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Herman Cain's 9-9-9 plan, has an Austrian economist adressed it yet?

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danbeaulieu posted on Fri, Oct 14 2011 9:40 AM

I've read many articles on herman cains 9-9-9 plan, I understand that it wont work and that if Cain somehow DID get elected he'd never enact it or it would fail miserably during "phase 1" and go into economic rapture.

That said, has anyone from Mises deconstructed the plan yet?

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Wheylous replied on Fri, Oct 14 2011 10:08 AM

The income tax was initially passed for only the most wealthy. It has now spread out. Please don't give the government another venue for taxing.

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Wheylous:
The income tax was initially passed for only the most wealthy. It has not spread out. Please don't give the government another venue for taxing.

I disagree.  Obviously the whole point of 999 is to replace the entire current tax system.  If that were to actually happen (I'm not saying it will, I'm just saying we need to be honest when talking about someone's proposal) it would be incalculably better for everyone.  You say "another venue for taxing".  I have to assume you're talking about the sales tax (as the other two taxes, we already have).  I'm not afraid of a national sales tax so long as the current system is completely repealed.  (Again, this is totally unlikely, even with a President who is behind it, but we're discussing that plan).

Obviously the ideal system is "no tax".  But the next best thing is a plan like the Fair Tax system (which Cain was in favor of, until he came up with his own plan, obviously because he thinks it would be easier to enact.)  Fair Tax is essentially a consumption tax.  The plan basically says repeal every federal tax.  Then institute a national sales tax, and issue a monthly payment to all family households of lawful U.S. residents as an advance rebate, or "prebate", of tax on purchases up to the poverty level.

And of course, if you have to have a tax, this is what you want.  Right now we tax production.  And as we all know, anything you tax, you get less of.  Taxing consumption would make the world much more wealthy.

The main point fearmongers like Santorum like to use is "that's the last thing we need is another venue for taxing!  Let's ask the people here...Do you want a national sales tax?  See?  Nobody wants it.  You're an idiot."  Obviously that's as dishonest as a doctor saying you have cancer and he needs to amputate your leg to save your life and someone goes "Amputate the leg?  That's ridiculous!  Show of hands, who here wants their leg cut off?  See?  You're an idiot."

Obviously Santorum ignores two things.  1) It's not "another" venue.  That implies all the other venues would remain.  But obviously that goes against the plan.  The whole point of the plan is to replace everything currently.  2) The whole thing is transparent.  Anyone would easily be able to see any deviation.  You say "9% here, here, and here".  That's it.  Any change from that would be too obvious to ignore.  And the first thing people would notice is a change in a sales tax.  They would see (and feel) exactly how much it is really costing them because it would hit them every time they go to consume.  I guarantee you if we had a Fair Tax system right now, there would be no wars.

 

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I am against this plan for a few reasons, if I am not understanding things please correct me.

1.) The 9-9-9's inability to fund our current size of government; it wouldn't work

2.) Would the 9% national tax would be on top of state sales tax?

     a.) If no, how would the state fund itself

     b.) If yes, how would this affect the overall sticker price of items; raw items being taxed higher

3.) The 9% business flat tax creates a perverse loophole incentive by lowering the taxation on capital gains and dividends to 0%. This naturally encourages businessmen to pay out 100% of their income as dividends or hide it by “reinvesting” it into the business rather than pay the 9%. Small business wouldn't benefit but huge corperations would.

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danbeaulieu:
1.) The 9-9-9's inability to fund our current size of government; it wouldn't work

It sounds like you're suggesting the economy cannot function unless the federal government is its current size.  Is that your contention?

continued in just a sec...

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absolutly not, but herman cain has said nothing about downsizing the government to a level that the 9-9-9 could fund

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danbeaulieu:
absolutly not, but herman cain has said nothing about downsizing the government to a level that the 9-9-9 could fund

And what level is that, exactly?

 

 

2.) Would the 9% national tax would be on top of state sales tax?

States could do whatever they want.

 

a.) If no, how would the state fund itself

How do state governments fund themselves now?

 

b.) If yes, how would this affect the overall sticker price of items; raw items being taxed higher

How are sticker prices in different states now?

 

3.) The 9% business flat tax creates a perverse loophole incentive by lowering the taxation on capital gains and dividends to 0%.

"letting people keep more of their own money" = perverse.  Got it.

 

This naturally encourages businessmen to pay out 100% of their income as dividends

Currently this is technically illegal.  But let's even suppose someone has enough stock that they can live off of stock dividends and doesn't take any salary (or any of the net income of the company in the form of a distribution).  Warren Buffett does this.  He takes no salary as CEO of Berkshire Hathaway.  He chose to do this.  (see here

You're saying what Warren Buffett is doing is "perverse" (I have to assume simply because he's pay less of his money to the government).  Why someone's money is better utilized in the hands of bureaucrats than in the hands of the person it belongs to, I have no idea.  Perhaps you can enlighten me.

