9-9-9 Questions

 

Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute, has this look at Herman Cain’s “9-9-9” flat-tax proposal.

Two of her concerns:

1) Would a 9% national sales tax curtail folks’ spending habits (especially in a state like California, whose state sales tax approaches the proposed federal add-on)?

2) What would stop Congress from going beyond 9% (keeping in mind that any two-thirds requirement to raise taxes could always be eliminated by a majority vote to eliminate said requirement)?

My questions to you:

1) Would the sales tax discourage you from buying a big-ticket item like an automobile?

2) How do you impose handcuffs on Congress?

3) Donning your best strategist’s hat, how do you downplay any politically unpopular details — i.e., eliminating mortgage deductions?

There are 36 comments.

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  1. Profile Photo Inactive
    @BlueStateCurmudgeon

    I don’t buy the argument that the 9-9-9 plan is an invitation for congress to raise taxes again. Since when have they needed an excuse? How is this plan any more susceptible to meddling than what we already have?

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    @DianeEllis
    Bill Whalen

    1) Would the sales tax discourage you from buying a big-ticket item like an automobile?

    Definitely. I’d buy everything used. But hey, recycling used goods is GREEN, isn’t it?!

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    @

    Question # 1 assumes that the consumer would have to pay more for an automobile because of the sales tax. I’m pretty sure Cain has been arguing that the prices will go down if anything because businesses will be paying less taxes overall

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    @FrozenChosen

    I believe Cain made some bizarre remark about the sales tax only applying to “new” items, not “used” items.

    If true, that would really fire up the new housing market, wouldn’t it! And that used jalopy you drive would become more valueable because who would want to pay an extra $3,000 for a new car?

    Manufacturing in general would take a huge hit which would kill jobs but the treehuggers would love it.

    If Cain wants to replace income tax with a national sales tax why doesn’t he just propose that from the get go without this confusing 9-9-9 dance?

    Oh yeah, we would have to amend the constitution to eliminate the income tax…

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    @Pilli

    Of course the first time Congress raised the sales tax, the whole country would scream. If they thought the Tea Party Town Hall meetings were rough…

    This is the beauty of the current tax system. It comes out before you see it. You never notice how much you are really losing.

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    @FrozenChosen
    Blue State Curmudgeon: I don’t buy the argument that the 9-9-9 plan is an invitation for congress to raise taxes again. Since when have they needed an excuse? How is this plan any more susceptible to meddling than what we already have? · Oct 13 at 9:53am

    Because it’s a whole new tax for them to raise!

    • #6
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    @Copperfield

    1) No, it would not discourage me from buying a big ticket item, but it may cause some consumers to trade down their planned purchase (e.g. from an Accord to a Civic).

    2) Handcuffing Congress – good luck. Admittedly, I’m at a loss to suggest anything they wouldn’t eventually reverse.

    3) Downplaying unpopular details – here are two: 1. Mortgage deduction – is it really fair for those who can’t afford a home to subsidize those who can, especially when some of those are second homes – and – with a 9% income tax and sales tax, most homeowners would likely come out ahead on their total tax bill (would have to run the numbers to confirm or deny this). 2. The regressive nature of a national sales tax: Shouldn’t everyone pay at least something to fund government services they use?

    Mr. Cain is surging in the polls, but it has the feel of a temporary, almost protest Romney surge.

    I am surprised we haven’t seen more traffic here on Ricochet about Romney’s speech & position paper on foreign policy & the military last weekend. It was very good.

    • #7
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    @rayconandlindacon

    Bottom line… Who do you trust to work hard to undo the monster we have created? Has Romney shown any interest in doing it? Has Perry?

    Only Cain talks like he means to make major changes, and has the history to prove he can do so. Or, you can talk all you want about changing things, but as long as you are willing to settle for Mr. Electable, nothing will change.

    • #8
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    @cdor

    I have never believed that the fair tax or any national sales tax would be anything but a disincentive for consumerism. To a certain extent, that may be a good thing. But as a merchant, I am very dubious.However, it is my understanding that the elimination of the 16th amendment or the end, somehow of income tax would precede any 9 9 9 implementation. Let’s face it, our current system is so convoluted and divisive that just about anything would be better. The POTUS can bang on his podium, but Congress will be doing this heavy lifting. So…as John Steinbeck might say, “The best- laid plans of mice and men…” At least, however, he has a plan. It’s a place to start, not the finish line.

