Felix Salmon

“America might not enter a recession, because the economy’s already so weak”

Reminds me of the lyrics, “Freedom’s just another word for nothing left to lose…”. There is some truth to that.

Another perspective to consider: True wealth lies in a frugal lifestyle. If you habitually spend a lot of money, then you need to MAKE a lot of money to balance the budget. That is a chancy proposition, even at the best of times. But if you live cheaply, saving/investing the rest, then you are far less likely to come up short.

Would be interested to see Felix’ perspective on Herman Cain’s 9-9-9 tax plan. Supposedly that would replace the personal income tax, corporate income tax, and FICA tax? (Do the numbers actually work for that?)

This would definitely be less progressive than our current system, since lower-income families are effectively exempt from the federal income tax. Yet they still pay 7.65% FICA tax — so this would add roughly 10% to their tax burden. Might be ways to ameliorate that impact?

I’ve seen suggestions that it would create a disincentive for businesses hiring, since the 9% corporate tax would be assessed on labor costs as well as profits, however that would more or less replace the existing FICA tax. Not much change there? Moreover, the exemption for capital expenditures would presumably be limited to goods purchased from American companies or subsidiaries (thus ensuring that the tax is collected from somebody). That would go a long way towards putting American business on a more even footing with imports.

The effect on the ultra-wealthy would be minimal. Buffett’s tax bill would actually rise. I’m sure he’s not alone in that.

Truly, the primary selling point for this plan (or something similar) is that it would dramatically expand the tax base and thus reduce the marginal tax rates required to raise the same revenue.

* A national sales tax tags imports and domestically produced goods equally. No more advantage to off-shoring production and profits.

* A 9% corporate tax rate would be far less of a deterrent to repatriating foreign profits than the present 35% corporate tax rate. I suspect most companies would happily bring the profits home at even a 15% rate. The money is more useful in the US than when it is stuck overseas.

* Eliminating the morass of deductions, credits, exemptions, and special rules that presently confuse the income tax system would be a huge accounting savings for individuals and corporations alike. You earn money, you pay 9%. And yes, I would lose the deductions I take for mortgage interest, charitable deductions, and state taxes. But at a 9% marginal rate, I’ll end up paying roughly the same amount that I do today and with MUCH less bookkeeping.

Would be interested to hear criticisms, hear ways that this might be improved without a dramatic increase in the marginal tax rates at any level of the system. My sense is that a 15% tax doesn’t much affect behavior, but a 35% tax rate obviously does.