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October 4, 2011 / 74

A Question for Herman Cain – When Is 9% Not 9%?

When is 9% NOT 9%?

One problem with Mr Cain’s tax structure is… State taxes. If you impose a sales tax of 9 %, plus the flat tax of 9%, that would be 18% total Federal taxes possible. Add in the State and LOCAL sales taxes (where I live that would be another 7%) and you end up with an effective tax rate of 25% – PLUS property taxes.

9 is a happy number for taxes because it’s less than ten or twenty. But 9 + 9 + 7 + ? = 25% + – a LOT more tax than I’ve EVER paid!

Now, some wag is sure to say, “Well if you don’t spend your income, then you only pay 9%!” Which is a nice sentiment – unless you don’t MAKE enough to be able to “not spend” some of your income. ie your plan will hit the poorest (low wage workers) the HARDEST! While Joe Rich Guy can afford to NOT spend HUGE amounts of his income, Jack Poor Guy must spend it ALL! So for the rich guy, 9% is 9% plus a small amount of his earnings. If the rich guy spends half of his money, then he’s only paying 4.5% sales taxes for a total real tax burden of 13.5% The poor guy though pays the whole amount on 100% of his income. so the poor guy pays 18%.

In terms of the greater society, this is not necessarily a bad thing, because the rich guy will “save” (invest) the “surplus” capital which will build up a capital pool for development and business expansion. So though the money is not taxed to it’s fullest extent, it IS serving public needs.

But if Cain REALLY wants to have everyone pay the same, then eliminate the sales tax and hike the flat tax to around 10 or 12% that EVERYONE pays. And if you want to make it REALLY fair, EVERYBODY PAYS on every dollar earned or received – no deductions! (And EVERYONE who has ANY income would pay – even folks on welfare!)

But a tax structure exists for more reasons than the collection of revenue for the government. Taxes exist to promote social “good” – like promoting strong family units (the cornerstone of a stable society).

So a fair/flat tax imposed on everyone equally will cause different kinds of problems. And at some point, someone will have to decide to redefine the word “fair” and prioritize the social goals of the tax structure. And once you do that – well – there went the “fair” part of your taxes.

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7 Comments

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  1. Westie / Oct 18 2011 14:40

    It would behoove all of us to study tax policy and understand the ramifications of taxation, prosperity and power.
    The Tax Prof, http://taxprof.typepad.com, may be a starting point.

    • Michael E Picray / Oct 18 2011 16:20

      I don’t ordinarily allow URLs in the comment section, this one seems to be an informational link to a blog and not much more. Having looked at it, I have my doubts that a non–professional will learn much about tax or tax law from the blog, there might be some who would benefit from it. So thanks for the link.

      As a former accountant/tax specialist one of the things I quickly learned was why most tax lawyers have accountants do their returns. A friend of mine made the mistake of hiring a tax lawyer for a dispute with the IRS instead of a good CPA – and after the IRS handed the tax lawyer a prima facie case on a platter, (wherein the IRS agreed in writing with the client’s position), the lawyer proceeded to “bargain” the client’s position away. ;-D

  2. Carmon Madison / Oct 7 2011 08:14

    Mr. Picray,

    I encourage you to read The Fairtax Book – by Neal Boortz and John Linder. It will explain in detail how the taxes are embedded in everything you buy. It is essentially a hidden sales tax. This is how Mr. Cain is arriving at his position.

    I am not arguing the merits of the 999 Plan. If you read the book, then you will easily agree or you will have a strong basis to tear his plan apart in detail.

    Thank you for your time.

    • Michael E Picray / Oct 7 2011 11:12

      Sorry but I don’t have the free time to read the book any time soon. Could you explain it briefly – assuming that it is not about how businesses pass their tax burdens/costs on as part of the price of whatever it is they sell? ie I know we don’t have a VAT – so in my mind the “hidden sales tax MUST be the business including their taxes as part of their costs of production. If it IS that, then it’s not a “hidden tax”.

  3. Michael E Picray / Oct 6 2011 11:06

    “we are already paying the sales tax on all goods and services”

    True enough, but almost half of the people aren’t paying income taxes – so the STATE sales tax is all they pay. There is no Federal sales tax except for “excise” (luxury) taxes assessed on things like high-end autos and boats and IIRC tires… tires? Yep. The Feds apparently consider tires a luxury.

    These taxes are not hidden. But there is an excise tax on vaccinations… which IS hidden in the overall cost of the shots. ( http://www.irs.gov/publications/p510/ch05.html#en_US_publink1000117262 )

    Under Mr Cain’s plan – EVERYONE will pay 9% of income regardless of income levels, PLUS the State sales taxes, PLUS the new FEDERAL sales tax. So a person who doesn’t make enough money to pay income taxes now, would get hit with a new 20% +/- tax bill. The people who could afford it least would end up paying the highest rates.

    I have no objection to the 9% income tax on everyone. But the sales tax is murderous!

  4. Carmon Madison / Oct 6 2011 08:26

    Mr Picray,

    I appreciate reading your posts, very informative stuff.

    Mr Cain aside, we are already paying the sales tax on all goods and services. Only it is hidden and it is around 20-23%. So the Fair Tax would eliminate all those hidden taxes and awaken the citizens of this country. As it stands now, you are penalized for saving and spending. At least with the Fair Tax you wouldn’t be penalized for saving.

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  1. Cain’s “9-9-9″ Tax “Plan” Is In Trouble Already! « Michael E Picray

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