    • #9
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    @liberaljim

    Cain is putting forth the 999 plan as a bridge to a repeal of the income tax amendment and a national sales tax. If Congress wanted to remove the 2/3 requirement they would need 60 votes in the Senate and 2/3 vote if the bill was vetoed. Since Cain views the national sales tax proposal as a 3-5 year process this would essentially tie Congress’ hands.

    • #10
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    @TomPaine

    Let’s run the numbers for a median household, with income of $49,990.

    Assuming they take the standard deduction, together with a child tax credit of $1,000, they’re currently paying about $3,900 in federal income tax, plus $3,124 in FICA taxes, for a total of $7,024 – 14% of their gross income.

    Cain’s plan eliminates the FICA tax and imposes a flat 9% income tax, so their combined federal taxes would decline to $4,499.

    Their disposable income, net of federal, state and local taxes, would probably be in the area of $40,000. Subtract mortgage payments of, say, $18,000 and they’re down to disposable income of $22,000. Assuming they spend every penny of that $22,000, their national sales tax amounts to $1,980. Combined with their flat 9% income tax, this comes to a total of $6,479 – $545 less than under the current scheme.

    Of course, the real bang comes as incomes rise – earners above the median would benefit greatly under Cain’s plan, while the 9% corporate tax rate would ignite a surge of economic growth.

    • #11
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    @TheKingPrawn

    As a non wealthy person I can say from a personal interest point of view that 999 would be horrible. After all is said and done on my income taxes the government keeps about 1%. They keep all of the 7.65% (currently 5.65%) the withhold for SSI and HI. Why on earth would I want to replace that with a flat 9% tax and a 9% sales tax? My state/local sales tax is 8.6%, and I get to deduct about $1100 from my gross income for that. The only way to make this palatable for anyone around the median income would be an enormous deduction (like the flat tax folks have) that puts the real tax burden at or below what it is now. Plus, taxing income and consumption taxes all my money coming and going. Double taxation, even with representation, is a horrible idea.

    • #12
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    @liberaljim

    When a person buys an item that was made in this country they are paying for the cost of the salaries of the workers who made it. These salaries include all taxes, SS and income tax since workers are concerned with take home pay not gross pay. In addition the cost of corporate taxes is also included in the items. All of these taxes would be eliminated lowering prices. The sales tax would be more visible and therefore theoretically more difficult to raise. Since it would be applied to both domestic and imported items it would make US goods more competitive and should help to boost manufacturing. It is correct to assume a sales tax would depress consumption. But the US has tilted away form a production oriented country and a mild depression of consumption in favor of savings and investment could be viewed as positive. 999 captures only part of these advantages. There are disadvantages to a sales tax that I did not mention. Revamping the tax system and not cutting the size of government is a futile endeavor.

    • #13
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    @TheKingPrawn
    Tom Paine: Let’s run the numbers for a median household, with income of $49,990.

    Assuming they take the standard deduction, together with a child tax credit of $1,000, they’re currently paying about $3,900 in federal income tax, plus $3,124 in FICA taxes, for a total of $7,024 – 14% of their gross income.

    Those numbers don’t work in the real world. Granted, I have 2 little deductions running around the house, but on my $58K gross last year the government kept less than $600 for income taxes. There’s a big difference between what they withhold and what they keep.

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    @TomPaine
    The King Prawn: As a non wealthy person I can say from a personal interest point of view that 999 would be horrible. After all is said and done on my income taxes the government keeps about 1%. They keep all of the 7.65% (currently 5.65%) the withhold for SSI and HI. Why on earth would I want to replace that with a flat 9% tax and a 9% sales tax? My state/local sales tax is 8.6%, and I get to deduct about $1100 from my gross income for that. The only way to make this palatable for anyone around the median income would be an enormous deduction (like the flat tax folks have) that puts the real tax burden at or below what it is now. Plus, taxing income and consumption taxes all my money coming and going. Double taxation, even with representation, is a horrible idea. · Oct 13 at 10:47am

    Are you planning on remaining non-wealthy?

    • #15
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    @TomPaine
    The King Prawn

    Tom Paine: Let’s run the numbers for a median household, with income of $49,990.

    Assuming they take the standard deduction, together with a child tax credit of $1,000, they’re currently paying about $3,900 in federal income tax, plus $3,124 in FICA taxes, for a total of $7,024 – 14% of their gross income.

