Wednesday, January 21, 2009

4%

A friend sent me an Email forward of something he got from Herman Cain, a local radio talk show host. Cain is a well-to-do retired business owner that ran for either Governor or Senator here a few years ago and lost. I’m not sure if he’s a Republican or just a conservative.

He’s interesting, I like a lot of what he says; though, like all talk show hosts, he beats everything to death.

He’s come up with a new idea, his “Intelligent Thinkers Movement.” He wants 100,000 people in each congressional district to spam their representatives on issues he originates so as to convince them to vote his way. That’s not quite the way he puts it.

I looked at his first four issues. The first is to demand that defense spending never be allowed to fall below 4% of GDP. No explanation. All intelligent thinkers are supposed, I suppose, to just know that is the perfect minimum level of spending for defense.

So… if the economy is just rolling, GDP is going through the roof, and the world is quiet, and has been, we should spend 4% because? I don’t know what percent of GDP defense spending is; but, I know no intelligent person would peg a budget item at a minimum or maximum percentage of anything.

Another interesting point, Cain is in favor of the FairTax, one of his initial four spam subjects. I’m a bit enamored by it. The FairTax is a constant in that it is about 23% of retail spending (it’s a bit more complex than that). Retail spending does not have a linear relationship with GDP. Indeed one of the positives of the FairTax is that it may well increase foreign investment in the U.S. and U.S. exports, the latter increasing GDP but not retail spending. A ready made formula for increased military spending in a more stable economic world which should mean less strife needing less military spending?

At least the Intelligent Thinkers Movement is opt in.

17 comments:

fermicat said...

Ah, the Fair Tax. I'm not against a consumption tax. It actually sounds like a decent idea - promotes saving and investment and all that. My problem is that I cannot figure out how to implement it fairly in the beginning. It would work fine if we were all starting from a level playing field, but we are not. For an example, I will describe my own situation. I used to have a crapload of consumer debt. I scrimped and saved and paid it all off. The only debt I currently carry is my mortgage. Not counting my retirement savings, I have other money in a savings account. It is my rainy day fund, emergency money, money to fix up the house, etc. This is not a small account, and I had to earn that money before I put it into savings. In other words, I paid income tax on every dime, and I have paid income tax on every dollar of interest.

Lets say they enact the "Fair Tax" and now there is a really big sales tax on anything I might buy with that money. You can probably anticipate my objection. I ALREADY PAID taxes on that money I saved. Now I'm gonna have to pay sales tax when I spend it?!? NO! I don't think that is "fair" at all. That is my big objection to implementing such a change. It works fine if you only consider that people will spend their newly un-income-taxed money. But it isn't remotely fair to people who would be spending money they already paid tax on once. This would include savings accounts, ordinary investments, and Roth IRA accounts, among many other sources of spending money.

Now, for people who are heavily in debt, implementing a fair tax means that they bought stuff when there wasn't a big sales tax, and they could theoretically pay it off with un-income-taxed money. Which would make it a helluva lot easier than the way I paid off my big pile o' debt. And not really all that fair.

Maybe this inequity has been addressed and I just don't know about it. But if it hasn't, it is a big problem for some of us.

s said...

Cain ALSO promoted THIS Idea !

the voter has had no Lobby Power and the politicians are notorious for that wonderfully sly trick of "Fast Track" legislation when they don't want the voters to get wind of something that stinks to heaven

there is a New Network of congress watchers, now in place, and the idea of "HITM " is to alert voters to raise hell with our elected representatives when it starts getting a bit too frisky, too "Fast Track" in DC

the only time politicians seem to behave is when the voters break down the walls and flood congressional phone lines / emails with massive protest and explain what we the voters are actually really demanding, rather than what the special interest groups are pedaling into their reelection $$ funds

so - THAT'S what the site is actually for;
" HITM ",
a way to fast track OUR own real desires as voters - Right Now - into the Congress before they foist more of their BS Upon us all.....
Dave , it doesn't matter if you agree with Cain on particular issues ...this is about voter clout, at last -
Cain is asking for 100,000 members per congressional district - probably not achievable in DeKalb County Ga - I feel his intent is noble and I CAN get behind that effort

Dave said...

Fermi, I can't respond to all of your points. It's been awhile since I read the book about, you might read it in bits when you don't want to study for the upcoming test. Let me know if you want my copy.

As to some of your points. The tax has a "pre-bate" that prepays the new higher sales tax on the basics like food and shelter. One adult gets a check for about $200 a month, a couple $400, to prepay what they will spend on the basics.

Granted, for larger purchases you may be paying the higher sales tax rate from money you've saved and thus paid income tax on.

