Analysis of Herman Cain's 9-9-9 Plan

[jamil]

So, you don't think that that cost to produce has an affect on the supply of a product?

What I said was that it won't be a 1:1 reduction because in addition to cost, supply and demand affects price too. Prices in some sectors are more affected by cost and some less. Service industries are more affected by cost, but commodities are especially a good example of less.

I remember a time when many oil rigs in the US were shut down because the cost to get oil out of the ground exceeded the price they could get for it. Now, oil companies are making HUGE profits. Yet the production costs haven't changed proportionally with price.

I presume sales tax will be levied on commodities as well, and Exxon not having to pay corporate income tax (I'm not sure when it's said and done that they pay all that much anyway) won't affect the price I pay at the pump much at all.

Supporting a national sales tax has both ideological and practical reasons. If you earn the kind of income where a national sales tax makes your bottom line better, that's just practical. You should support it. But supporting it otherwise is then purely ideological and sometimes that's just folly.

 

[jamil]

Well, Cain obviously can not hope to abolish the IRS or something like it, if his interest is to actually enact the FairTax.

That's a good point. But beyond that I doubt enough support exists to make either 999 or fair tax ever happen. It's just stuff people talk about before elections, like balance budget amendments back in the 90s.

 

[CarmelHP]

I am quite critical of the "prebate" in the fairtax as well. It was an attempt to make the fairtax less "regressive."

I prefer the model that the states have adopted that exclude certain products such as whole foods, from the sales tax.

I think that "massive fraud and abuse" is a bit of an exageration though. As I've pointed out multiple times, show me the same abuse at the state level. It simply doesn't exist.

You don't think that massive fraud and abuse occur in other entitlement systems? You must live on Mars. A new entitlement paying every man, woman and child every month not subject to abuse? I have a bridge in Brooklyn to sell you. You may be critical of the prebate, but we're talking about the FairTax being proposed, not your preferences. The FairTax supporters take the rosy view that no tax evasion will result, but even conservative estimates put it at 15-30% because of the incentives and one-party reporting problem. Saying abuse doesn't exist at the state level is pure fantasy.

 

[CarmelHP]

That's a good point. But beyond that I doubt enough support exists to make either 999 or fair tax ever happen. It's just stuff people talk about before elections, like balance budget amendments back in the 90s.

I agree it's a gimmick, but a lot of the gullible are both taken in by gimmicks and voters.

 

[CarmelHP]

It's a 16% reduction in corporate income tax and a 9% increase in sales tax.

Even if companies only came down 9% on price you'd still break even on the net cost.

However, with as much competition as there is, in the gun and ammo market, it's a safe bet that costs would decrease the full amount unless there was some form of collusion between OEMs.

You weren't an accounting major, were you? This shows a profound lack of understanding as to how the tax system works. You're assuming a 25% average corporate tax, as you stated previously, which is fine. HOWEVER, corporate taxes don't tax revenue, it is NET profits that are taxed. Only a relatively small percentage of overall revenue makes it to the bottom line to be subject to corporate tax. BUT, the CAIN plan is a tax on GROSS SALES and SERVICES, thus a 9% tax on TOTAL or GROSS revenue, not NET profit. Even if all the savings were passed on to consumers it would likely be less that 2% gross.

 

[ATOMonkey]

You can what-if the fairtax all you want until it looks like the dumbest idea in the world. That's fine. Most people wont' support an idea that isn't their own.

The simple fact of the matter is that it's miles better than the current system. That alone is enough reason to adopt it.

 

[CarmelHP]

You can what-if the fairtax all you want until it looks like the dumbest idea in the world. That's fine. Most people wont' support an idea that isn't their own.

The simple fact of the matter is that it's miles better than the current system. That alone is enough reason to adopt it.

Where's the what-if? Are you claiming that corporate taxes are imposed on gross revenue? Seriously? You're the one saying the cost of goods would GO DOWN because of the "savings" but now that it's unequivocally shown that no such savings exist you switch to "well it's better..." How do you know that? I don't know that it's better and I keep seeing shoddy accounting and inane assumptions from supporters that indicates it could be much, much, much worse.

 

[jamil]

You can what-if the fairtax all you want until it looks like the dumbest idea in the world. That's fine. Most people wont' support an idea that isn't their own.

The simple fact of the matter is that it's miles better than the current system. That alone is enough reason to adopt it.

No, it's not enough reason. Prove that it's miles better, or we may end up with something much worse. Short of experiencing the plan implemented (which we have with the current one), you don't really know. But we can get closer to experiencing it by modeling it, which also includes realistic what-ifs.

But saying that people disagree because it wasn't their idea isn't very accurate in this case. In fact you make it sound much more personal than it should be. I think we need to be willing to recognize a good idea for its merits and a potentially untenable one for it's faults. This idea has some merits, but it also has some faults that make me not support it. There's nothing personal about that.

