Posted on 10/17/2011 6:33:33 AM PDT by ziravan
Several critics on FReeRepublic of Cain's 9-9-9 plan have made a big deal about the empowerment zones included within the plan, suggesting that this idea is less than conservative as a result.
The key to understanding the 9-9-9 plan is that it is designed to be an interim step towards the FairTax. The FairTax has a mechanism to prevent and defend against the the regressive nature of a consumption tax. In the FairTax, that is the prebate. The prebate is a monthly check sent out to each Citizen family for the amount of sales tax that family would pay on all expenditures up to the poverty level. It is way to blunt the tax for low and poverty income families, and even to decrease its drag on middle income families.
The empowerment zones under 9-9-9 are temporary zones designed to accomplish the same goal as the prebate in low economic areas until the FairTax is fully implemented.
I believe that there is a confusion here that these zones would be permanent instead of very transitory. Because they are transitory, they do not accomplish the same goal as other types of urban enterprise zones, namely, to bring businesses to the area over a long term. Instead, these zones will only temporarily reduce the taxes in low income areas while the FairTax is being fully implemented, thereby taking the place of the prebate.
Personally, I think the best goal for both 9-9-9 and the FairTax is to exempt necessary goods and services such as food, fuel and medical needs. This is how several States bypass the regressive elements of a sales tax.
If you read the book on FairTax by Boortz/Linder, the FairTax doesn't take the above approach for several reasons. First, any exemption puts power right back into Congress' hands to dole out favors by what is and what isn't exempted from taxation. The FairTax idea clearly wants to end this power source for Washington. In addition, by moving to a monthly prebate check, the FairTax provides additional financial aid to seniors living on a fixed income. The prebate would be income in addition to Social Security and that extra income, combined with frugality and buying used, will empower fixed income recipients. Finally, by offering a prebate to Citizens, the FairTax gives a decided break to legal taxpayers that is not available to illegals, visitors, and any underground economy.
Regardless whether you use a prebate, exempt certain necessary items, or use an empowerment zone, moving to a sales tax needs an adjustment to balance out the low end of the consumption scale (where consumption approximates 100% of income). This is a fair exchange to achieve the vast saving and taxing benefits that the FairTax offers higher wage earners.
The Empowerment Zones in the 9-9-9 is a temporary fix on the way to the FairTax. It certainly does not contain the political dogma attached to it by critics of the plan. A consumption tax is an ideal conservative tax. Necessary adjustments to make a consumption tax work do not mean that advocates for eliminating the income tax are less conservative. Keeping the progressive income tax would be much worse.
The FairTax uses a prebate to do this.
9-9-9 uses a temporary empowerment zone. Because of the temporary nature of such a zone, for critics to place a political spin on its import misses the point, probably on purpose.
They also miss the fact that Reagan wrote the same Empowerment zones into his tax cutting legislation in the 1980s.
Why doesn’t Cain just go ahead and come right out and say it’s the Fair Tax Plan?
There is a lot of great research that backs up the Fair Tax Plan and a lot of good explanations out there to explain it.
Seems like doing that would make it better understood and accepted.
What people are afraid of is this interim thing that gives congress both income tax AND consumption tax at the same time. That is just too scary and opens us up to lots of abuse, especially since we can’t trust a Republican congress or a Democrat congress.
There is a lot of great research that backs up the Fair Tax Plan and a lot of good explanations out there to explain it. Seems like doing that would make it better understood and accepted.
What people are afraid of is this interim thing that gives congress both income tax AND consumption tax at the same time. That is just too scary and opens us up to lots of abuse, especially since we can’t trust a Republican congress or a Democrat congress.
He is forthcoming by telling everyone, correctly, that there must be a multiple step process to move away from our current tax code. He is very open in stating that the end result would be another step to the fair tax - it just can't be acheived overnight and in one step.
I understand the concern about both an income tax and a sales tax. The potential for abuse is limited by 2 factors:
A sales tax is notoriously difficult to raise because it affects everybody and can’t be sold as a tax on thee but not on me.
More important, Hauser’s law, an extension of the Laffer Curve, suggest that it is darn near impossible to raise taxes past 19.5% of GDP. No matter if the top tax rate has been 90% or 28%, 19.5% of GDP is the amount of receipt collected in the United States since WWII. The reason why is that once taxes increase past 19.5%, tax avoidance diminishes returns.
With a consumption tax, tax avoidance = reduced consumption = recession. What Congress would very soon find out is that after the best equilibrium for 19.5% of GDP in receipts is attained, raising the rates will trigger a recession that will bounce the party in power out of power, only to be replaced by a Congress that lowers the rate back to baseline and takes credit for the resulting recovery.
When you look at Hauser’s Law, the very best way to implement an optimum tax on the Laffer Curve is to do so as transparently as possible. THAT will result in reduced meddling from Congress.
It's all here on his 999 page.
A very well thought out piece, and extrememly well written. I have only one question; what is an empowerment zone?
“Keeping the progressive income tax would be much worse.”
If progressivity makes the current system bad, then why on Mother Earth would you advocate “prebates” and other progressive measures which inject the same DNA of classism into an otherwise respectable flat consumption tax???
I’ve not heard Cain say he favors eventual prebates. If he has, then I don’t support him in that effort. If at all.
The so-called FairTax is nothing of the sort. It is a gigantic amount of work and political capital spent to re-invent progressive taxation - prebates.
Calling a flat tax ‘regressive’ is not accurate. And is not a sign of clear conservative/logical thinking. Please do not fall prey to this common trap.
A flat tax, by definition, is NOT regressive!
And prebates, by definition, make a consumption tax no longer flat.
What damn good is Hamilton’s barrier, if you are mailing people money every month to pay for a chopper ride over it?
Flat rate consumption tax = true objective fairness.
Prebates = social meddling to satisfy misguided subjective fairness.
If there is one person out there who considers him/her self conservative/libertarian/freedom loving/etc. and can read the so-called FairTax stuff about sending checks to EVERY household in America EVERY month without a gigantic red flashing light going off - get your bulb checked today.
What do the states with no sales tax say about this?
We need the interim of the 999 for a couple reasons. 1. It takes some time to implement the Fair Tax requiring a repeal of the 16th amendment. 2. Our sick economy would make implementation of the Fair Tax very difficult. The economy needs a quick boost for private enterprise and the free market. Lowering the corporate to the lowest rate in the world would return many business back to the US and adds insensitive for the use of US produced materials into products made here. It is a plan of a math genius, who knows our free market system inside and out.
Each gallon of gas has a tax of 59+ cents on it. The anti-sales-tax states are silent about that. We need to rip the current fed tax monster that picks winners and losers our by the roots. 9-9-9 does that. No one else has a plan that totally eliminates our current tax code. GE will have to play fair like everyone else. Lobbyists will be screwed not the tax-payer.
I believe that it would be better for the gov’t to not thax the first (say) $20,000 of income for everyone and not tax food and medicine.
It would be a heck of a lot easier than sending out ‘prebate’ checks.
This is the only part about the Fair Tax that I never agreed with. It’s messy. It requires a bureaucracy to manage it. It requires tons of reporting and calculating and encourages fraud.
Just don’t tax these things in the first place. Simple, clean and neat.
That is what I will fight for.
(It’s all still better than what we have now.)
As for ‘empowerment zones’... I have no opinion at this time. I simply don’t know enough about it to formulate an argument one way or the other.
Sounds good to me.
Amen, bro. The prebate concept is a deal beaker for me.
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