[Newsbot]

Filibuster Cartoons
Title: Cain meets Canada (click to view)
Date: October 15, 2011
Let's all savour the weirdness that as I write this, former pizza magnate Herman Cain is currently leading the polls as the preferred Republican candidate for President of the United States. To say this is an "off script" moment would be to make the understatement of the year, which is probably why the American press has been so, so eager to downplay it. Cain, the eccentric, jive-talkin' black man who has never held any previous elected office, can't really be beating Governor Romney and Governor Perry and Speaker Gingrich and all the rest, they say. Ha ha, funny joke, Republican voters!

But Cain is leading the polls just the same, and as such, everyone has to grit their teeth for a week or two and pretend to be seriously interested in the things the great man is saying. Which is to say, his 9-9-9 scheme, easily one of the more gimmicky presidential pitches of recent history. Cain's plan is to turf the entire existing US tax code, which is around 10 million words of brackets, exemptions, and sub-clauses, and replace it with one that uses less than 20. Under a Cain administration, the American populace would only be taxed in three simple ways: a nine percent tax on personal income — regardless of how much or little you make; a nine percent tax on all corporate income; and a nine percent sales tax, applied to all goods and services purchased anywhere in the country.

Even though he's been accused of just ripping off the idea from Sim City, mathematically, the Cain plan "works," at least in the sense that total federal revenues would stay more or less the same under 9-9-9 as they do under the present regime. It also has several undeniably attractive features — it would give America the lowest corporate income tax of the developed world, which would almost certainly attract a lot of foreign investment and stimulate growth at home, and would entail an income tax cut for the majority of Americans. But the downsides are equally easy to find. The rich would see their tax burden lighten enormously under 9-9-9, particularly the $370,000 and up crowd, for whom 9% is considerably lower than the 35% they presently pay. Likewise, as the anti-OWS people never tire of pointing out, right now only about 53% of Americans actually pay any income tax at all. 9-9-9 will thus impose a tax hike on 47% of the country, a move that will be hardest felt by the bottom sector of that bracket, whose exemption from income tax has always been justified on the compassionate grounds they're too poor to pay. There's not much polling data to suggest this sort of fundamental realignment of America's existing system of class-based sacrifice is something there's much pressing demand for.

As a Canadian, however, what particularly interests me is the national sales tax part of the Cain plan. In this country, we've had such a tax in place since 1991, the "Goods and Services Tax" or GST, brought about by the Conservative government of Prime Minister Brian Mulroney. Though the tax was something conservative economists staunchly defended as a supremely sensible way to shift the national tax burden in the wake of corporate tax cuts, it was also the most radioactively unpopular decision of the entire Mulroney prime ministership. It was part of the reason his party was subsequently thrown from office in the biggest landslide in Canadian parliamentary history, and why the man's name remains cursed across the nation to this day. In my home province of British Columbia, we likewise just concluded a massive tax revolt over the provincial government's attempt to quietly hike the provincial sales tax — again, largely as part of a somewhat Cain-ish plan to shift the burden around and make low taxes for big business easier to mathematically justify. The provincial premier was ferociously driven from office in the aftermath.

The common thread uniting both of these case studies is the vast disparity of opinion between how passionately the expert class supports a sales tax, and how aggressively the public hates paying one. As I noted in a recent article about the BC tax revolt, anyone who was anyone in British Columbia, which is to say, the press, academics, business leaders, and educated folk in general, were all very much in support of raising the provincial sales tax, which they saw as an almost ubdebateably logical way to improve the long-term provincial economy, and extremely dismissive of anyone who questioned it. This was not quite as much the case with the GST at first, but is definitely the case today. When Prime Minister Harper cut the GST early in his first time, he was very much collectively piled on by the same coalition of experts, all of whom aggressively denounced him for playing crass political games with Canada's most efficient and useful tax.

It's been interesting, therefore, to observe how this same top-down phenomenon has not taken hold in America. It may reflect at least one important way in which the American political culture is (gasp!) more liberal than Canada.

Most critiques of the Cain sales tax from prominent Americans — even Cain's Republican colleagues — have bashed the tax from the perspective that it's excessively "regressive" in nature. Which is to say, whatever its benefits in freeing up more money for tax breaks for middle income families or big business, it still undeniably makes the cost of living more expensive for poorer Americans, who suddenly have to pay a new 9% surcharge on everything. In Canada, people who observe this are usually dismissed as small-minded reactionaries who can't see the "big picture," so venerated is the idea of low corporate taxes here — among the right and left alike.

