Is this really a good time to raise taxes on the poor?

We’ve had an interesting conversation here at the In Box in the past over ideas surrounding a national “flat tax” for income and this idea has also come up in a number of coffee shop conversations I’ve had the last few weeks.

In doing a little research on Republican rising star Herman Cain, I explored some of his thinking about a new, slightly more complicated flat tax, one that creates — in effect — three new flat taxes:

One for corporations, one for individual income and one for all goods and services bought and sold.

Cain talks about his so-called “9-9-9” plan in this video.

Flat taxes have a lot of appeal right now, with the popularity of the concept buoyed by the awful complexity of the current tax system, and by stories of zillionaires dodging any tax burden.

But the simplest and most bluntly factual thing that you can say about the flat tax proposed by Mr. Cain is that it would raise taxes immediately on tens of millions of Americans.

It would also — again, this is fact, not opinion — shift a significant proportion of the tax burden from the country’s wealthiest people and from corporations onto people with lower and middle-ranged incomes.

Here’s why:

Roughly half of all American workers currently pay no actual income taxes at all.  Those millions of workers would go immediately from paying zilch to giving up one out of every ten dollars they earn.

But the plan also envisions working class and poor Americans paying for a nearly ten percent hike in the cost of goods and services they buy.

In New York state, combined state and national sales taxes would top 13%, meaning a huge surcharge to everything you buy.

It’s true that wealthy families would continue to pay most of the taxes, but their share would diminish substantially.

Their marginal income tax rates would decline by roughly two thirds and estate taxes would be permanently eliminated.

Another wrinkle here is that, according to the best estimates, the amount of revenue taken in by the “9-9-9” tax would be about $360 billion less than the government currently takes in through the taxation formula we have now.

That means even deeper cuts in the services and programs than are now being envisioned in Washington, if we want a balanced budget.

Mr. Cain and other conservatives are convinced that a flat-tax formula of this variety would still benefit all Americans — even the poorest — because it would spur a huge surge in economic activity.

The result, they say, would be more jobs and less government.

But I wonder if that formula works for real people in real-life situations.  Let’s say there’s a single mom in Plattsburgh raising a couple of kids on a $30,000 a year salary.

Under Mr. Cain’s plan, she goes from paying no income taxes to coughing up nearly $3,000 a year.   That’s a substantial hit.

And then there’s the 9% price hike — because of the new sales tax — on everything she buys, from groceries to school clothes to the used car she needs to buy to get to work.

Can the vast pool of America’s struggling working families afford that kind of hit right now?  Your thoughts welcome.

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57 Comments on “Is this really a good time to raise taxes on the poor?”

  1. Dave says:

    No, of course they can’t – and pointing out the facts of a flat tax system is important.

    But I think it is also important to hammer home the fact that a flat tax system is not the only way to simplify the tax code. The choice is not flat or complex. You can have a progressive tax system that would still be extremely simple.

  2. Two Cents says:

    “Roughly half of all American workers currently pay no actual income taxes at all. Those millions of workers would go immediately from paying zilch to giving up one out of every ten dollars they earn.”

    Half pay zilch? Where does this come from?
    Is it because half of us are undocumented and sending home our cash to Guatamala?

  3. JDM says:

    Half pay zilch, and receive benefits.

    If they paid one dollar in ten, they would immediately become more active in picking responsible representatives, because they would have a stake in the game.

    Right now, they vote for the vilest creature who promises to rob the rich to continue to send them free-loading candy.

  4. DaveS says:

    When talking about 1/2 paying no taxes at all are you saying they pay no Social Security & Medicare taxes either? Would the 9-9-9 plan eliminate SS/Mcr taxes? Right now that $30k earner is paying 11.4% in SS/Mcr taxes (counting both the employee and employer share). As to undocumented workers, they pay nothing if they work for cash but if they work for a semi-reputable employer who does the withholding they are paying both the 11.4% as well as regular withholding but since they are using a phony SSN they are not earning any future benefits nor will they be able to file for a tax refund. Those of us who will be getting SS/Mcr benefits should say thank you. I know that getting all of the taxes we pay on the table is hard but it is necessary. We need to not only count SS/Mcr, State and Federal Income Tax, Sales Tax but also property taxes (even renters pay this as part of their rent) and exise taxes (phone, gas, etc.) I suspect that if these are all taken into account and then compared to income, the lower 75% of tax payers are really getting screwed.

