ziggy29
Moderator Emeritus
It seems many peoples' definition of a tax system are:
- a bad tax system is one where they have to pay
- a good one is where they have to pay less
- and a great one is where they do not have to pay at all.
It seems many peoples' definition of a tax system are:
- a bad tax system is one where they have to pay
- a good one is where they have to pay less
- and a great one is where they do not have to pay at all.
For sure. Yet, looking back over various discussion topics on this board, folks of most political stripes voiced support for the Simpson-Boles plan. Nobody loved it, but most thought it good enough. That was either because it was (of necessity) short on specifics, but also likely because it was all-encompassing enough that everyone could see that everyone would be making some sacrifices. This 9-9-9 thing might be the same, though I think there will have to be a "sweetener" to offset some of the pain at lower income levels.[/LIST]
Yep -- people can talk about balancing the budget with tax hikes and spending cuts until the cows come home. But ONLY if they raise everyone else's taxes and don't touch spending that benefits me. Otherwise I scream bloody murder...
It seems many peoples' definition of a tax system are:
- a bad tax system is one where they have to pay
- a good one is where they have to pay less
- and a great one is where they do not have to pay at all.
For some reason... no matter what the collection mechanism is (i.e., what we have today or something new)... I think we will all wind up with definition # 1.
Yep -- people can talk about balancing the budget with tax hikes and spending cuts until the cows come home. But ONLY if they raise everyone else's taxes and don't touch spending that benefits me. Otherwise I scream bloody murder...
I'm sure there would be some of that. The 9% rate isn't much different from the sales tax rate already in existence in some localities, so there may already be good data on expected noncompliance rate at this level. My guess is that the problem would be biggest with very small businesses.I'm not sure how easy it would be to avoid the tax with cash when buying products, but a huge opportunity exists to avoid it when paying for services.
Except that in this case, noncompliance wouldn't be trying to avoid (say) only an 8% state sales tax. It would be trying to avoid a combined 17% sales tax. You may not jump through hoops or risk potential tax evasion charges for 8%, but you might start getting tempted at 17%.I'm sure there would be some of that. The 9% rate isn't much different from the sales tax rate already in existence in some localities, so there may already be good data on expected noncompliance rate at this level.
I'm sure there would be some of that. The 9% rate isn't much different from the sales tax rate already in existence in some localities, so there may already be good data on expected noncompliance rate at this level. My guess is that the problem would be biggest with very small businesses.
Maybe offer a reward program for customers who report those who don't collect the tax? I don't know how you find merchants who collect the tax but don't forward it to the govt.
Which brings up the issue of the knock-on effect to state and local taxes. Most states now have an income tax. If something like Cain's plan were to pass, most people wouldn't need to file a federal tax return. I'm guessing the states would be under tremendous pressure to modify their own systems so a return wasn't required--probably they'd just add their own 3-4% income tax and let the same collection mechanisms do the work as for the federal taxes. Regarding state sales tax rates--would they decline? Seems likely, if they decide to shadow the federal sales tax system as they do now with income taxes. Cain's plan taxes all purchases of services and new items (incl food, medicine, tuition, rent, etc--all the "we can't tax that!" items). If states broadened their tax base in this way, their tax rates could come down a lot with no loss of revenue. And, given that the income tax would be so easy to collect (very little paperwork, etc), states might choose to shift some to that form of taxation. All the same applies to localities. So, maybe another 4-5% state/local tax tacked on to the federal sales tax? It doesn't sound like a deal breaker.Except that in this case, noncompliance wouldn't be trying to avoid (say) only an 8% state sales tax. It would be trying to avoid a combined 17% sales tax. You may not jump through hoops or risk potential tax evasion charges for 8%, but you might start getting tempted at 17%.
There's always somebody trying to squash the little folks who are just trying to make a buck and do their civic duty!Secret police is still a step up from citizens reporting on each other.
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.So, maybe another 4-5% state/local tax tacked on to the federal sales tax? It doesn't sound like a deal breaker.
I am also leary of giving the Feds another means of collecting taxes. I think a national sales tax is a bad idea.
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%.and a sales tax has the added disadvantage of impacting lower income people harder than higher income people
+1
and a sales tax has the added disadvantage of impacting lower income people harder than higher income people
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 addition to ziggy's response - I'm curious if/how Cain's program addresses this.
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.
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?
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'.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.
I'm plenty abused with the present system. I would think dropping all those exemptions & loopholes would make any abuse more obvious.
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?
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)
They liked the plan--it's design, the expected impact in the economy, etc. But then:. . . 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.
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.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.
...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...
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.