive to hire people, but in fact most business will fold.