  5. knuckleheadedliberal says:

    JDM has me convinced. The poor are just a drag on everyone else, so if they die of starvation we can reduce the services the government provides and save a lot of money. Because it IS all about money. Money is EVERYTHING! The be-all and end all. More money, more money, more money, we NEED more money and the poor are just sucking up my share.

  6. tootightmike says:

    The only thing attractive about a “flat-tax” is that the rich and super-rich would actually PAY some taxes…But the rich have their tax lawyers, and I personally don’t believe it would ever happen.

  7. DaveS says:

    Sorry for being run-on but a comment regarding the Estate Tax. Getting it labeled the Death Tax was a real marketing coup. I prefer to refer to it as the Anti-Aristocracy Tax. To me the American Dream is “Equal Opportunity” (not outcomes but OPPORTUNITY). Large estates let heirs get a big head start on the rest of us in the race. (More than they already have in terms of better education etc.) Their parents made the money, the children should have the equal opportunity to make their own. I am all for protecting widows and orphans but on the other hand I don’t want to set up an aristocracy (ie. families living off of passed down wealth). If you feel the need to “protect the small family business and farm, tinker with the estate tax exemption – is a small business/farm really worth more than a few million dollars?)By the way, how about this: For any estate of say over a million dollars the money previously paid out in Social Security and Medicare benefits is skimmed 100% off of the top. After all why should my tax money be allowed to be passed down to the heirs? I know that the deceased paid into the system but my take has always been that these programs are insurance programs and rather than making the payments means tested this appears to be a much cleaner way and not subject to issues such as outliving your wealth etc. Comments?

  8. Jim Bullard says:

    RE: The roughly half who don’t pay income tax. What those who are excessively well off, as the British would say, don’t acknowledge is that it takes a certain amount of money to live in this society. It varies from place to place, NYC and LA being expensive and NNY not so much, and until you make more than that amount you really don’t have the money to pay “your share of taxes”. Taking more taxes from those on the threshold of poverty only creates more poverty and contrary to notion that it would spur them to be more independent, the opposite is the usual outcome. That attitude also fails to recognize that most of the poor aren’t poor because of a character flaw or laziness but because of circumstances beyond their control. Can anyone rise above even the worst circumstances in this society? Aren’t there examples of people who have achieved greatness and wealth despite tremendous obstacles? Yes, but… and this is a large but, they are the exception. For everyone of them there are thousands or tens of thousands who fail in spite of their best efforts. Failing to recognize that is to take Scrooge’s attitude “If they would die then let them do it and reduce the excess population”.

  9. Anita says:

    I think that the charge that half pay no taxes at all means that the Earned Income Tax Credit (EITC) is likely to come under fire in the future, possibly the near future.

    I operate a VITA tax preparation site and do taxes for many people just like Brian’s hypothetical single mom. What I understand from my reading and believe from my experience: the EITC is the most effective anti-poverty program we have. I see it lift lower-income working people up past the poverty line – and most of these lower-income people are working full time at very socially beneficial jobs. Nursing home workers, teacher’s aides, school bus drivers, even newspaper reporters – without the EITC, they would have a hard time providing their families with a roof over their heads, a trustworthy vehicle, health care, child care, perhaps even the bare essentials of 3 square meals a day.

    The EITC is a Republican idea that bases benefits on getting out there and getting a job. You can’t get it unless you work.

