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Archive for October 12th, 2011

Life is difficult when you’re a cranky libertarian.

President Obama’s latest stimulus scam was just rejected by the Senate, so I went online to read about this rare bit of good news.

But my cheerful mood was undermined by a reprehensible bit of bias by the folks at Reuters. Read the first paragraph of the story.

The Senate defeated President Barack Obama’s job-creation package on Tuesday in a sign that Washington is likely too paralyzed to take major steps to spur hiring before the 2012 elections.

Two things jumped out at me. First, Reuters called Obama’s plan a “job-creation package.” An honest and fair news organization would have written something such as “…the President’s proposal, which the White House asserts will create jobs.”

I may have forgiven that first bit of bias. After all, reporters do face pressure to be concise and “job-creation package” certainly satisfies that criteria. Moreover, it’s not as if I was expecting them to choose “stimulus scam” as an option, even though it is equally concise.

But then the story says “Washington is likely too paralyzed to take major steps to spur hiring,” which clearly implies that approving Obama’s proposal would create jobs.

But if that was the case, then the 2009 so-called stimulus should have created jobs. Yet as these four charts illustrate, it was a total flop. Heck, it was worse than that. It led to job losses by increasing the burden of government.

Shame on Reuters.

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I like the overall approach of Herman Cain’s 9-9-9 tax plan. As I recently wrote, it focuses on lower tax rates, elimination of double taxation, and repeal of corrupt and inefficient loopholes.

But I included a very important caveat. The intermediate stage of his three-step plan would enable politicians to impose both an income tax and a national sales tax. I wrote in my earlier post that I had faith in Herman Cain’s motives, but I was extremely uncomfortable with the idea of letting the crowd in Washington have an extra source of revenue.

After all, Europe’s welfare states began their march to fiscal collapse and economic stagnation after they added a version of a national sales tax on top of their pre-existing income taxes.

But it seems that I was too nice in my analysis of Mr. Cain’s plan. Josh Barro and Bruce Bartlett are both claiming that the business portion of Cain’s 9-9-9 is a value-added tax (VAT) rather than a corporate income tax.

In other words, instead of being a 9 percent flat tax-9 percent sales tax-9 percent corporate tax, Cain’s plan is a 9 percent flat tax-9 percent sales tax-9 percent VAT.

Let’s elaborate. The business portion of Cain’s plan apparently does not allow employers to deduct wages and salaries, which means – for all intents and purposes – that they would levy a 9 percent withholding tax on employee compensation. And that would be in addition to the 9 percent they presumably would withhold for the flat tax portion of Cain’s plan.

Employers use withholding in the current system, of course, but at least taxpayers are given credit for all that withheld tax when filling out their 1040 tax forms. Under Cain’s 9-9-9 plan, however, employees would only get credit for monies withheld for the flat tax.

In other words, there are two income taxes in Cain’s plan – the 9 percent flat tax and the hidden 9 percent income tax that is part of the VAT (this hidden income tax on wages and salaries, by the way, is a defining feature of a VAT).

This doesn’t make Cain’s plan bad from a theoretical perspective. The underlying principles are still sound – low tax rates, no double taxation, and no loopholes.

But if I was uneasy when I thought that the 9-9-9 plan added a sales tax on top of the income tax, then I am super-duper-double-secret-probation uneasy about adding a sales tax and a VAT on top of the income tax.

Here’s my video on the VAT, which will help you realize why this pernicious tax would be a big mistake.

Again, this doesn’t make Cain wrong if we’re grading based on economics or philosophy. My anxiety is a matter of real-world political analysis. I don’t trust politicians with new sources of revenue. Whether we give them big new sources of revenue or small new sources of revenue, they will always figure out ways of pushing up the tax rates so they can waste more money trying to buy votes.

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