    Those numbers don’t work in the real world. Granted, I have 2 little deductions running around the house, but on my $58K gross last year the government kept less than $600 for income taxes. There’s a big difference between what they withhold and what they keep. · Oct 13 at 10:54am

    Hey, it’s great that you can benefit from the sort of deductions and child tax credits that are phased out for people in the higher income brackets – they get to subsidize your children while you pay far less than your fair share of the cost of government.

    $600 on $58,000 of income? That’s a sweet deal.

    • #16
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    @kesbar

    With only 9% income tax, I would have a lot of my earned income back in my pocket to offset the new 9% sales tax. My investment income would see a large boost as well. That would overcome loss of my deductions.

    The important part, to me, is that the sales tax puts that part under my control. My consumption is my choice, for the most part. It would allow me to choose to invest some of my income in more investments (start-ups and rental property), thereby increasing production and creating local jobs.

    Also, as corporate tax rates plummeted, my stocks would soar, giving me even more capital to do things with. Maybe even a few big-ticket items which would create more income for the government.

    Frankly, 9-9-9 would be very good for me and all the other people invested in this economy.

    • #17
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    @TheKingPrawn
    Tom Paine Are you planning on remaining non-wealthy? · Oct 13 at 10:55am

    I work for the government, so probably.

    Tom Paine $600 on $58,000 of income? That’s a sweet deal. · Oct 13 at 11:02am

    Sad thing is that my mortgage and local tax deductions only knock a couple grand off of my adjusted gross over what I’d get from the standard deduction. It’s the credits that really do the trick. Without the child tax credit my tax bill would immediately go to $2600. Put the making work pay back and it’s $3400.

    I’m not saying the way the system works now is right, I’m just saying how it is. I’d be all for a flat, zero deduction income tax even if my taxes went up. I believe in the older definition of fair.

    • #18
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    @MichaelKellogg

    I like that Cain is thinking outside the box, but the 999 plan is a political non-starter, IMHO. I’m already charged over 9% sales tax here in L.A., and about the same for state income tax, and neither of those is going away. It might conceivably lower my overall burden, but I’d have to really digest the numbers. And giving Congress a new VAT to play with for the first time ever, that strikes me as a seriously bad idea.

    I really like his bio and qualifications, and obviously his energy and can-do attitude; but I think the nomination is still Romney’s to lose, and he’s looking pretty Teflon-like at the moment. How about Romney / Cain 2012?

    • #19
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    @TomPaine
    The King Prawn

    Tom Paine Are you planning on remaining non-wealthy? · Oct 13 at 10:55am

    I work for the government, so probably.
    Tom Paine $600 on $58,000 of income? That’s a sweet deal. · Oct 13 at 11:02am

    Sad thing is that my mortgage and local tax deductions only knock a couple grand off of my adjusted gross over what I’d get from the standard deduction. It’s the credits that really do the trick. Without the child tax credit my tax bill would immediately go to $2600. Put the making work pay back and it’s $3400.

    I’m not saying the way the system works now is right, I’m just saying how it is. I’d be all for a flat, zero deduction income tax even if my taxes went up. I believe in the older definition of fair. · Oct 13 at 11:14am

    So, in other words, you’re saying you’re addicted to the current system of tax deductions and tax credits based upon social engineering, because it works for you.

    • #20
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    @TheKingPrawn
    Tom Paine So, in other words, you’re saying you’re addicted to the current system of tax deductions and tax credits based upon social engineering, because it works for you. · Oct 13 at 11:22am

    No, I’m just using my own example of how politically difficult it will be to get something like 999 passed.

    The King Prawn I’m not saying the way the system works now is right, I’m just saying how it is. I’d be all for a flat, zero deduction income tax even if my taxes went up. I believe in the older definition of fair. · Oct 13 at 11:14am

    • #21
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    @NickStuart

    Eliminating mortgage and charitible deductions would be so unpopular, and so demagogued right and left it would be a deal-breaker.

    The ability to reward friends and punish enemies inherent in all the jiggery-pokery in our current system is so seductive to the politicians they’ll never accede to simplification.

    The money to be made by tax accountants, tax attorneys, and government workers is so immense they’ll fight simplification with a ferocity that would make Ghengis Khan look like Ghandi.

    It will never happen.