    Because I work with the tax code, I agree that it needs to be simplified. The rules for things as basic as dependency exemptions have become quite complex and hard to interpret (which is why the IRS has the VITA program, to help people who can’t afford a professional tax preparer). I completely agree with Dave – we can have a tax code that is simpler that is also progressive. Let’s not push even more people into poverty, and make working at a low income job even more unattractive.

  10. JDM says:

    khl:

    Die of starvation? For becoming a responsible citizen.

    Well, let’s not allow that. How about, “No tax – No vote!”

  11. JDM says:

    khl:

    Let them eat, drink, and play video games to their hearts content.

    But do not let them make responsible decisions unless they have a stake in the game.

    It’s time to grow up.

  12. It's Still All Bush's Fault says:

    I hate the phrase, “Make the rich pay their fair share.”

    I don’t want the rich to pay their fair share. I want them to pay MORE.

    It was refreshing to see the SLU students jumping on the Occupy Wall Street bandwagon. Photo op in today’s WDT, plus interview on NCPR this morning.

  13. erb says:

    JDM – No tax, no vote? Hey, we used to have that, but it’s kinda out of fashion. Called it a poll tax, but those darn constitutionalists went and outlawed it with the 24th amendment because it disenfranchised the poor. So I can see why you want to have it come back.

  14. john says:

    I think it’s important to point out that only about 45% of the federal government’s revenue comes from income tax. Much of the rest comes from excise taxes on goods, import duties, fees, tariffs, taxes on liquor, tobacco etc. These taxes are overwhelmingly fixed-percentage taxes which are generally regressive for lower income people. The myth that 48% of Americans pay no taxes ignores this reality. The reality is that the poor and working Americans who pay no income tax do pay about 16% of their income on these other taxes which also include sales taxes, gasoline taxes, property taxes. The Flat-tax and Fair-tax proponents know this and they are cynically trying to sell the American people on some notion of fairness so that they can shift even more of the tax burden onto the poor and working middle class. I’ll bet the wealthy won’t give up their low capital gains rate. As soon as they get their plan into law, we will see regressive value-added taxes become ‘the wave of the future’!

  15. Walker says:

    Gee, JDM, that sounds a lot like the poll tax, used for generations to keep politics in the South lilly-white. Let’s keep the riff-raff out of the game. Except you want to keep fully half of the U.S. population from voting!

    How many voters would be left in the Adirondacks under your plan? Median household income in the U.S. is about $50,000, so presumably everyone who made less that that would be turned away from the polls.

  16. Peter Hahn says:

    JDM – everybody pays taxes and lots of taxes. The issue is which tax hits which demographic the hardest. Sales taxes hits the poor hardest – income taxes potentially hit the rich hardest if they are graduated and progressive (and the loopholes are plugged). As Brian points out – and this is math, not ideology – a flat tax and higher sales tax shifts the tax burden from the wealthier to the poorer. Since there is a limit to what the poor can pay (see Jim Bullard), that means that government services would need to be cut. The end result is the poor pay more taxes and get less services. This is how they do it in third world countries. They have a huge sales tax and no income tax – since no one records incomes.

  17. Paul says:

    “It’s true that wealthy families would continue to pay most of the taxes, but their share would diminish substantially.”

    AND

    “stories of zillionaires dodging any tax burden.”

    Which is it? They would pay more or less?

    If you are going to have a flat tax you have to have a cut off below which the tax rate is zero.

    Get rid of income taxes and have a consumption tax. I was interesting in the “Prohibition” series on PBS earlier this week they talked about how at one point the federal government got 2/3 of its total revenue from liquor tax.

  18. Paul says:

    Why don’t we go back to the system where you only can vote if you own land?

  19. Paul says:

    It is a bad time right now to do anything that would limit consumer spending. Consumer spending is the only way to fix the broken economy.

  20. JDM says:

    Just talking fair tax. Not poll tax.

    Everyone pays their fair share. Everyone pulls the lever at the poll.

    Even the Secretary-of-Treasury has to pay his fair share if he wants to vote.

