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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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"Like we need one of those pointed out?"

In regards to the effects of lowering capital gains, it might have been an interesting one to look at.

"My point is that doesn't have to be the case."

I should have been clearer but I thought that with the link you'd know what I was talking about.

"Ultimately it sounds like you're making an argument for having taxes for capital gains be just as high as taxes on income."

No, not in general, because in the example I gave there were other incentives/disincentives towards investing in housing/everything else.  I was just pointing out an example where lowering capital gains compared to income likely had a particular effect.  You might say that's obvious and you don't care, but do you think you could account for the extent of all the effects of various taxes, regulations etc combined?  You seem to think I was attacking you or something, which I wasn't.

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No I certainly didn't think you were attacking me.  My question is what was the point of that post?  Now it sounds like all you're saying is that "taxation creates incentives and disincentives which has an effect on the economy."

In other news, water is wet and Nancy Pelosi's had work done.

 

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As I said I was just pointing out an example that was related to what you were talking about and which people might find interesting.  If you don't, then I guess it doesn't concern you.

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Ironically Dave, it's your buddy Bob Wenzel who is now claiming Schiff endorses the 9-9-9 plan...

Judging by the comments, at least I'm not the only one who's recognizing the man's getting to be full of crap.  I'm telling you.  Senility is a bitch.

 

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JJ,

I don't know Bob Wenzel personally, nor do I know his age. So I cannot tell you if he is senile or not.

I do know that I have benefited greatly from reading his blog.

The argument he presents against 999, quoting Rothbard's reasooning, seems pretty sound to me. If someone has a rebuttal, I'll be interested to hear it.

Peter and he are going to thresh it out on Pete's radio show, possibly as soon as tomorrow. I look forward to the discussion.

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The above video starting at 9m57s is really good. Linked below:

http://www.youtube.com/watch?v=7iJvtQpyx1A&feature=player_embedded#t=9m57

Don't get me wrong, the first part is really important as well.

JJ, I have a question: When corporate taxes are calculated right now, are employee wages subtracted out before taxation?

Furthermore, I have a question of 999 vs. FairTax. The FairTax would only the time when the consumer buys a good. Hence, it is not a VAT. But how does 999 work? Because Bachmann accused 999 of being a VAT.

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Wheylous:
JJ, I have a question: When corporate taxes are calculated right now, are employee wages subtracted out before taxation?

Yes, as a business currently you are taxed on profit, meaning revenue minus expenses.  Salary and wages are deducted as expense.  (quick summary with PDF here).  To get a bit more into the accounting, see here.

 

Furthermore, I have a question of 999 vs. FairTax. The FairTax would only the time when the consumer buys a good. Hence, it is not a VAT. But how does 999 work? Because Bachmann accused 999 of being a VAT.

The only thing I could do here is differentiate the FairTax from a VAT.  I'm not familiar at all with the specifics of Cain's plan, nor am I that interested in spending time looking into it.  The utility from that just isn't there (at least not for me).  This is why I'm greatful to Schiff for getting into it far enough to expose the hidden payroll tax (as far as I know, he's the only one who has talked about this.) 

But here's a Forbes article titled Flat tax vs. Fair Tax vs. 9-9-9, but Forbes is notorious for publishing total bullshit (I just read one article that claimed Chris Christie used to be the U.S. Attorney General)...and this particular article actually uses "VAT" and "sales tax" interchangeably, and then on top of that, labels them both "Fair Tax", which is also complete bullshit.  And of course, if that weren't enough, it doesn't even mention 9-9-9 until the last paragraph, and that's just to say that Cain claims it's a "combination of a flat tax and sales tax."

And here's another one which actually goes into some numbers, bascially to make the case that it's one big sales tax (that hurts the middle class and helps the rich, of course.)

So there's Forbes for you.

But here's an interesting twist: "Architect of Cain's 9-9-9 plan says he should drop the sales tax"...and guess what it should be replaced with?  A payroll tax.  Apparently then it would be a "total winner."