Here's what Wikipedia says on the transition, I've taken the footnotes out:

Individuals under the current system who accumulated savings from ordinary income (by choosing not to spend their money when the income was earned) paid taxes on that income before it was placed in savings (such as a Roth IRA or CD). When individuals spend above the poverty level with money saved under the current system, that spending would be subject to the FairTax. People living through the transition may find both their earnings and their spending taxed.[67] Critics have stated that the FairTax would result in unfair double taxation for savers and suggest it does not address the transition effect on some taxpayers who have accumulated significant savings from after-tax dollars, especially retirees who have finished their careers and switched to spending down their life savings. Supporters of the plan argue that the current system is no different, since compliance costs and "hidden taxes" embedded in the prices of goods and services cause savings to be "taxed" a second time already when spent. The rebates would supplement accrued savings, covering taxes up to the poverty level. The income taxes on capital gains, estates, social security and pension benefits would be eliminated under FairTax. In addition, the FairTax legislation adjusts Social Security benefits for changes in the price level, so a percentage increase in prices would result in an equal percentage increase to Social Security income. Supporters suggest these changes would offset paying the FairTax under transition conditions.

You be the judge.

Dave said...

Steve, the problem with a "fast track" citizen/taxpayer lobby is that to be effective it would have to be monolithic. If indeed 435,000 people bitched in unison, Representatives and Senators would pay attention. But, that isn't going to happen. Indeed, if it did, I'd be very worried as the bitchers would be responding to the alarm rather than thinking through the particular issue.

Dave said...

Make that 4,350,000 taxpayers. Math is not my strong suit.

Dave said...

Oh hell, 435 x 100,000 is 43,500,000. That's about half of the electorate in any given national election. I'm wondering if Cain has a typo and means 10,000 per congressional district.

DaleC said...

I will gladly take the "penalty" on my Roth, 401k and other savings in exchange for keeping all of my paycheck. I have paid those same taxes and realize that they are gone under either system. You will never get that tax money back anyway, so why make that a problme with the Fair Tax?

I guess my question is, why oppose the better system becasue the old system sucked so hard?

The 23% won't increase the price of goods becasue that amounht is already included in the cost of goods that you purchase. You will be paying the same amount of money under the Fair Tax for everything you buy. Therefore, your savings are untaxed, your purchasing power goes up and economic growth blows your Roth and 401k holding through the roof.

Currently, there is approximately $ 13Trillion dollars invested by Americans overseas. The Fair Tax would bring a large part of that home, in addition to other inveswtment from international sources.

Debo Blue said...

Interesting reading here and I may have learned something. But I'm snickering at you Big Guy because you keep trying to figure out the true number of voters needed. Why not just delete your posts so we don't know you've sat through 40 mins trying to figure it out? :-)

Too cute.

Dave said...

Always honest Debo,if I screw up, ya'll get to know it.

That girl said...

Is the Fair Tax, like our GST?

Dave said...

Hey Michelle, I'm not sure. Put simply, it is a replacement for income tax. It is 23% of all retail sales.

By the way, your blog won't let me in, by coincidence, I tried, again about an hour ago.

BDunn said...

I think calling it 23% is dishonest. A $0.30 tax on $1.00 is 30% in my book. I know the argument about it being inclusive and it's being compared to income tax which is calculated the same way. But when people hear it's 23% they assume it's 23 cents on a dollar purchase. But I'm not against the whole idea, I just think this part is misleading.

Dave said...

Hey BD, you are probably right; but, the more important point, if accurate is that the tax is neutral - if you are paying $x in federal taxes now, you will be paying the same with the new system, the plus being that there is no reporting, documenting, agonizing. You spend, you pay. You save, you don't.

Jennster said...

Hey Dave
I read a book once on this fair tax proposal and I thought it was really intresting but don't remember quite the way you've presented it. Perhaps just a difference in the people propossing it. Great post!

Ron Davison said...

Outside of his proposals, it'd be interesting to formulate a set of initiatives that a network of bloggers could get behind and then hammer on. It'd be an interesting exercise just to think about what we might all agree on.
Now you've got me scratching my head.

DaleC said...

BDunn - it isn't misleading just because people don't understand the differnece between inclusive and exclusive taxes. It is 100% accurate and ethical to describe it as is described in the book and would be misleading to state it any other way.

DaleC said...

Fermicat - Your question about future purchases with the "extra" tax is a good one, but I don't think I answered it clearly.

Under our current system, you still pay the 23% because it is enmbedded in the cost of goods. Every tax bill for every entity responsible for getting an item to you is rolled up into the cost of that item. Taxes are a cost of doing business no different than electricity and payroll, therefore, they are always paid by the end user. Under the Fair Tax, you get to pay those taxes explicitly (rather than hidden) and with a full paycheck rather than one decimated by Federal taxes.