  21. PNElba says:

    I knew JDM would bring up the fact that lazy poor people should not be able to vote. This thinking is in line with that of Herman Cain and Congressman Steve King. Only the landed, successful aristocracy should have the right to vote. We can’t get back to the 18th century fast enough for these people.

  22. Paul says:

    “But the simplest and most bluntly factual thing that you can say about the flat tax proposed by Mr. Cain is that it would raise taxes immediately on tens of millions of Americans.”

    Brian, I am not an expert on this plan but isn’t the most “bluntly factual” thing you could say about this is that a new 9% national sales tax would immediately raise taxes on hundreds of million Americans?

  23. Peter Hahn says:

    Paul – it only raises taxes on the poor – it lowers them on the rich.

  24. Mike says:

    Here is a thought. If we go with a flat or even some type of progressive tax system, simplify it and eliminate loopholes won’t we be putting a lot of CPAs and tax attorneys out of a job? Oh, that would be just awful.

  25. verplanck says:

    Cain’s idiotic 9-9-9 plan is popular among the conservative set because it’s “simple”. Tax brackets are simple, too. There is no reason why a progressive income tax can’t be simple.

  26. JDM says:

    PNElba: “I knew JDM would bring up the fact that lazy poor people should not be able to vote. ”

    Not at all. I said that paying your fair share of taxes was the condition.

    If you associate those who don’t pay taxes with being “lazy” and “poor”, those are your assertions, not mine.

  27. Paul says:

    “Paul – it only raises taxes on the poor – it lowers them on the rich.”

    Peter, I don’t think I agree with this plan. But this isn’t necessarily accurate.

    Are the wealthy somehow exempt from the 9% federal sales tax under this proposal?

  28. Paul says:

    “Cain’s idiotic 9-9-9 plan is popular among the conservative set because it’s “simple”.”

    I don’t think this plan is as idiotic as the system we have now. I don’t support it but it makes some sense. The major flaw is that it just shifts the tax burden from one job creating sector (corporations) to another job creating sector (consumables). Also, I don’t think this plan is very popular with conservatives.

  29. PNElba says:

    JDM “Let them eat, drink, and play video games to their hearts content.”

    Just who were you referring to in the above statement? Be honest.

  30. Pete Klein says:

    Reading many of these posts saddens me.
    Fair share? What is fair. If you look at the distribution of wealth in this country can you honestly say there is anything fair about it?
    Sometimes it sounds as though we are talking about a game except there is no such thing as an equal playing field. In boxing we recognize size and weight make a difference but don’t want to recognize the wealth you have or are born into makes an even bigger difference when it comes to getting a “fair share” of the wealth in this country.
    Kids will sometimes say to other kids and sometimes say to adults, “Why don’t you pick on someone your own size.” But many so called adults don’t have a problem picking on the little guy in their quest to be “King of the Mountain.”
    Poverty sucks. Being out of work sucks. Apparently, listening to some of the complaints of those who are neither poor nor out of work, having money sucks. You here more complaints from those who have than those who don’t have. I wonder why.

  31. Two Cents says:

    Obviously many of you don’t get sarcasm.

  32. scratchy says:

    With regard to half the population not paying any income taxes. When the income tax was first implemented in 1913, it was intended to hit the rich. Even during WWI, when you had very high marginal rates, low income people were not taxed.

    As to consumption taxes, when the US didnt have an income tax, it provided far fewer services than it does now (Social Security, Medicare, Medicaid, an overseas empire, Departments of Energy and Education, etc.).

    I think Cain’s plan is even more regressive than most people on here realize. Namely, it would exempt capital gains and dividends from income tax (as well as allow corporations to deduct dividends from income), a source of income which overwhelmingly skews to the rich. Lots of rich people would hire attorneys to have their ordinary income recharacterized as capital gains by, among other things, arguing that their inventory was really a capital asset exempt from taxation and taking inflated corporate dividends in lieu of salary.

    End result? A zero income tax burden for the super rich and starvation for the poor.

  33. scratchy says:

    I forgot to mention the regressive impact of eliminating the estate and gift taxes, which would result in a higher concentration of wealth.

