Herman Cain's 999 Tax Idea is a Pipe Dream

Total retail and food services sales, according to the US Census Bureau here, in 2008 came to $4.4 trillion. (For 2010, the annualized estimate based on 8 months' of data is running at $4.6 trillion).

To replace the federal tax revenue of $2.5 trillion in 2008 solely on the back of consumption taxes, such as a national sales tax, would imply a national sales tax rate of . . . 57 percent. Unthinkable, unless you are Greece.

Herman Cain doesn't advocate that. But his idea of a 9 percent sales tax would have generated, at most, a paltry $400 billion in 2008. Coupled with about $765 billion from a 9 percent income tax on about $8.5 trillion in total adjusted gross income in 2008, the business community would have been on the hook for the missing $1.3 trillion in 2008 federal revenue, when it actually contributed only $300 billion in taxes that year.

A 333 percent increase in the tax liability of American business sounds like something only a commie like Obama would propose.

Herman Cain's numbers don't even come close to matching the problem which we are facing.

Tariffs on Imports at 100 Percent Wouldn't Be Enough to Cover Federal Spending

Here are the import numbers (rounded) for the last three years for all goods and services, according to the latest revision from the US Census Bureau, here:

2008 = $2.5 trillion

2009 = $2.0 trillion

2010 = $2.3 trillion.

Federal revenues in 2008 equaled $2.5 trillion, coming mostly from income and social insurance taxes, as well as a more modest contribution from corporate and excise taxes.

To completely replace that income from tariffs would imply a 100 percent tariff, which is unimaginable.

Presumably at least some of our trade with the world is reciprocally fair, excluding it from such a punishing rate.

At some point along the tariff scale as you rise toward that extreme level, otherwise off-setting import revenues will fall as retaliatory tariffs are imposed by the global marketplace.

A 25 percent tariff on Chinese imports, as The Donald recommends, in 2010 could have generated only in our dreams something around $91 billion in revenues.

At a minimum, a vigorous reliance on tariffs for federal revenues today implies a much reduced size of the federal state.

Rush Limbaugh Can't Think Before 1913

"Look, in a classic sense, Trump's not a conservative, folks.  You don't promise to raise tariffs on the ChiComs 25%.  That's not conservative.  (interruption) People understand this, Snerdley.  You remember when George W. Bush threatened to raise tariffs on imported steel, there was an outcry.  No, you don't raise taxes, period.  That's not the way to deal with it.  That's protectionism.  Smoot-Hawley.  It's a death wish.  This is why I'm always worried about populism.  Populism is not conservatism."

-- Rush Limbaugh, 27 April 2011 (here)

"Tariffs were the largest source of federal revenue from the 1790s to the eve of World War I, until it was surpassed by income taxes."

-- "Tariffs in United States History" (here)

"The magnitude of the tariff shock in the Smoot-Hawley legislation . . . was simply not large enough to trigger the kind of economic contraction experienced after 1930."

-- Douglas A. Irwin (quoted here)

The baneful influence of doctrinaire libertarianism on conservatism continues . . . in the voice of Rush Limbaugh.

One Man's Austerity is Another Man's Tax Increase

When it comes to "austerity," most people with common sense think "frugality," "reduced spending," and generally going on a diet of lower consumption. 

Louis Woodhill reminds us here that what people without economic common sense mean by it is tax increases. Which is why Obama, and some Republicans, want to raise yours.

Woodhill knows we're already in the toilet, and thinks raising taxes now is tantamount to flushing it.

He makes a good case for repatriating capital by lowering corporate income tax rates. In view of the fact that corporations contributed only about $300 billion to federal revenues in 2008, he might very well be right: most of their money is "over there," escaping taxation.

Tax 'Em All: Let God Sort 'Em Out

People who claim, like Rush Limbaugh, that no one is undertaxed in this country don't know what they are talking about. Both the rich and the poor are undertaxed. Here is why.

For tax year 2008, IRS figures show that the top half of the country, over 69 million tax returns, contributed in excess of 97 percent of the tax revenue, $1.004 trillion. The bottom half, over 69 million returns, contributed less than 3 percent of the revenue, $27.9 billion, a staggeringly small sum by comparison.

The effective tax rate on the top half was 13.66 percent, on the bottom half just 2.6 percent.

It seems self-evident that the poorer half of the country escaped a lot of taxation, but how?

For one thing, George Bush's creation of the 10% tax bracket in 2001 reduced federal tax revenues from payers in the 10 percent bracket by $42 billion per year. For another, the Earned Income Tax Credit diverts away even more money, now approaching $50 billion per year. These credits wipe out any federal income taxes qualifying filers may owe, and actually reimburse many of them for the payroll taxes they pay, so that many actually have a negative tax rate. This is using the tax code to provide what amount to direct welfare payments, stimulus spending, whatever you want to call it. But it sure isn't "taxes."

But the poorest Americans are not the only beneficiaries.

These credits also percolate far up through the income quintiles. And none penetrate as high as the child tax credit does, relieving the middle classes of taxes to the point that many people in the middle quintile earning between $38,551 and $61,801 also pay little to no federal income tax at all. Created under Newt Gingrich and Bill Clinton and expanded under George Bush, this credit now reduces federal revenues by $143.4 billion per year. People even in the top income quintile, making in excess of $100,000 a year, can qualify for this credit, which also directly reduces their tax bill, and government revenues.

Taken together, the 10% bracket, the EITC and the Child Tax Credit help taxpayers to be sure, but at a cost of nearly $2.4 trillion over ten years to the federal government.

Compare that with the big tax break the top earners in the country enjoy because the payroll tax cap is set at $106,800. Everything they earn after that escapes the 6.2 percent tax. The annual cost of that is now $130 billion, or $1.3 trillion over a decade. The denizens of the top 25 percent of taxpayers, who earn 68 percent of the total adjusted gross income in this country, will doubtless complain that they already contribute 86 percent of the tax revenue.

But the result is that a narrower and narrower band of taxpayers in the fourth quintile (those making between $61,802 and $100,000 per year) and in the top half of the middle quintile (about $52,000 to $61,800), gets squeezed with responsibility for income and payroll taxes without enjoying the relief provided to their poorer fellows who pay very little in taxes, or their richer ones who can afford them.

A ladder needs rungs on it to get from the bottom to the top and back down again, and ours in the upper half are getting worn out.