Tax Reform—at last!

Until Herman Cain brought forth his 9-9-9 plan, a 9% personal income tax, 9% corporate income tax, 9% national sales tax, no one in the GOP herd had the guts to bring forth this topic for national debate.  All that has apparently ended and it’s a good thing, too.

The State Media immediately attacked it.  The Atlantic called it three VAT taxes in one.  Clearly they’d never bothered to actually read the proposal but relied on what other libs said about it. 

ABC news said, “However, a much longer list of economists say Cain’s plan would be a tax hike for the lower middle class and a tax windfall for the wealthy.” In short, they’re against those who have never paid any income taxes, paying some and they’re also against the abolition of punishing taxes against those who are successful.

In that same vein, the Chicago Tribune went to more libs for their opinion. You shouldn’t be surprised, their opinion was negative.

But Bruce Bartlett, a former Treasury official under President George H.W. Bush who studied Cain’s plan and wrote an analysis Tuesday for the New York Times, said Cain “offers no evidence for this assertion; it is simply put forward as self-evident.”

Bartlett called the plan “a distributional monstrosity.”

“The poor would pay more while the rich would have their taxes cut, with no guarantee that economic growth will increase and a good reason to believe that the budget deficit will increase,” Bartlett wrote.

That’s because two of Cain’s three 9s – the income tax and the national sales tax — would disproportionately impact the 47% of tax filers who don’t pay any federal income tax under the current system – many of whom are elderly or poor.

Yes, those people who have never had skin in the tax game, suddenly would!  What’s fair for some, is fair for all.  If you had an income, you should pay tax on it.  That’s the spirit of the 16th Amendment that authorized the income tax in 1913.

The issue, as it seems to me, is that the proposal would have taxes applied equally to all. The existing code benefits 47% of the population that pays no income tax at all. The dems and libs think that, is fair.

I don’t.

But to continue,  the discussion about tax reform is continuing.  Rick Perry is about to introduce his version of tax reform—a flat tax.  The Christian Science Monitor has this short piece.

Rick Perry flat tax plan: Don’t expect a 9-9-9 retread

Rick Perry says his flat tax plan is a major part of his broad prescription to revive the economy and create jobs – a move he hopes will also revive his campaign.

By Brad KnickerbockerStaff writer / October 19, 2011
Republican presidential candidate, Texas Gov. Rick Perry, runs prior to delivering a keynote address during the Western Republican Leadership Conference, Wednesday, Oct. 19, in Las Vegas. Perry said he’ll be announcing details of a flat tax plan next week.
Isaac Brekken/AP


“It starts with … scrapping the three million words of the current tax code, starting over with something simple: a flat tax,” the Texas governor told GOP activists at the Western Republican Leadership Conference in Las Vegas Wednesday.
Like businessman Herman Cain, whose 9-9-9 plan came under fire at Tuesday’s debate, Mr. Perry wants to do away with the current tax system. Although Perry won’t reveal the details until a speech scheduled for next week in South Carolina, the similarities likely end there.
Personally, I have some concerns about Cain’s 9-9-9 plan. It includes a new tax, a tax we’ve never had before, a national sales tax.  There is great danger there and the potential of the dem/lib party raising that 9% sales tax in some future year to an intolerable level.
Don’t get me wrong, I like what I’ve seen and heard so far about Herman Cain. I’m just not sold on the totality of his plan.

On the other hand, I’ve become disillusioned with Rick Perry.  He had a good start, good credentials and a reasonably good record in Texas.  He also had some serious weaknesses in his stance on immigration and education. I’m open on his flat-tax plan. I’m a bit impatient to discover more.

Regardless, the topic of tax reform, is out of the closet and out in public view.  It’s about time.


Negative Feedback Loops

Negative feedback loop is a technical term often associated with electronics and systems design. It’s purpose is to reduce the input by a signal of the output. When it is a loop, negative feedback quickly reduces the input to…zero or nothing. As long as there is output, the input will be reduced until there is no output. Wiki describes negative feedback as…
Negative feedback, which tends to reduce the input signal that caused it, is also known as a self-correcting or balancing loop.[2] Such loops tend to be goal-seeking, as in a thermostat, which compares actual temperature with desired temperature and seeks to reduce the difference. Balancing loops are sometimes prone to hunting: an oscillation caused by an excessive or delayed negative feedback signal, resulting in over-correction, wherein the signal becomes a positive feedback.