    Of course, “moderate” Jon Huntsman also wants to eliminate capital gains and dividend taxes, in a similar giveaway to the superrich.

  34. Two Cents says:

    Pete K,
    being a physical bully is frowned upon, thats why money was invented, so “well mannered” people can bludgeon others with a more acceptable and civilized method of dominance.

    There are many examples of people who are smart, prolific, the very opposite of fat lazy vidiots who died poverty stricken. Mark Twain, nikola Tessla…..i think fate is fickle.
    Does Trump deserve to be wealthier than Hawking?
    If Greed killed like pancreatic cancer, how many wealthy people would survive?
    Money is a tool, and i don’t care for people who use it like a sledge hammer, no matter the excuse.
    Did Steve Jobs use his wealth to beat people down or did he use it to raise us?

  35. Mervel says:

    There is an inherent value in having the 1/2 of Americans who do not pay one dime in income taxes pay something. It would I think help everyone be a part of our country. But a flat tax is unfair and regressive, poor people would pay a higher percentage of their income than wealthy people. The same holds for any of these sales tax schemes, they are all regressive. The reason that a sales tax is regressive is that wealthy people spend a smaller proportion of their income on day to day expenses, cars, groceries, gas, clothing, thus you raise taxes on things the poor will pay a much higher percentage of their income with that tax scheme than the rich. There is nothing really wrong with our current system it just needs to have the myriad of exemptions and deductions and social engineering elements removed from it AND we need to find a way to tax wealth.

    Taxing wealth would be the quickest way to have the wealthy pay their fair share. What is the most efficient way to tax wealth in our country? The answer is a substantial inheritance tax. I would be in favor of lowering income and sales taxes and moving to a 90% inheritance tax combined with a wealth transfer tax.

  36. Dave says:

    “simplify it and eliminate loopholes won’t we be putting a lot of CPAs and tax attorneys out of a job?”

    Yes, we would. Not to mention a lot of IRS employees.

    All of which would be an acceptable trade off to me, for the better good of simplifying the tax code, IF our economy wasn’t struggling like it is.

    A recession is NOT the time to make policy changes that dump more unemployed into the system. This is the problem with the conservative “slash government” “reduce the deficit” movement right now… one immediate result of that is lots of unemployed people.

    One step back for two steps forward (if indeed you think that will be the result) has a time and a place… but it is not something you do when a ledge is one step behind you.

  37. knuckleheadedliberal says:

    Mervel, everyone who works pays payroll taxes, either FICA or self-employment taxes. 3/4 of taxpayers pay more in payroll taxes than in income taxes. Everyone pays sales taxes and most everyone pays some sort of property tax even if it is indirectly, as in a portion of their rent.

    So everyone IS paying a share of the tax burden, and payroll taxes, sales taxes and property taxes are inherently more regressive than income tax so in some ways of viewing it some poor or lower middle class taxpayers are paying a disproportionately high amount of taxes compared to some wealthy taxpayers when seen as an overall fraction of their income.

  38. Mervel says:

    I basically agree. I just think there is some value to have everyone have some small part of our burdens, I guess that is why I am also for the draft.

  39. Peter Hahn says:

    Mervel – the 1/2 of Americans who don’t pay income taxes mostly think they do because they pay Social Security and Medicare taxes. Many of them rail about the freeloaders who don’t pay income tax.

  40. scratchy says:

    With regard to payroll taxes, some low income people do have their payroll taxes offset by the Earned Income Tax Credit and additional Child Tax Credit. Also unearned income (capital gains, interest, dividends, royalties, interest) is not subject to payroll taxes and some forms of income are exempt from taxation altogether (gain from the sale of a home, employer provided health insurance, gifts) or partially excluded from taxation (Social Security benefits).

    If there’s one thing everyone can agree on, it’s that the tax code is very complex and no one fully understands it.