 

or hide it by “reinvesting” it into the business rather than pay the 9%.

You mean "hide it" by hiring more people?  By buying new or better equipment for the employees to use to make them more efficient and therefore more productive, and therefore have higher salaries?  Yeah.  Truly evil, these businessmen.

 

Small business wouldn't benefit but huge corperations would.

You're going to have to explain this.

 

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"The 9% business flat tax creates a perverse loophole incentive by lowering the taxation on capital gains and dividends to 0%. This naturally encourages businessmen to pay out 100% of their income as dividends or hide it by “reinvesting” it into the business rather than pay the 9%. Small business wouldn't benefit but huge corperations would."

So businesses reinvest in themselves. I can think of worse things in the world. Besides, I'd much rather have economic agents slightly altering their behavior than giving more money to the government.

 

With regards to your point about helping corporations and not small businesses (assuming that's true), who cares (that probably sounds sarcastic but I don't mean it to be)? Small business isn't being hurt to help corporations so I don't see why this is bad. Sure I'd love to help small business too, but because they aren't being helped isn't a basis not to help corporations.

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John: I'm not sure why your approaching this the way a lawyer approaches his enemy. I simply stated my concerns and asked to be informed. In that request - I am admitting ignorance. I know you didn't mean any harm but I feel attacked for addressing concerns I have.

you: "And what level is that, exactly?"

With our current tax code we don't make ends meet with all of our government programs, we're at a deficit. How would that same government work with lower income taxes? Cain claims both that the plan would be revenue neutral and that the 9% sales tax would make people save more instead of purchasing. Wouldn't that notion also create "less" taxation through lack of consumerism? Wouldn't that hurt production?

you: "States could do whatever they want."

I am sure most states would want to keep their state departments running as government rarely contracts unless forced. So what if they imposed say only 5%? that brings the total sales tax to 14%? This makes a large difference on the end "pre-taxed" sticker price as raw materials would be taxed higher. Wouldn't production move to states with a lower state tax, thus hurting the states who choose to tax?

you: "How do state governments fund themselves now?"

state sales and utility taxation?

you: "How are sticker prices in different states now?"

they are different obviously, but they could wind up extremely different if one state maintains a large state income tax while another state has a low tax rate.

you: ""letting people keep more of their own money" = perverse.  Got it."

Once again, I'm here to learn so I don't see how blatantly twisting what I said by inferring that I think people shouldn't get to keep their money.  Your response blanketed the notion as if it applied to all classes, which it doesn't. If by removing both the capital gains and dividend taxes doesn't that allow rich business men to pay essentially nothing while the middle class consumer pays income and potentially large sales tax?

Please don't insinuate that because of my concerns that I believe in a heavier tax on the rich, I understand what wealth redistribution is and know that’s how we got into a permanent tax in the first place. "soak the rich" Wealth redistribution leads to socialism, I get it.

you: "Why someone's money is better utilized in the hands of bureaucrats than in the hands of the person it belongs to, I have no idea.  Perhaps you can enlighten me."

Who claimed I EVER said that? My concern addressed this point. Herman’s plan outlines a way for the rich to avoid taxation while the lower class pays taxes. I hate taxes, but if we're to have them shouldn't we each pay the same percent? If not, isn't that once again a form of wealth redistribution?

you: You mean "hide it" by hiring more people?  By buying new or better equipment for the employees to use to make them more efficient and therefore more productive, and therefore have higher salaries?  Yeah.  Truly evil, these businessmen." and "Small business wouldn't benefit but huge corperations would."

Again your cynicism is uncalled for.

My point is that this loophole that big business enjoys may not be apparent or available at all to smaller companies whose only shareholders are the owners. Not to mention that the exploitation of such a loophole as opposed to paying your tax should be considered immoral. Maybe I am wrong on this... but again that’s why I brought it up. To get your take.

But let’s just take the hypothetical you presented and apply it to Wal-Mart.

So Wal-Mart hires 10 more people or builds a new addition with all of their savings through tax avoidance, that should effectively help them to drive the local mom and pop store out of business. Now that the mom and pop store that reinvests their money in the community is out of the way Wal-Mart, now doing more business is free to send our money overseas where their production is.

 

 

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"letting people keep more of their own money"

That is not going to happen, as Cain admits. http://www.economicpolicyjournal.com/2011/10/bachman-destroys-cains-9-9-9-tax-plan.html

Disclosure: didn't watch the debate, am relying on Bob wenzel's reporting.

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The REAL problem with 9-9-9 is that it doesn't remove the tax burden in the slightest, it just dumps the costs from the rich to the poor in a big way.

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Sorry, just to clarify, I meant to write "It has now spread out", not "It has not spread out"

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danbeaulieu:
John: I'm not sure why your approaching this the way a lawyer approaches his enemy. I simply stated my concerns and asked to be informed. In that request - I am admitting ignorance. I know you didn't mean any harm but I feel attacked for addressing concerns I have.