The terms negative and positive feedback can be used loosely or colloquially to describe or imply criticism and praise, respectively. This may lead to confusion with the more technically accurate terms positive and negative reinforcement, which refer to something that changes the likelihood of a future behaviour. Moreover, when used technically, negative feedback leads to stability that is, in general, considered good, whereas positive feedback can lead to unstable and explosive situations that are considered bad. Thus, when used colloquially, these terms imply the opposite desirability to that when used technically.
The point of negative feedback loops is that they can occur in more areas that just electronics.  They can occur in various systems, social organizations and within people as a psychological effect.  Aversion therapy is an example of the last item.
The most common use of negative feedback loops is for control—to prevent systems runaway or to manage oscillation in the system.  When used in social organizations, negative feedback is used to control activity or behavior viewed as being negative.  One example is aversion therapy to help folks quit smoking.
In this last case, aversion therapy as applied by government is usually—taxes.
However, implementers of negative feedback must be very careful how it is applied.  The Principle of Unintended Consequences also applies if not taken into consideration as part of the implementation of negative feedback loops.
A fine example is California’s implementation of taxes on internet sales.  California was broadened the interpretation of a SCOTUS ruling some years ago.  The SCOTUS ruling was that taxes could not be applied on internet sales unless the seller had a physical presence in that state.  When I buy from Midwest USA, based in Columbia, MO, I have to pay state sales tax on the transaction.  When I buy from, I do not pay sales tax because Amazon has no physical presence in Missouri.
California has now defined independent affiliates doing business through Amazon as Amazon’s physical presence in California. Therefore, according to this new law, Amazon must collect taxes on those transactions by California affiliates regardless of the location, inside California or without, of the buyer.  
Amazon made their response known todayLike they did when Illinois tried the same scheme, they’ve dropped all affiliates in California from Amazon’s network.  Whatever California expected to gain from Amazon is now…zero.  This is an application of the Principle of Unintended Consequences and of Negative Feedback.
When California passed their tax on the internet, the estimate of the taxes received was about $150 Million. This was in addition to the amount those affiliates paid in income taxes to the state.  I heard an estimate on the radio this morning the income taxes paid by Amazon’s terminated affiliates amounted to some $120 Million into California’s treasury.  The net result now will be substantially less that the total received before the implementation of the internet sales tax.
Unintended consequences.
This internet tax is a consumption tax.  A tax applied on the sale of a service or commodity.  I mentioned that I do business occasionally with Midwest USA out of Columbia, MO.  In fact I have an order on the way to me that should arrive today.  The item was on sale by Midway USA at a price that, including the sales tax, could not be matched by other out-of-state retailers like Brownells based in Iowa.
The negative feedback imposed by Missouri’s sales tax is—I will always buy out-of-state, i.e., from Brownells in Iowa, or Natchez out-of-Mississippi, when the price of the item, when Missouri’s sales tax is included, is less than Midway USA.
Sales, or as they should be known, consumption taxes, in all forms, are negative feedback loops.  My home county some years ago, imposed a county sales tax and in doing so, disallowed all other forms (other taxes/levies) of revenue.  The Principle of Unintended Consequences has occurred.  With the state of the economy, people are much more careful in their spending.  Money is only spent on those essentials and if they can buy something cheaper, say in the neighboring counties, or in Kansas, that’s where they will make their purchases—not in my home county.
That makes revenue projections for the county difficult to say the least.  County revenues are dependent on the mood of the residents, and of their prosperity.  When both are down, county revenues drop.  The county must then entrench, cut expenses, either by headcount or services.  This affects the mood of the residents more and they entrench too and are more careful with their spending, reducing discretionary spending more.
The county sales, their consumption tax, is a negative feedback loop.
I hear so many claim that a consumption tax, the so-called “Fair Tax” is something we should impose on a state-wide and national basis.  The assumption  is that income taxes would be removed.
Ain’t gonna happen.
At the state level, Missouri like many, has both a state sales/consumption tax and an income tax.  At the federal level, we have an income tax. That tax was authorized by the 16th Amendment to the US Constitution.  If we wanted to replace the federal income tax with a national consumption tax, the 16th Amendment will have to be repealed or we will end up having both—a national sales tax and a federal income tax.  The repeal of the 16th Amendment will not happen.  Too many in Congress and too many in the states are dependent on the revenues from the federal income tax. 
It ain’t gonna happen.
I don’t have any real issue, other than the tax rates and the complexity of variances, credits and deduction, with an income tax.  I tithe 10% to my church. I view income tax as a tithe to the government.  My preference would be a flat tax on everyone with no variances, credits nor deductions, no minimum income exclusions, no additional penalties on high income earners either.
What I do have issue with is the complexity of the progressive implementation of that federal income tax.  Progressive taxation is another example of negative feedback loops. New York, the Northeast and California has the most repressive progressive income tax laws in the country.  Each time they change or impose a new tax, the revenue gained is less.  People are voting with their feet, going to other states where the repression is less, where they can keep more of what they have earned.

Whenever government considers changes to revenue methods, they must always be aware of negative feedback loops.  And, too, of the Principle of Unintended Consequences.


For all you “Fair Tax” folks who think you can eliminate the IRS and Income Tax and replace both with a National Sales Tax, here’s what the dems are already proposing.

Never forget, if you ever realized it, a consumption tax kills business and leads to illegal avenues to by-pass the tax. We’ve had a tax on liquor almost since the beginning of the republic (look up the Whiskey Rebellion) and there are still people making moonshine. Any form of consumption tax is filled with unintended consequences. Foremost is that you’ll end up with a larger IRS, the VAT tax and an Income Tax.

If you want to replace the Income Tax, your first goal is to repeal the 16th Amendment. A flat tax as proposed by Malcolm Forbes, achieves many of your goals without the unintended consequences.

Just so you don’t forget, here is Michael Ramirez’s opinion of the VAT tax.