 

[Phil502]

You weren't an accounting major, were you? This shows a profound lack of understanding as to how the tax system works. You're assuming a 25% average corporate tax, as you stated previously, which is fine. HOWEVER, corporate taxes don't tax revenue, it is NET profits that are taxed. Only a relatively small percentage of overall revenue makes it to the bottom line to be subject to corporate tax. BUT, the CAIN plan is a tax on GROSS SALES and SERVICES, thus a 9% tax on TOTAL or GROSS revenue, not NET profit. Even if all the savings were passed on to consumers it would likely be less that 2% gross.

Good catch, personally I doubt that prices will come down much ever but I am cynical.

 

[ATOMonkey]

Well I posted that prior to your last post.

In rebuttal. Yes, I was VERY mistaken in my corporate income tax accounting math. My apologies.

After learning how much is involved in making that calculation, it is no wonder that the cost of compliance is between 10% - 20% of income taxes collected.

Under the Cain plan it is estimated that there will be a reduction in taxes collected as a percentage of GDP from about 18% to 14%. With an additional 4% of the GDP remaining in the economy how does this translate into anything but a boon?

And yes, speaking to the "fairtax" or a national sales tax that would replace the entire Federal tax structure, it is miles better. Lower cost of compliance, stable tax code, lower cost of operation to business, greater accountability to government, no tax on savings or investment, and it collects on black market or criminal income when it's spent.

 

[CarmelHP]

Well I posted that prior to your last post.

In rebuttal. Yes, I was VERY mistaken in my corporate income tax accounting math. My apologies.

After learning how much is involved in making that calculation, it is no wonder that the cost of compliance is between 10% - 20% of income taxes collected.

Revenue-Expenses=Net Income, I think I broke out in a sweat. The retailers still have to make the tax calculations and remittances, it's not done by unicorns and pixie dust, plus the immense cost involved with the prebate system.

Under the Cain plan it is estimated that there will be a reduction in taxes collected as a percentage of GDP from about 18% to 14%. With an additional 4% of the GDP remaining in the economy how does this translate into anything but a boon?

If it's "revenue neutral" as Cain maintains, how is it possible?

And yes, speaking to the "fairtax" or a national sales tax that would replace the entire Federal tax structure, it is miles better. Lower cost of compliance, stable tax code, lower cost of operation to business, greater accountability to government, no tax on savings or investment, and it collects on black market or criminal income when it's spent.

[/QUOTE]

How is it a stable tax code? The income tax was a "stable tax code" when first implemented. How do you keep future Congresses from changing it. You can't, that's how. What makes you think all "criminal and black market income" is spent here or won't be subject to evasion because of the single reporter problem that is inherent in the system? The incentives for fraud, abuse and evasion would be vast, and the verification difficult. What could go wrong?

Sometimes, it's better to shout, "Don't just do something stand there?" rather than embark on a fool's errand.

 

[jamil]

Well I posted that prior to your last post.

In rebuttal. Yes, I was VERY mistaken in my corporate income tax accounting math. My apologies.

After learning how much is involved in making that calculation, it is no wonder that the cost of compliance is between 10% - 20% of income taxes collected.

Under the Cain plan it is estimated that there will be a reduction in taxes collected as a percentage of GDP from about 18% to 14%. With an additional 4% of the GDP remaining in the economy how does this translate into anything but a boon?

And yes, speaking to the "fairtax" or a national sales tax that would replace the entire Federal tax structure, it is miles better. Lower cost of compliance, stable tax code, lower cost of operation to business, greater accountability to government, no tax on savings or investment, and it collects on black market or criminal income when it's spent.

I've experience the fallout of "estimates", sometimes my own. As I've said before, the devil is in the details. Those details must include assumptions, all of which may or may not be publicized. But it's the assumptions where estimates fail and I don't have faith that politicians seeking office put forth the effort to vet all the assumptions.

If Cain or Paul won, it wouldn't be the first time a President won an election based largely on impractical campaign promises.

 

[Expat]

I am quite critical of the "prebate" in the fairtax as well. It was an attempt to make the fairtax less "regressive."

I prefer the model that the states have adopted that exclude certain products such as whole foods, from the sales tax.

I think that "massive fraud and abuse" is a bit of an exageration though. As I've pointed out multiple times, show me the same abuse at the state level. It simply doesn't exist.

As to abuses currently, just look at internet sales. Do you report all of your purchases to the State and voluntarily pay Indiana? Even within the State, how many restaurants/bars do you go to that don't ring anything up when you pay. I have been to many over the years.

 

[Hotdoger]

And yes, speaking to the "fairtax" or a national sales tax that would replace the entire Federal tax structure, it is miles better. Lower cost of compliance, stable tax code, lower cost of operation to business, greater accountability to government, no tax on savings or investment, and it collects on black market or criminal income when it's spent.

