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Old 10-05-2011, 09:19 PM   #61
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So, maybe another 4-5% state/local tax tacked on to the federal sales tax? It doesn't sound like a deal breaker.
Well, Canada certainly has that with GST and PST -- but Canada has a different set of social expectations and services than the US so that won't necessarily mean it would work here.
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Old 10-06-2011, 10:45 AM   #62
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I'm sceptical that this plan would bring in anything close to the current revenue.

The numbers I've seen having it coming in well below what we currently collect (which is giving us trillion dollar deficits). Add in what I would expect to be a massive increase in sales tax fraud and I think plan would be an utter failure.

I am also leary of giving the Feds another means of collecting taxes. I think a national sales tax is a bad idea.
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Old 10-06-2011, 11:35 AM   #63
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I am also leary of giving the Feds another means of collecting taxes. I think a national sales tax is a bad idea.
+1

and a sales tax has the added disadvantage of impacting lower income people harder than higher income people
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Old 10-06-2011, 12:24 PM   #64
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and a sales tax has the added disadvantage of impacting lower income people harder than higher income people
There are easy ways around this. One is to "rebate" a certain amount of money each year to offset the first $X paid in sales taxes. If one wanted to "exclude" the first $10,000 of taxable sales a year, you could provide a household with a $900 "rebate" or tax credit if the tax rate is 9%.

Another way to do is to simply exempt many of the necessity items from sales tax like food, medicine, et cetera. (Many states do exempt many of these things). Since the lower income people disproportionately buy these "staples" they would be spending most of their money on tax-exempt items. This is the most common way (currently) to prevent the sales tax from becoming too regressive.
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Old 10-06-2011, 12:47 PM   #65
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+1

and a sales tax has the added disadvantage of impacting lower income people harder than higher income people
I addition to ziggy's response - I'm curious if/how Cain's program addresses this. It could be just based on the standard deduction? Oh, and in 'fair-tax' terminology, they refer to the rebate as a 'pre-bate', you would get it each month. The idea being that it offsets the tax for basics. Remember, most of it is already effectively offset by eliminating the payroll tax.

The problem in exempting items like food, is then you get into angel-pin microscope arguments over what is 'food'. Lobster, fast-food, candy (no, that's a health-nut, energy bar!),soda-pop versus a 'health drink', ad infinitum.

I always get a kick out the fact that the ingredients I buy to make beer are taxed at the lower 'food' rate here in IL. They are food (grains, sugars, spices, herbs) until I brew them up into a beverage that would be heavily taxed if I bought it at retail. Occasionally, I do bake with them (the grains are nice in bread, malt extract can be really yummy in a cake).

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Old 10-06-2011, 12:57 PM   #66
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I addition to ziggy's response - I'm curious if/how Cain's program addresses this.
Nope, Cain's plan doesn't have a pre-bate or exclusions for staple items. If you buy a service or new item, the tax is 9%. Of course, if we start excluding items, the required tax rate goes up if we need to raise the same revenue. And with the higher rate comes more cheating, etc. With excluding items comes the whole arbitrariness about what constitutes a staple.

I think the underlying, unstated premise is that we all need to contribute materially to support the common functions our government performs on our behalf (as the President says, we all need to have skin in the game). It's 9% of what you earn, 9% of what you spend. If (as a nation) want to redistribute wealth to the poor, then there should be a mechanism to do that in a deliberate way--outside of the tax code.

Used items aren't subject to this retail sales tax. That's a great way for poor people (or anyone else) to avoid such a tax on clothing, cars, appliances, etc. (Hey, and a great way to discourage the early scrapping of useful objects!)
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Old 10-06-2011, 01:08 PM   #67
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There are easy ways around this. One is to "rebate" a certain amount of money each year to offset the first $X paid in sales taxes. If one wanted to "exclude" the first $10,000 of taxable sales a year, you could provide a household with a $900 "rebate" or tax credit if the tax rate is 9%.