For all the country's seemingly inescapable inequality, America, it seems, is still a nation that's not in any rush to embrace a plan that promises, or even appears to promise, more. Trickle-down promises are one thing, but to just start outright taxing poor people? You gotta draw the line somewhere.

Cain may be a beloved fringe character at the moment, but he'd be wise to bone up on some recent Canadian history before he moves any further with 9-9-9. If a country as famously deferential to authority as ours revolted so angrily against a national sales tax, one can only imagine what the reception would be like in America — where even the elite don't support it.

[martin14]

You can insulate the poor from a flat tax by a basic personal exemption.

Of course 9% isnt enough, something around 15-20% would be better,
even Warren Buffet would pay more tax.


It's a shame only the fringe candidates talk about this.. guess it will
have to wait a while longer.

[sandorski]

From what I have heard, the 999 plan would only generate approx Half the revenue of what Income Tax currently generates.

[Brenda]

But but... According to Bachmann, it is a devilish plan! Flip the three 9's and you get... 666!!!

(seriously, she said that...)

[CommanderSock]

IMO Cain will do to Romney what Obama did to Hillary.

Then, following possibly America's most bitter and divisive election, if Cain wins, he'll backtrack on most of his promises just like every other politician.

[Canadian_Mind]

Sounds like something Bart would support...

I like it in principle, but I'd rather see an exponential curve for income and buisness taxes, and a flat sales tax.

[andyt]

Canadian_Mind wrote:

I like it in principle, but I'd rather see an exponential curve for income and buisness taxes, and a flat sales tax.

Wow, I didn't know you are so radical. You're going to have the tighty righties baying after you for that one, assuming you meant it. So at what income level would you have taxes approaching 100%?

[Brenda]

andyt wrote:

Canadian_Mind wrote:

I like it in principle, but I'd rather see an exponential curve for income and buisness taxes, and a flat sales tax.

Wow, I didn't know you are so radical. You're going to have the tighty righties baying after you for that one, assuming you meant it. So at what income level would you have taxes approaching 100%?

Everything over 2M a year. They won't notice the difference anyway, and kids from poor families can go to college from that.

Problem solved!

[Lemmy]

I guess it doesn't matter that not a single professional economist would endorse something as daft as 9-9-9 so long as it makes a catchy phrase for speeches. And does anyone really believe Cain will be the Republican nominee anyway? If the GOP runs a black candidate against Obama, I'll eat my shoe.

[Canadian_Mind]

andyt wrote:

Canadian_Mind wrote:

I like it in principle, but I'd rather see an exponential curve for income and buisness taxes, and a flat sales tax.

Wow, I didn't know you are so radical. You're going to have the tighty righties baying after you for that one, assuming you meant it. So at what income level would you have taxes approaching 100%?

Depending on the math, you can alter the curve to be initially steep, then virtually flat, or a shallow increase across the board, etc.

Another option would be a dual set of exponential curves, one for the tax scale, and one for the income scale. You'll still hit a virtual 100% at some point, but instead of at a trillion dollars, you might hit it at a trillion squared.

Simpler solution would be to have an exponential curve that gets capped off at a given percentage/income ratio. Say you hit 40% at $500 000, and from then on all wealthy are taxed at the 40% rate.

[Teikiatsu]

Canadian_Mind wrote:

andyt wrote:

Canadian_Mind wrote:

I like it in principle, but I'd rather see an exponential curve for income and buisness taxes, and a flat sales tax.

Wow, I didn't know you are so radical. You're going to have the tighty righties baying after you for that one, assuming you meant it. So at what income level would you have taxes approaching 100%?

Depending on the math, you can alter the curve to be initially steep, then virtually flat, or a shallow increase across the board, etc.

Another option would be a dual set of exponential curves, one for the tax scale, and one for the income scale. You'll still hit a virtual 100% at some point, but instead of at a trillion dollars, you might hit it at a trillion squared.

Simpler solution would be to have an exponential curve that gets capped off at a given percentage/income ratio. Say you hit 40% at $500 000, and from then on all wealthy are taxed at the 40% rate.

An even simpler solution would be for the government to stop spending money at increasing rates. Perhaps we should apply an inverse exponential curve to their spending? The longer they work in their nation's capitals the less they get to spend.

[Psudo]

I hate the term "flat tax." Flat compared to what?

A true flat tax would be a certain number of dollars per person. If you didn't make at least your tax rate that year, you're just screwed. That's when you need Robin Hood.

