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.
Tags: economy
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“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?”
Mike, gains tax is not some specific tax on wealthy individuals? It is a tax that anyone pays when they realize a gain on their investments. That includes folks participating in a pension plan that has any kinds of investments. The largest one in the US being the California Public Employees’ Retirement System (CalPERS). It is fine to suggest that we raise this tax but we should be honest about all the folks it will affect. It will negatively affect these public employees just like it would negatively affect a wealthy investor paying gains tax. Also, don’t forget much of money used to purchase these investments has already been taxed as income. Make no mistake this part of the “jobs” bill would basically raise this particular tax rate by about 100%. Also often these “gains” are liquidated to do things like start new companies and build or renovate homes, all activities that would be reduced under these proposals. Funny to me these things sound like things that could stimulate the economy without costing the tax payers another half a billion dollars??It is fine to suggest these things but when the president gives the speeches he should be honest about what he is proposing.
Correction! That is half a trillion dollars for this bill, not a billion!
but JDM – what I was saying (and PNE before me) was that of those 3% that have an adjusted AGI of more than 200K, possibly a majority feel that it would only be fair that they should be paying more in income taxes than they do now relative to everybody else. It is not the case, as you say, that people are desiring to raise other peoples taxes. People differ on what it means to be “fair”.
Raising the marginal rates on these individuals is not a big deal. Being a moderate republican I would agree to this. It is hardly worth arguing about it won’t raise much revenue. It just ruffles feathers. It is good for campaign speeches. Taxing capital gains as income (basically doubling the rate) would be a humongous economic blunder given the fragile state of the US economy. But it may be the only way to get people with large net worth’s like Warren Buffet to fork over more taxes. Personally I am not willing to torpedo the US economy just because I don’t think a small percentage of individuals are not paying enough taxes. It makes sense on a protect sign but it makes no other sense.
Sorry that is “protest” sign not “protect” sign….
Bret, just come back as Bret42whateverthenumber we forgive you. And we miss you.
I agree Knuckle. It is also one of the great values of public schools. One of the good things about the North Country is that we don’t have this big division in some of these institutions. In urban and suburban areas there is a loss of any sort of common purpose when the wealthy and wanna be wealthy self isolate and send their kids to private schools. But things like a universal draft and good public schools serving entire communities bring people together as part of a whole.