Cain’s plan doesn’t reduce the total taxes paid. So it can’t “reduce prices of goods” due to lower taxes.
I’ve looked at a lot of corporate annual reports the past few days, and I have yet to find a corporation that paid 22% of their sales in taxes. They pay a fraction of that. They pay at worst 35% of their PROFIT in taxes, but their profits are just a small portion of their sales.
If a company has $1 million in sales, and makes $100,000, they pay $35,000 in tax. Under Cain, they only pay $9000, so they save $26,000. The products drop in price by $26,000/$1,000,000, or about 2.6%. But the entire $1 million is now taxed at 9%, or an extra $90,000 in tax. So the cost at purchase increases.
In many cases, the company itself will save money because the materials IT buys will also drop slightly in price. But the 35% corporate tax includes hundreds of deductions, credits, and depreciation schedules which essentially put lots of the costs of business off the tax roles. Cain eliminates all of those. He even taxes the money paid to employees, and notes that this lowers the tax rate while broadening the amount of revenue that is taxed.
People posting these “comparisons” completely ignore the elimination of deductions, both at the corporate and individual income tax level. Individuals lose their child tax credits, their dependent deductions, their marriage penalty deductions, their mortgage interest deductions, their state sales tax deductions, their medical payment deductions. My taxable income would increase by over 20% under Cain’s plan. Then I’ll get lower tax rates, so it will work out ok, but it’s false to claim my marginal tax rate goes from 35% to 9%, because I’ll be taxed on an extra 20% of my income.
If he doesn’t keep deductions for 401K and IRA, that puts even MORE money on the table for current taxation.
That is only slightly less onerous than government talking about taxing my 401K.
Excellent post...the wife and I are nearing retirement and any plan with a national sales tax is a "non-starter" for us. Our income/saving were fully taxed at about 14% federal and about 38% total (all state, local, federal taxes) and now as we are planning several large purchases (truck/RV) 9-9-9 & "Fair" Tax are proposing large sales taxes!! (In addition to our current 8% state sales taxes) Start talking about tax reduction and government cuts and then we can talk about tax reform ie. a 10-15% flat tax.
There are good reasons to oppose Cains plan, as I do, but what you describe here is not one of them. The federal government has no business treating those who choose to remain single, childless or unencumbered by a home mortage any differently than they do those who choose to be married with children with mortgages they can not afford to pay.
What you advocate is a system that chooses winners and losers to buy votes. Same in the corporate world and one of the major problems with a national sales tax is the ability of Congress to tax things they like at lower rates than that which they don't like.