Apologies if you felt attacked.  Not intentional.

 

With our current tax code we don't make ends meet with all of our government programs, we're at a deficit. How would that same government work with lower income taxes?  Cain claims both that the plan would be revenue neutral and that the 9% sales tax would make people save more instead of purchasing.

I never heard him say it would be revenue neutral, but even still, a free-er economy is a wealthier economy, which means that current spending could be handled when output increased enough.  (Again, I'm not advocating Cain's plan, I'm just answering the questions.)

 

Wouldn't that notion also create "less" taxation through lack of consumerism? Wouldn't that hurt production?

Quite the opposite actually.  Higher taxation does not create more production.  Neither does higher consumption.  It is increased savings that leads to increased production.  See here.  (especially the video)

 

Wouldn't production move to states with a lower state tax, thus hurting the states who choose to tax?

Is that not what happens now?  Sounds like more states should cut taxes.

 

state sales and utility taxation?

I hear property taxes and income taxes are pretty significant.

 

they are different obviously, but they could wind up extremely different if one state maintains a large state income tax while another state has a low tax rate.

Is that not the point of having sovereign states?  The whole idea of federalism was such that each state would be its own entity, allowed to experiment and set itself up how those local citizens wanted to live.

 

Once again, I'm here to learn so I don't see how blatantly twisting what I said by inferring that I think people shouldn't get to keep their money.

Again, I'm sorry if you felt offended, but I twisted nothing.  "Less taxation" = "people keeping more of their own money"...yes?  You literally stated "lowering the taxation on capital gains and dividends to 0%" was a "perverse loophole".

Less taxation  = people keeping more of their own money = lowering the taxation = perverse loophole

I don't see the twist.

 

Your response blanketed the notion as if it applied to all classes, which it doesn't.

It doesn't?  One class of people won't pay taxes on capital gains and dividends, and another class will?  I was unaware of that part of the plan.

 

If by removing both the capital gains and dividend taxes doesn't that allow rich business men to pay essentially nothing while the middle class consumer pays income and potentially large sales tax?

For one thing, not all businessmen make 100% of their income from capital gains and dividends.  In fact, the vast majority take plenty of salary.  Buffett is an exception...not a rule.  And why wouldn't rich business men pay large sales taxes?

 

danbeaulieu:
Herman’s plan outlines a way for the rich to avoid taxation while the lower class pays taxes.

Again, you're going to have to explain this.

 

I hate taxes, but if we're to have them shouldn't we each pay the same percent? If not, isn't that once again a form of wealth redistribution?

How is a flat tax not paying the same percent?  9-9-9.  For everyone.  Period.  I don't understand how you get more "same percent" than "same percent".

 

My point is that this loophole that big business enjoys may not be apparent or available at all to smaller companies whose only shareholders are the owners.

a) why is a 0% tax rate a "loophole"?

b) Why would a small business not be able to enjoy the same benefits of 0% taxation?

 

Not to mention that the exploitation of such a loophole as opposed to paying your tax should be considered immoral. Maybe I am wrong on this... but again that’s why I brought it up. To get your take.

I suppose everyone is entitled to their own idea of morality, but my take is it is immoral to take someone else's property under threat of force.  Your take is it is immoral for the person to try to avoid their stuff being stolen in such a manner.  To each his own I guess.

But in this particular case, the person isn't even doing anything against the law.  He would not be doing anything in secret.  He wouldn't even be doing anything against the will of his would-be exploiter.  You're literally saying that if the government mandates "you can keep your money", and someone in fact does just that, they are being immoral.  That is baffling to me.

 

So Wal-Mart hires 10 more people or builds a new addition with all of their savings through tax avoidance, that should effectively help them to drive the local mom and pop store out of business. Now that the mom and pop store that reinvests their money in the community is out of the way Wal-Mart, now doing more business is free to send our money overseas where their production is.

This touches on a lot of issues and common fallacies that are outside of the scope of this current discussion.  If you are truly truly interested in getting into it, we can make another thread and do this, but really the best recommendation I can make is to read at least one of the top 3 books shown at this post.  They are all excellent and will get at the heart of concerns like this walmart question as well as many others you probably have.  The one on the left and the one on the right are available for free.  You can click each one and go to the "links" section for the resources page to download them.

 

P.S.

This might help too: New member? READ THIS!

 

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danbeaulieu, JJ isn't come at you with spite. His style is generally Socratic, asking you a lot of questions to help you come to the conclusion yourself.

Wouldn't production move to states with a lower state tax, thus hurting the states who choose to tax?

Sort of like different states having different taxes today? Why yes, I suppose so. If you're against this, rail against any state sales taxes. In fact, against any taxes which are different across state lines. Of course, even better, argue against taxes.

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