Crowley: You would make an exemption for food and clothing?
Cain: No. No exemptions. You don’t need those exemptions.
Crowley: A poor person is paying the same amount of tax on groceries as I would. Does that sound fair?
Cain: Yes, because of the other point I’m about to make. If they need a car or home or other hard goods that are used they pay no taxes. So they have an opportunity for them to leverage their income. The assumption made by the critics is that they’re going to spend all of the rest of their money on new goods. No, that’s not how my parents did it…To say that it is regressive is based on erroneous assumptions.
I confess I haven’t done any research on the 9-9-9 plan. Intuitively it doesn’t seem plausible. If Cain isn’t going to fade away like the clothes he’s expecting middle class Americans to wear, we need to go over 9-9-9 with a fine toothed comb, preferably a new one.
Hi, Pat, can I jump in here? I’ll start with the admission that I haven’t paid much attention yet to Cain’s 9-9-9 plan. But why should that stop me from opining?
I’ll quote from a segment of my earlier post, Theories of Taxes:
Here are some fundamental tax types:
- Consumption taxes, such as sales tax, which tax you for stuff you use
- Production taxes, such as income tax, which tax you for your productivity
- Property taxes, which tax you for stuff you own
- Transfer taxes and fees, which tax you for transactions in which non-consumable goods change hands
- Taxes on capital gains and investment income, which tax you on the growth of assets you hold
- As the final insult, there’s a death tax
Excessive taxes can suck the life out of an economy. Some types of taxes are more toxic than others. A strong economic argument can be made favoring the consumption tax over the alternatives. Taxing consumption rather than production encourages savings, which are an essential part of the foundation upon which a prosperous economy is built. Also, taxing consumption levels the playing field with respect to domestic production, since all goods are taxed at the same rate regardless of origin, instead of having domestic goods weighed down by built-in taxes. Unfortunately, it’s politically awkward for an elected official to advocate rational tax policy, because the political opposition strives to make good ideas sound ugly.
So in principle and in the context of a greater tax strategy, I favor a sales tax because I think it would do good things for the big picture. And Cain is correct in pointing out that, if used goods are exempted from sales tax, this opens a pathway for people of limited means to evade the tax. Our economy would be more efficient, and I think most people would be happier, if we got the full mileage out of the stuff we already have instead of rushing to chuck our current possessions and replace them with shiny new expensive bling. That tax policy might encourage our thrift and legitimize a lot of semi-underground economic activity seems to me desirable.
Don’t tax the rich because it is bad for the little people. Tax the middle class because it is good for their souls. Where do people get the idea Republicans are aristocratic? What jobs will the rich be creating if the middle class is not consuming?
If we negotiate a few details, a consumption tax becomes substantially progressive. Exempt the basic staples (and I know Cain was saying otherwise, but we can talk about this) plus used stuff as Cain said, and the poor have a pathway to largely go tax-free. Alternatively, some have proposed a VAT that covers everything but gives every citizen a “prebate” which would cover the taxes for basic living expenses.
Under the plan Cain describes, a used car would go untaxed, a cheap new car has the lowest tax, and an expensive car pays the most. So the rich are going to pay for their lifestyle choices, but the new tax structure would reward people for saving rather than consuming. I know it’s commonly argued that we need people to start spending in order to get the economy moving, but I think that’s a canard. We can’t consume our way to prosperity; we must seek the balance of production and consumption. Right now we’re consuming at a rate that’s not supported by either our production or our capital (savings); that’s got to change. Rational tax policy is part of that change.
As part of the big picture, I have two other goals. First, the government must live within its means (and preferably get there by limiting expenses rather than enhancing revenues). Second, I want every citizen — or at least every voter — to feel the pinch of taxes. Rich or poor, I want everyone to understand that there’s a connection between what the government spends and what comes out of your pocket. Otherwise, it’s just an abstraction. Another billion dollars for fill-in-the-blank? When the president proposes spending on anything, I want the people to think, “That’s going to take twenty-three (or whatever) extra dollars I’m going to have to come up with.” This is what the tech boys and girls know as “feedback”. Then maybe the nation would start to take the national budget, and the spend-aholics who are in charge of it, seriously.
As I said, I haven’t researched the 999 plan so I can’t say how well the theoretical benefits of consumption taxation integrate into the rest of it. Cain is nimble with the numbers about a $50,000 a year household saving enough on income tax to pay the sales tax. Does that apply to other income brackets? Retirees who pay little or no income tax will just be hit with a whopping sales tax increase. This is a 9% national sales tax on top of individual state taxes and income taxes. Who’s to say once a national sales tax is implemented Congress will stick with low numbers? We’ll be right back where we are only with another revenue source for Washington.
It isn’t just an academic debate about consumption taxes right now. My issue is with the way Cain is trying to promote the plan. Cain’s popularity with Republican voters is surging. If Cain is the nominee he needs to make his arguments for his tax plan sound better than let them eat leftover cake. All lower income people will be hearing is that there is a new tax to pay, the rich get a tax cut and I’m supposed to shop at rummage sales. This is not a winning argument the way he is stating it even if 999 is a viable plan. Once the plan undergoes scrutiny I wouldn’t be surprised it doesn’t even add up. On the other side the Democrats are successfully playing the class envy card. Hello President Obama second term.