Another way to do is to simply exempt many of the necessity items from sales tax like food, medicine, et cetera. (Many states do exempt many of these things). Since the lower income people disproportionately buy these "staples" they would be spending most of their money on tax-exempt items. This is the most common way (currently) to prevent the sales tax from becoming too regressive.
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Originally Posted by ERD50 View Post
I addition to ziggy's response - I'm curious if/how Cain's program addresses this. It could be just based on the standard deduction? Oh, and in 'fair-tax' terminology, they refer to the rebate as a 'pre-bate', you would get it each month. The idea being that it offsets the tax for basics. Remember, most of it is already effectively offset by eliminating the payroll tax.

The problem in exempting items like food, is then you get into angel-pin microscope arguments over what is 'food'. Lobster, fast-food, candy (no, that's a health-nut, energy bar!),soda-pop versus a 'health drink', ad infinitum.

I always get a kick out the fact that the ingredients I buy to make beer are taxed at the lower 'food' rate here in IL. They are food (grains, sugars, spices, herbs) until I brew them up into a beverage that would be heavily taxed if I bought it at retail. Occasionally, I do bake with them (the grains are nice in bread, malt extract can be really yummy in a cake).

-ERD50
my thought (just about the regressive nature of a sales tax) is that if you do something to make it less regressive (as suggested above) the rate will have to be increased to make the change in the tax system revenue neutral. so much for 9-9-9.

that being said, of equal importance to me is that i still dont want to open up a new means of taxation to the federal government, as i am sure it will be abused in the future.

btw, since FICA goes away, would this change appropriately fund SS and how would the SS benefit be computed in the future?
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Old 10-06-2011, 01:36 PM   #68
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VAT

I don't like the idea of a VAT or national sales tax because if it like the current sales tax in my state, items put up for resale are taxed again each time they are transferred. For example, if you buy a new car for 30k, with a 15% combined VAT/Sales tax, you're paying $4500 in taxes.

Then if you decide to sell the car 2 years later, the new buyer pays tax again (must be reported via the form from DMV). So they take another $2-3k in taxes. And on it goes...

How this is even legal is beyond me...they already got their taxes on the first sale. Thieves I tell you, thieves.
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Old 10-06-2011, 02:22 PM   #69
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my thought (just about the regressive nature of a sales tax) is that if you do something to make it less regressive (as suggested above) the rate will have to be increased to make the change in the tax system revenue neutral. so much for 9-9-9.
Mathematically, that is certainly correct. I need to read through the details, but it sounded to me that this was already taken into account, and it is supposed to bring in the same overall revenue. And with the elimination of payroll taxes (6.2 +1.45%), there isn't much to make up (9-7.65= 1.35%). I need to look at what they did with the 'standard deduction'.

Quote:
that being said, of equal importance to me is that i still dont want to open up a new means of taxation to the federal government, as i am sure it will be abused in the future.
I'm plenty abused with the present system. I would think dropping all those exemptions & loopholes would make any abuse more obvious.

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btw, since FICA goes away, would this change appropriately fund SS and how would the SS benefit be computed in the future?
Again, I gotta read the details, but I believe he looked at total taxes. Since there is no actual 'lockbox', it's all fungible. Revenue is revenue, whether it has a FICA label on it or not (which is true today).

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Old 10-06-2011, 04:31 PM   #70
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my thought (just about the regressive nature of a sales tax) is that if you do something to make it less regressive (as suggested above) the rate will have to be increased to make the change in the tax system revenue neutral. so much for 9-9-9.
Mathematically, that is certainly correct. I need to read through the details, but it sounded to me that this was already taken into account, and it is supposed to bring in the same overall revenue. And with the elimination of payroll taxes (6.2 +1.45%), there isn't much to make up (9-7.65= 1.35%). I need to look at what they did with the 'standard deduction'.
i am not following your response. i was talking about making the sales tax part of 9-9-9 less regressive (by either excluding classes of items from taxation or providing a rebate/prebate to everyone) and you seem to be talking about the income tax part of 9-9-9. how does your comment relate to mine?