    • #22
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    @thelonious
    CJRun: 999 captures money from the Black Market that pays nothing, federally, that it replaces the SS and Medicare contributions from taxpayers, and it does that with the third 9, the sales tax. Bling and escalades => federal sales taxes.

    So drug dealers and bookies would pay for my social security and medicare. It’s about time my bookie starts paying me back. Indirectly at least.

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    @jetstream

    Art Laffer, the uber genius behind Reagan’s Supply Side Revolution, endorses 9-9-9 as real path back to prosperity and economic growth. Enough said!

    • #24
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    @Demaratus

    Paul Ryan has endorsed the 9-9-9 plan as well, saying it’s injecting the kind of thinking we need to get us out of the fiscal mess we’re in.

    Economically, the 9-9-9 plan is a no brainer and increases the fairness and justice of federal taxation. It eliminates subsidies to politically powerful constituencies from others. Like me, for example, a young professional just starting out who is renting because I may need to move and I don’t need that much house. Why am I paying to subsidies to workers older than me who earn much more than I do so they can buy more house? And why am I paying 14% FICA (that’s what it really is, the employer portion is a joke) for a retirement plan that I’ll never see (I’m 27).

    For anyone not recieving subsidies right now, this plan will lead to more money in my pocket. And for those that are recieving subsidies, they’ll benefit too from the increased economic growth. My extra income will partially go towards increases savings, and that capital accumulation will lead to growth that benefits everyone.

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    @rayconandlindacon

    In case you missed it, Paul Ryun just said that 999 is an idea worthy of taking seriously as having “unappreciated merit”.

    And Arthur Laffer has all but endorsed 999.

    But, of course, the REAL expert, Ann Althouse, has already spoken.

    • #26
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    @DavidKreps

    There is a bigger picture here, on which basis Ryan and Laffer endorse the idea of 9-9-9. Standards of living improve by increasing productivity and stimulating innovation. Combined with an increasing regulatory burden and out-of-control debt and spending, the current tax system stifles growth, at a time when demographic trends make enhanced growth increasingly crucial.

    9-9-9 is based on pro-growth principles such as, Tax consumption, not investment, and Broaden the base and lower the marginal rates. The principles, not the details are important. Before anything becomes law, it must clear Congress; hold the House, and Paul Ryan will be gatekeeping on details. Note that Ryan calls 9-9-9 a good starting point for debate.

    Whatever final form such a tax reform takes, markets will respond. Don’t use static scoring (what you make today is what you’ll make if this happens) to figure out where such a reform will leave you. Economics only works like that inside the Beltway. Instead, figure out what the economy needs—growth, innovation—and move boldly in that direction.

    Cain would be a leader, and one who understands economics. That’s a change I support.

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    @Demaratus
    David Kreps: Cain would be a leader, and one who understands economics. That’s a change I support. · Oct 13 at 3:28pm

    Here here! I completely agree with all of your remarks above, David. Well put.

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    @DiegoSunDevil

    I think people should look at how much it costs to do-it-yourself vs hiring someone. The difference is usually substantial. Much of that cost is to cover the taxes so that a profit can be achieved. Now, if said business only has to pay 9% instead of 30%, I would guess at least half of that savings will be passed on to the consumer so that everybody wins. Take that half and pass it back up the line and the end result will likely be huge price reductions across the board.

    I realize that people don’t like double taxation, but we’re already being double, triple, quadruple, etc taxed. The taxes are simple hidden in the system and given titles such as “fees” and “convenience charges” and the like.

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    @EdG
    Frozen Chosen: I believe Cain made some bizarre remark about the sales tax only applying to “new” items, not “used” items.

    If true, that would really fire up the new housing market, wouldn’t it! And that used jalopy you drive would become more valueable because who would want to pay an extra $3,000 for a new car?

    Manufacturing in general would take a huge hit which would kill jobs but the treehuggers would love it.

    If Cain wants to replace income tax with a national sales tax why doesn’t he just propose that from the get go without this confusing 9-9-9 dance?

    Oh yeah, we would have to amend the constitution to eliminate the income tax… · Oct 13 at 10:08am

    Whoever said that firing up the new-housing market should be a goal of government? Are you saying we should reinflate the bubble?

    Also, an amendment would be required to abolish the income tax, but no amendment is required merely to repeal it. The Constitution doesn’t require an income tax, it only allows it.

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