 

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Wheylous replied on Fri, Oct 21 2011 12:55 PM

JJ, I posted the above video on http://www.nerds4cain.com/forums/discussion/116/schiff-9-9-9-plan-is-actually-9-9-9-9-hidden-payroll-tax

and got this response:

9-9-9 establishes the entire United States territory as an empowerment zone, and payroll is fully deductible in that zone. Sure, a company cannot deduct payroll if they hire people in another country, but what's wrong with that? Therefore, the assertion that it contains an embedded 9% payroll tax is pure nonsense.

Looking up "empowerment zone" I found these details ( http://www.hermancain.com/999plan ):

 

9% Business Flat Tax

    • Gross income less all purchases from other U.S. located businesses, all capital investment, and net exports.
    • Empowerment Zones will offer deductions for the payroll of those employed in the zone

Is Schiff wrong? There are not many details, but it appears that payroll is deducted...

 

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Wheylous replied on Fri, Oct 21 2011 12:57 PM

Also, unexpected:

 

Phase 2 – The Fair Tax

Amidst a backdrop of the economic renewal created by the 9-9-9 Plan, I will begin the process of educating the American people on the benefits of continuing the next step to the Fair Tax.

  • Ultimately replaces individual and corporate income taxes
  • Ends the IRS as we know it and repeals the 16th Amendment
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Sounds very nice. I have two questions"

1. Why doesn't he talk about cutting govt spending? In fact he says explicitly [I'm relying on Wenzel's reporting here] that it will be revenue neutral, meaning will collect the same amount of taxes as before

2.Why should someone be taxed for hiring workers abroad? What kind of idiotic idea is that? Does he not know that tarrifs are bad, including tarrifs on workers?

EDIT: schiffradio.com has the Wenzel interview available free for 24 hours. Am listening now, can't wait to get to the Wenzel part.

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So it does say that...notice it also says:

9% Individual Flat tax
•    Gross    income    less    charitable    deductions
•    Empowerment Zones will offer additional deductions for those    
living and/or working in the zone

 

This might actually be the "tweak" that current news reports are talking about. [1] [2]

However...the language in those articles, and on Cain's plan summary, which says the plan "Features a platform to launch properly structured Empowerment Zones to renew our inner cities", does not sound like "the entire United States is an 'empowerment zone.'"  It sounds like "inner cities and other poor areas".

And I can't find the actual details of the plan anywhere on that site (granted I didn't look very hard, but I would have to assume they would be presented for easy access if the campaign was making them available.)  So I'd like to know where this yahoo got the idea that "empowerment zones" means "The United States of America."  Until he can show me that, I'd say he's full of crap.

And the Fair Tax thing is expected, as he always said he was a supporter.  He actually brought that up in the first debate back in May when Hannity said "all eyes are on Tim Pawlenty".

 

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Schiff/Wenzel interview available here. (If that link ever stops working, listen here)

Satisfied now, Dave?  Wenzel is so damn confused it's making my head hurt.  That's why I've gotta go with senility, because I can't figure any better explanation as to how someone who references "the great economist Murray Rothbard" can sit there and argue that a sales tax will be harmful because it will move the demand curve and people won't buy as much stuff, as a way of saying a sales tax is worse than an income tax.

Seriously listen to that interview...he just keeps going round and round.  Schiff keeps asking him "Yes, of course I want taxes to be lower...but the point is the government is going to take money one way or the other...either from people's income or their consumption...which would you choose?" and Wenzel just keeps saying "no, you're missing it...that's like saying you're diabetic and you need to cut sugar out of your diet...the conversation shouldn't be whether you should be having a cake or a soda or any of that stuff.  It's still going to cause the same problem.  It's just moving stuff around on a chess board. What needs to be done is the taxes to be lowered overall."

He even gets into detailed explanations about how increased costs to the consumer entice him to buy less, leaving extra inventory for the producer, meaning he'll have to lower his prices and blah blah blah.  And Schiff is like: "Well how is that different from if the consumer has money taken out of his paycheck...he still has less money to spend, which still means less demand, which would mean the producer is still not going to sell as much and prices are still going to have to come down...so I still don't see your point."