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I'm plenty abused with the present system. I would think dropping all those exemptions & loopholes would make any abuse more obvious.
and "dropping all those exemptions & loopholes" from the income tax code does not require starting a national sales tax (again what i was commenting on)
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Old 10-06-2011, 04:55 PM   #71
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i am not following your response. i was talking about making the sales tax part of 9-9-9 less regressive (by either excluding classes of items from taxation or providing a rebate/prebate to everyone) and you seem to be talking about the income tax part of 9-9-9. how does your comment relate to mine?
Sure, I was just looking at it overall. IOW, if an estimated $1,000 adjustment is made to the average sales tax by excluding certain items, or by giving a pre-bate, or by increasing the standard deduction by an equivalent amount - it's all the same to the individual.


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and "dropping all those exemptions & loopholes" from the income tax code does not require starting a national sales tax (again what i was commenting on)
True. But it's part of the plan, and has certain advantages. As others have said - 9% in 2 different areas reduces the motivation to cheat, as the max benefit is 9%. A high rate in any one increases the motivation. Sales Tax also at least captures some current illegal/unreported activity.

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Old 10-06-2011, 09:16 PM   #72
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The WSJ will run a short editorial on Cain's 9-9-9 plan in tomorrow's paper. In part:

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. . . Mr. Cain's 9-9-9 plan would certainly help the economy, but its political flaws may well be fatal.
. . . The plan is designed to raise as much revenue as the current tax code, and the Heritage Foundation estimates it would not increase the budget deficit.

The plan's chief virtue is its sharp reduction in marginal tax rates, to 9% from 35% for businesses and top-earning individuals. Another benefit is that it would eliminate the current double taxation on savings and investment. When this is combined with expensing of capital investment and the sales tax on retail sales, Mr. Cain's plan would in effect convert the federal tax system into a de facto consumption tax.
In an instant, the U.S. would have the lowest corporate tax rate among our major trading partners, from the second highest today. All of this would provide a significant boost to U.S. domestic investment and global business competitiveness. If Americans want more jobs, this plan would produce them in a hurry.
The simplicity of 9-9-9 is also a selling point, as is its elimination of loopholes. Businesses, for example, would deduct all of their legitimate business expenses (except wages paid) from their gross receipts. The provisions that have allowed companies like General Electric to pay little or no federal income tax would be gone.
They liked the plan--it's design, the expected impact in the economy, etc. But then:
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The real political defect of the Cain plan is that it imposes a new national sales tax while maintaining the income tax. Mr. Cain's rates are seductively low, but the current income tax was introduced in 1913 with a top rate of 7% amid promises that it would never exceed 10%. By 1918 the top rate was 77%. European nations began adopting national sales and value-added taxes on top of their income taxes in the 1960s . . . tax rates usually started at less than 10%, but in much of euroland "the rates have nearly doubled and now are close to 20%," according to a study by the Cato Institute's Dan Mitchell. . . .
. . . Better to reform the devil we know—the income tax—than to introduce another devil and end up with ever-rising rates of both.
Hmm. Seems there might be some way to put a leash on the monster we might be creating, either in the law itself or with a mechanism that puts another check/balance into the mix. I agree the opening of this new revenue stream is a potential problem.
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Old 10-06-2011, 11:58 PM   #73
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...Has anyone thought about how the 9-9-9 plan, or any other plan to eliminate the income tax, would affect the economy? Just think of all the federal employees that would hit the bricks (no more IRS), all the private income tax practices out of business...
And with no IRS, who would enforce the tax plan?
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Old 10-07-2011, 03:28 PM   #74
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Just a friendly notice that this topic is being watched closely, and any comments straying from discussion of tax proposals to political parties, candidates, etc. will result in the immediate closing and likely deletion of the thread. Thanks.
So th... th... th...at's all:

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