There is massive sales tax fraud going on now. What makes you think it will not hapeen with the fairtax?
how will it collect on blackmarket or criminal income when the susquent sales will are not reported?

 

[Expat]

Good catch, personally I doubt that prices will come down much ever but I am cynical.

Economics would say that if the profits are high, then other competitors will enter the arena and drive prices down.

 

[ATOMonkey]

Revenue-Expenses=Net Income, I think I broke out in a sweat. The retailers still have to make the tax calculations and remittances, it's not done by unicorns and pixie dust, plus the immense cost involved with the prebate system.

If it's "revenue neutral" as Cain maintains, how is it possible?

You know perfectly well that calculating expense is not as simple as looking up your bills for the month. Esepecially in manufacturing. That's why we have entire departments that do nothing but calculate expense.

Yes the retailers have to make the tax calculation and remittances. The exact same way they do it today. However, it's very straight forward, and most business have software that automates it. Other business just calculate it as a percentage of total sales if they have no sales tax exemptions.

I will not defend the prebate. If I were King, there would be no pre-bate. IMO, it's a dumb idea.

It's revenue neutral due to the amount of economic growth that will accompany it.

How is it a stable tax code? The income tax was a "stable tax code" when first implemented. How do you keep future Congresses from changing it. You can't, that's how. What makes you think all "criminal and black market income" is spent here or won't be subject to evasion because of the single reporter problem that is inherent in the system? The incentives for fraud, abuse and evasion would be vast, and the verification difficult. What could go wrong?

Sometimes, it's better to shout, "Don't just do something stand there?" rather than embark on a fool's errand.

It's stable, because the fairtax would be one tax at one rate. Even if that rate went up or down a percent or two, it would still be more stable than the current system. Death tax is in effect one year, out the next, then back. Airline excise tax is in, now it's out, now it's back. Well you get a deduction for this, but only in the 3rd month of the 4th quarter on Wednesday. blah blah blah. And it changes every year.

What makes you think that all inome tax won't be subject to evasion due to the single reporter problem inherrent in the system? Your argument is circular and universally applicable. There will be fraud inherrent in ANY tax system. What do you do to mitigate fraud? You can reduce the number of participants in the system. There are far fewer retailers than income earners.

Also, how is verification difficult? sales * .23 = taxes. You'd have to keep 2 sets of "books" because all your receipts would include the tax you collected from the consumer. So, you keep one set that reports sales as low. You also need to report your costs as low. All of your suppliers would have to report their sales as being low as well.

We have been doing nothing for about 100 years. Seems to have worked out pretty well...

 

[ATOMonkey]

As to abuses currently, just look at internet sales. Do you report all of your purchases to the State and voluntarily pay Indiana? Even within the State, how many restaurants/bars do you go to that don't ring anything up when you pay. I have been to many over the years.

Why aren't internet sales reported? There is no Federal law enforcing it, that's why. Internet sales made within state are reported and collected. At least they are every time I do it. Now, do they remit to the State? I would think they put themselves at quite a risk if they don't.

If they don't ring it up, I don't pay. Where do you eat and drink where you don't get a bill?

Also, I pay for everything with either my debit or cc. I haven't made a cash transaction in years. I think the majority of the population falls into this category as well.

 

[ATOMonkey]

There is massive sales tax fraud going on now. What makes you think it will not hapeen with the fairtax?
how will it collect on blackmarket or criminal income when the susquent sales will are not reported?

Link? Or is this just speculation?

 

[Expat]

If they don't ring it up, I don't pay. Where do you eat and drink where you don't get a bill?

Also, I pay for everything with either my debit or cc. I haven't made a cash transaction in years. I think the majority of the population falls into this category as well.

Many of the places I eat at still give you the old handwritten bill. Heck some of them don't even take credit/debit cards. I don't go to chains very often. Just local hole in the walls. I rarely use credit/debit cards. Everything is cash and carry. I stopped going to Radio Shack when they insisted I give them my info when paying cash.

 

[CarmelHP]

What makes you think that all inome tax won't be subject to evasion due to the single reporter problem inherrent in the system? Your argument is circular and universally applicable. There will be fraud inherrent in ANY tax system. What do you do to mitigate fraud? You can reduce the number of participants in the system. There are far fewer retailers than income earners.

Yet again, the dearth of understanding anything tax related is apparent, income tax does NOT have a single reporter problem. It's a dual reporter system in which the payee and payer both report the transaction (you know, 1099s and W-2s). Still there is an awful lot of evasion, 15-25%, but, in the single reporter FairTax system, the proponents say there will be....NONE. Even though there is great incentive to evade and difficult to detect evasion, so that 23% tax will now have to be a 30% or 35% tax, and, thanks to the prebate, all the individual reporting and auditing will still have to be done. We're getting, possibly, the worst of all worlds, and a pig in a poke.