Granted that's more of a paraphrase, and Schiff really didn't make the point that clearly, but that's what he was saying...and Wenzel just doesn't get it.  And then just like any other confused old man he wants to change the subject and asks Peter for his opinion on the stock market.

Finally Schiff moves to get him to answer something so he just asks what Wenzel's tax plan would be.  Wenzel says he'd want to do something to get taxes a lot lower.  And Schiff of course automatically agrees and says he'd definitely be down with a 0-0-0 plan...and then he has to break it down again and try not to leave the man any geezer escape hatches...Schiff literally sits there and lays it out: "yes I would love taxes to be zero, but the government is going to have expenditures, so it can't be perpetually funded with debt.  We all can stipulate that we want governement spending to collapse so that the taxes can be as low as possible, but we're gonna have some taxes...the government's not going to go away, so we have to fund it.  So what would your preferred mechanism for funding the government be?

And what's Wenzel's answer?  "Okay, here's what I would do...I would still very much focus on the cost side and really, you know bring government's down to zero as much as I can. "  That's all he's got.  Same non-answer.  And where does he go from there?  Well changing the subject of course.  The very next sentence: "Now, this is all assuming that I could be elected president..."  Schiff has to cut him off again, and restate everything "yes, we agree we want government to collect as little as possible...etc etc etc.  Let's say we get it down to $1 trillion a year instead of $4 trillion...how do you say the government should go about collecting that $1 trillion?"

Wenzel: "okay, I would cut it much lower..."

Schiff: "It doesn't matter what it is!  YOu're not going to get it to zero...so how are you going to collect the revenue you need?"

Finally Wenzel concedes and describes a capitation tax...basically count everyone over 18 years old, and just divide.  That's his plan.  That's his solution.  Everyone pay exactly the same dollar amount.  Not based on percentage of their income, or their overall wealth, not percentage of stuff they buy...no...just the exact same dollar amount, based on whatever the government feels like collecting.  Bill Gates and John Q, both pay the same, regardless of how much they produce, how much they consume, or anything else that they do.  And this is the same guy who 5 minutes earlier was talking about how a sales tax is unfair to the poor?

Eventually Peter just moved on and went on a monologue and explained everything straight up.  Wenzel closed the segment saying how he would post from Rothbard's critique explaining why the consumption tax "really does not effect the consumer, but effects the producers and land owners".

Aftermath

Wenzel followed through and posted the portion from Rothbard's article...and then quickly followed up with another entry claiming Schiff was wrong on the capitation tax.  He claims "Peter caught me off gaurd when he said that a capitation tax is not allowed by the Constitution. Peter's wrong."  No, once again Bob Wenzel is wrong.  The part in question can be heard here.

Schiff clearly states: "would you want the government to have to apportion it according to the Constitution, or would we amend the Constitution to allow the government to levy a capitation tax without apportionment?"  Later all he says is the "Founding Fathers were familiar with a capitation tax system, and they didn't like it, that's why they made it hard for the government to levy that type of tax".

It's right there.  Anyone can listen to it.  Schiff said nothing about it being unconsitutional.  Bob just had a bruised ego from looking foolish on the air and needed to find some way to call Schiff wrong.  I just didn't realize he'd go as far as to actually make something up.  (Of course we could always go with the senile defense and claim he "just misremembered").

Then of course, Wenzel follows up again with Rothbard On The Best Tax, since, you know, he didn't have an answer of his own so he just went to Rothbard to find out what his opinion should be.

It also seems this has gotten some attention, as Wenzel notes in a later post (these are all today, by the way) that "Bob Murphy attacks Rothbard on Consumption tax" on his own blog, and to top it off, (I can't be sure this isn't an extreme coincidence) the main article on Mises.org today is Rothbard's full consumption tax critique (yes, the same one Wenzel quoted from).  I'm wondering if that was just pulled up from the archives and put on the front page because of today's events.

 

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JJ,

That is indeed an accurate, if somewhat snarky, summary of the radio show.

I addressed the ideas involved at length in my blog.

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