  41. JDM says:

    PNelba: “let them eat, drink and video games” was a response to khl, who implied that imposing a fair tax would cause people to choose not to eat instead of making responsible choices in order to pay their fair tax required by law.

    That’s why I started the comment “khl:”, and that’s why my point at the end was to “grow up”.

    Approximately 47% of wage earners pay NO income tax. That is part of the problem. They can vote for higher taxes on OTHERS, without affecting their lifestyle.

    Most of the threads here deal with the issue of “DO YOU WANT TO RAISE THE TAX ON SOMEONE ELSE”? Of course you will get 80% “yes” to that question.

    If a fair tax was imposed, they would have to pay some of their own money toward that tax. Then the question becomes, “do you want to see YOUR TAXES raised?”

    Big difference.

    They are not “lazy and poor” as you asserted. They are NON-PARTICIPATORS as I asserted.

  42. JDM says:

    That reminds me of that line of thought on a previous thread, where the question was something about a SURCHARGE ON TAXES OF MILLIONARIES.

    80% said “yes” to that.

    That is how people get manipulated. That is the same as, “do you want to raise taxes on SOMEONE ELSE?”

    Then the media reports, “80% of the people want to see taxes raised”

    They carefully leave off the words “ON SOMEONE ELSE”

  43. knuckleheadedliberal says:

    Mervel, I am also for the draft. If everyone had to share the burdens and dangers of war, including the sons and daughters of the wealthy and powerful, there would be greater scrutiny of the call to arms. Also, it would be a great leveling of class; the children of the rich would get to meet and work with the children of the poor in a more level relationship (and vice-versa).

  44. knuckleheadedliberal says:

    A transaction fee of perhaps 1/10 of 1 cent per share on all stock trades would be a great help in both balancing our budgets and calming market swings as it would dampen speculative trading and trades based simply on gaining profit from small spread in stock price that happen for brief instants but trigger computerized trades.

  45. PNElba says:

    JDM, there are many middle class people and millionaires that agree that their taxes should be raised. It’s not all about voting to raise “someone elses taxes”. Do I want my taxes raised? Not really. But if it will help my country I’m more than willing to do so.

    Unfortunately, the people whose taxes you want to raise are mostly the elderly, single parent families, and the poor. Even more unfortunately, that group of people is growing because of income inequality. The group of almost 41 million persons you most want to tax are those who make less than $16,812. There are also 78,000 persons who make between $211,000 abd $533,000 that pay no federal income taxes.

    Many lower income individuals end up paying no federal income taxes because of the earned income tax credit. This is that socialistic policy that was put in place by the liberal President Gerry Ford and expanded by the liberal Presidents Reagan, Bush I and Bush II.

    http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3057

  46. Peter Hahn says:

    JDM – Your belief that this is people voting to tax someone else (or some other demographic group) is simply wrong. There are many upper income people, maybe even a majority, who feel strongly that a “fair” income tax taxes upper income people at a higher rate than lower income ones. Similarly, there are many many conservative working class and lower income people who feel strongly as you do. We should have an ongoing discussion of this. I don’t really understand it.

  47. Mike says:

    I think that income from capital gains should be taxed at the same rate as any other income. Why should someone who makes a half million a year as an employee pay way more in taxes than someone who makes the same half million through capital gains? I son’t see that as taking from the rich so much as just leveling the tax rate.

  48. PNElba says:

    If we got the corporate money out of the political system our representatives would have to listen to their constituents and not the big money donors. I guessing the way decisioins are made in Washington would change dramatically.

  49. JDM says:

    Peter Hahn: “There are many upper income people”

    Not 80% of the population, which is what is commonly thrown out there.

    The IRS says that fewer than 3% have AGI of more than $200K.

    Even if they all wanted their taxes to go up, you don’t get to 80%.

    I will repeat, the 80% number wee answering the question, “who wants a SURTAX on millionaires”, not “who wants to personally pay more tax”

    I agree, that a certain percentage wants to pay more in tax.

    Have at it.

  50. JDM says:

    wee means “we see”

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