A proportional flat tax (like Cain's income tax proposal) says everyone pays the same proportion of their income. There's no monetary penalty for making more money, but if you barely make enough to eat and pay rent before taxes this can still send you to the poor house.

A progressive proportional tax is the sensible way income taxes should work. The proportion of your income that goes to taxes goes up as your income goes up. Each additional dollar you make still adds to your wealth -- that is, the tax rate never outpaces the income rate (or, ideally, even comes close) -- but the next 10 hours of work don't pay as well as the last 10. As long as the disincentive stays low enough not to undermine economic growth, this system balances fair treatment of the individual with the greater good of the economy and government budget.

The way our actual income taxes work is a progressive proportional tax with a wide variety of tax credits and exemptions, almost a responsible tax rate give or take a politicized set of loopholes and not always for good reasons. I hate tax credits. They are the government paying people for behaving the way the government wants according to complicated rules that make the whole tax preparation industry necessary. Social control by financial incentive mixed with massive bureaucracy and red tape is NOT good governance. The only exemption that makes sense to me is for charitable donations to tax exempt charities -- treat it the charity's income instead of the philanthropist's, and it makes good sense.

The best reason to have tax credits and exemptions is to provide monetary support for low-income individuals and families. That very good goal is better achieved by a negative income tax rate on the lowest tax bracket, so each additional dollar earned adds more than a dollar to individual wealth. That motivates financially beneficial work, and the personal esteem of saving oneself from one's own obstacles in life. It's a good system.

But no matter how tax revenue is gathered, there is the continual problem of government spending increasing faster than the economy grows. Government keeps getting more and more expensive as a proportion of the money supply of the entire economy, which only makes taxation more and more of an obstacle to the growth of that economy. No matter how fairly you spread that burden, it keeps getting heavier. Remember the parable of carrying straw on the camel's back.

Tax revenue has been up and down and up and down for decades, but spending goes up continually even (especially!) when the economy goes down. That means more and more for government and less and less for everyone else. That. Must. Change. That is so much more important than the details of our tax system.

Advocates of "flat taxes" are completely missing the point.

[Lemmy]

We've also overlooked a tax on financial transactions. This was first proposed by James Tobin back in the early 70s. Such a tax would likely be less than 1% and would effectively raise the tax revenue currently needed to balance the books. Furthermore, financial transactions taxation has many stability-bringing properties that would work as happy side-effects. The key would be getting an international accord to standardize the system and remove global arbitrage opportunities.

[andyt]

Lemmy wrote:

R=UP

We've also overlooked a tax on financial transactions. This was first proposed by James Tobin back in the early 70s. Such a tax would likely be less than 1% and would effectively raise the tax revenue currently needed to balance the books. Furthermore, financial transactions taxation has many stability-bringing properties that would work as happy side-effects. The key would be getting an international accord to standardize the system and remove global arbitrage opportunities.

That's what the Europeans want. The Brits think it's a plot to destroy them, Steve and Jim think they have a better idea with regulations, I'm sure most of America thinks it's a commie plot as well.

[andyt]

Canadian_Mind wrote:

andyt wrote:

Canadian_Mind wrote:

I like it in principle, but I'd rather see an exponential curve for income and buisness taxes, and a flat sales tax.

Wow, I didn't know you are so radical. You're going to have the tighty righties baying after you for that one, assuming you meant it. So at what income level would you have taxes approaching 100%?

Depending on the math, you can alter the curve to be initially steep, then virtually flat, or a shallow increase across the board, etc.

Another option would be a dual set of exponential curves, one for the tax scale, and one for the income scale. You'll still hit a virtual 100% at some point, but instead of at a trillion dollars, you might hit it at a trillion squared.

Simpler solution would be to have an exponential curve that gets capped off at a given percentage/income ratio. Say you hit 40% at $500 000, and from then on all wealthy are taxed at the 40% rate.

So that we don't need calculus to figure out our taxes, what's wrong with the step system we have now. Just add many smaller steps, and have them go to 90% for incomes over 10,000,000 (If you're crying, because you only get to keep 100,000 of that 11th million you made that year, too bad). and take out all the distorting deductions in the system. Such as the mortgage deduction in the US.

Heard something interesting on the radio today - in the days of high personal income tax for high earners (ie the good old days), people would not take all that "hot money" as the author called it, out of the business to blow, but keep it in the business. Ie it spurred business investment. Sounds good to me.