I see that some readers believe that Cain’s second “9″ is a profits tax,
which I’ve argued in the past probably falls on capital owners. But it isn’t:
it’s a tax on all business income, defined as sales minus purchased inputs and
dividends — but with no deduction for wages. So the new element here is, in
effect, a 9 percent tax on wages paid.
And the almost universal belief of economists is that taxes on wages,
whether paid directly by the worker or by the employer, basically fall on the
worker. For those who know their Econ 101, it’s standard incidence analysis:
since the overall supply of labor seems to be pretty wage-inelastic, the supply
side bears the burden.
And again, his plan therefore involves 9 percent income taxes with few
deductions, a de facto 9 percent levy on wages, and a 9 percent sales tax.
Saturday, October 15, 2011
Cain's 9-9-9 Tax is a Double Bang on Wage Earners
Paul Krugman has this one nailed:
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Hey Mr. Wenzel,
ReplyDeleteDon't know if you have brought this up before, but I think there will be even more tax burden than that on businesses. Think of a small business buying a work truck. Wouldn't this truck normally be tax deductible. Payed for with untaxed dollars. Now, when they buy a truck, they will pay 9% more on that purchase because even if it is still tax deductible, the sales tax is still there.
Also, if someone getting minimum wage has to pay 9% income and 9% additional sales tax, they would probably demand higher pay to make up for it. That higher pay is payed for by the employer.
minimum wage earners are not in a place to "demand" anything. If anything, this would be a way of lowering the effective minimum wage which would be a good thing (I'd love to eliminate it, but that's not going to happen).
ReplyDeleteWhile I do not like or support the 999 plan, I do think it would result in an increase employment at the minimum wage level (relative to other levels) due to the reduction in effective wage.