November 10, 2011

Larry Kudlow, a response to your article on Mr. Cain's 9-9-9 plan

Enjoyed your article of 'Cain's 9-9-9 Tax Plan Isn't Perfect—But It's Better' and thought would share on the embedded tax portion of 999/FairTax Cain Plan.

It is fact that the average embedded tax in domestic product is 22%. Agriculture is of the same 22%, making the price of a loaf of bread 22% federal taxes. Imagine a baker gets paid by the employer and takes his net pay, with all those federal taxes taken, and goes around the counter to buy all the bread the check will buy for the local soup kitchen. The baker, employee will buy that bread with his net pay and get only 78% of the product as the federal taxes hidden will be 22% of his paycheck used to buy the bread.  The employee is double taxes with the benefit of the tax only appreciated once by Government.

If the Bakery sold imported bread, the worker could buy the same bread at a cheaper price as the burden of federal tax is not in the import price. By going to 999/FairTax, the estimated removal of federal taxes and compliance costs lower the price of domestic products, domestic bread, about 15%.  That same employee under FairTax will get his gross paycheck, less State and local tax and go around the counter and purchase bread. If the wage of the employee is in the 15% tax bracket, his paycheck will increase in net property of 15% plus 7.65% SSi and 1.8% medicare taxes, making the employee able to purchase the bread with all this paycheck increased about 24%.  The bread will see a drop in product price of about 15% that consists of 7.65% payroll, and corporate tax equalling about 4.2%, plus about 3% in compliance costs(conservative figures).

The Baker employee will then see on his sales receipt that the price of the bread under FairTax, with a 23% inclusive value of the price of the bread, the price of the bread including the sales tax equalling a net increase of bread purchase  of about 16%. The 15% reduction in price, plus the 23% FairTax rate, make the bread a cost of 8% greater then the price that included the 22% hidden tax. But this time the tax is only collected once, at point of sale on retail price. The Baker will benefit a purchase of about 16% more in value. 24% tax savings less the 8% price change equals a gain of 16%.

The FairTax plan has the prebate that makes no one taxes on any spending up to the ceiling level of poverty, per his family size, all citizens equally receiving the prebate, rich or poor, working or not working. Thus the baker will also receive the taxes he paid for the bread up to poverty wage spending, before the baker went to work that month.

I must say though, that the FairTax plan is tax revenue neutral, meaning that we should be breaking even in this scenario. The poor gain much under this system of FairTax. I will include a web link that defines what the burden of the FairTax will be for all income groups.
The best benefit of FairTax is not in the flow of money, but in the flow of jobs.  Imagine if you take out 15% of the cost of domestic goods and tax imports equally with the federal tax burden?  I was told it would only take the Steel Industry a 10% advantage over imports to flourish.  The greatest problem under FairTax is the growth will scare those who think you have to control free enterprise.  Foreign Governments will flock FairTax to counter the sudden explosion of USA competitiveness, especially within the USA.

I have a blogg that explains how we got into the fiscal plight we are in, here
Here is the link of FairTax burdens by income

Thank you for your fair journalism.
R. George Dunn
If everyone knew all there is to know, they would not do half the things they do, including myself, therefore I must foregive them, including myself.

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