Income Tax is like a VAT

Michele Bachmann accused Herman Cain of instituting a Value Added Tax with the 9% corporate income tax in the 9-9-9 plan.

In the same breath, she said she'd play with the current income tax code, keep the regulations and leave the payroll tax in place.

Herman Cain wants to simplify the income tax code before completely eradicating it and replacing it with the FairTax. From the beginning with 9-9-9, it means NO income taxes or payroll taxes, NO investment taxes or capital gains taxes, NO estate taxes and fewer embedded taxes under 9-9-9 then NO embedded taxes.

So, what's a VAT tax? A European-style Value Added Tax is a federal tax on every stage of production. It's end effect is similar to our income and payroll taxes because the tax is built into the cost of the end purchase (trickle down).

See, every business needs to make a profit. When their expenses go up (inventory, rent, energy, insurance, minimum wage, taxes...), they must somehow recoup the lost profit in order to stay in business. Most businesses already operate on a shoe-string budget, especially in this economic environment, so "trimming the fat" is not an option.

The question is: does Michele Bachmann think the current income tax is better than 9-9-9 or the FairTax?

9-9-9 Below the Surface

Herman Cain unveiled his 9-9-9 plan a couple months ago. It seems to be catching on among fellow "tax simplicity" advocates, but it's easily demagogued by everyone else. The plan calls for eliminating the current tax code and replacing it with a 9% corporate tax, 9% personal income tax and 9% sales tax.

A first attack: it'll unfairly tax the poor and middle class since 47% of Americans pay no income tax. Well, that's right! 47% of Americans have no apparent skin in the game right now. What we're missing, though, is that these same Americans pay the most regressive tax on wages in American history - the payroll tax! 7.64% of every tax-filing worker's earnings are deducted and the employer pays the other 7.64% on the top. This is over 15% in regressive taxes only levied on the productive people in this country. The 9-9-9 plan eliminates the payroll tax.

A second attack: it lets corporations off the hook and spreads the wealth from the poor people up to the richest. Just why do we have a complicated tax code with one of the highest corporate tax rates in the world? So that corporations can find loopholes! So that politicians can play their power role and jockey the code for their donors! The 9-9-9 plan removes all loopholes and transitions power of the tax code from the politicians to the people.

A third attack: a 9% sales tax is regressive! Did you know that between 12-30% of everything we purchase is embedded taxes? Because all businesses must make a profit, the cost of payroll and income taxes as well as complying with the tax code are passed down to the next purchaser of that product. By the time it's gotten to the end consumer, tens or hundreds of businesses have touched that product and added the cost of taxes into the price. 9-9-9 removes a substantial amount of compliance cost away from the business, abolishes the payroll tax and simplifies the corporate tax code by removing all loopholes.

People who are well-read on the FairTax Act (HR25/S13) understand this. When we remove the income tax, payroll tax, estate tax, investment tax and capital gains tax, the cost of goods goes down; consumers keep more of their money to spend how they choose with greater buying power; and business invest in growth rather than protection from the tax code.

What is it about the current tax code that makes the 9-9-9 plan look bad? It's a step in the right direction - with FairTax the final destination.