Dunedin has a quaint downtown area consisting of small shops, restaurants, and a city park called the Octagon. The Octagon is maybe fifty yards long and fifteen yards wide. Normally used for city events such as veterans' memorial services, during our vacation, the Octagon was infested by members of the Occupy Wall Street protest.
Every generation of twenty-somethings gets a name. We have generations, X, Y, and Z. Now we have a new generation, Generation N (for narcissist). Despite never having been employed or graduating from college, twenty-one year old Johnny Douche believes recorded history began with his birth. The year is twenty-one A.D. (After Douche).
Johnny D is so convinced that his opinions are correct, given his wealth of life experience and education, that he is justified in seizing public property for his exclusive use. The other seven billion of us have no right to ask Johnny D to limit his use of the property. Our opinions cannot possibly approach the importance of his opinions. While I agree with many of the points raised by the Occupy Wall Street movement, I disagree with their sense of self importance.
Republican presidential candidate, Herman Cain, has suggested a tax policy for our country, called “9-9-9.” His proposed plan features a nine percent sales tax combined with nine percent flat tax rates on personal and corporate income. My wife, a life long democrat, renamed his proposal “Nein – Nein – Nein”) “Nein” means “no” in German. Picture my wife, a five foot two petite blond, imitating Adolf Hitler, shouting “Nein, Nein, Nein.” It is incredibly sexy – to Nazis, maybe.
New Zealand has a tax system similar to Herman Cain's 9-9-9 proposal, They have a sales tax combined with both personal and corporate income taxes. The sales tax rate is 15%, while the top personal and corporate tax rates are 33% and 28% respectively. In theory, the sales tax, known as the “goods and services tax (GST)” is a flat tax. However, the New Zealand party is campaigning on a platform of exempting fresh fruit and vegetables from the GST. As you can see, a flat tax doesn't always end up as a flat tax.
Maintaining a sales tax as a truly flat tax isn't the only problem with a national sales tax. While in New Zealand, my brother and I went trout fishing in a mountain stream outside Queenstown. Queenstown is a city in the central part of the south island that is bordered by lake Wakatipu and surrounded by mountains. We hired a fishing guide to take us to a cold, rocky stream filled with rainbow and brown trout. Our guide only accepts cash. So we paid him in Kiwi dollars, each of which is equivalent to about eighty cents U.S.
Why do you think our guide only accepts cash? Maybe he has had problems with bad checks, but I doubt that. He could always accept what New Zealanders (known as Kiwi's) call EFTPOS. That is their national direct debit and credit card payment system. The real reason he only accepts cash is to avoid paying the GST. Electronic payments are tracked by the Inland Revenue Department (IRD) which is the Kiwi equivalent of our I.R.S. As an aside, beginning in 2011, the IRS is requiring the reporting of credit card transactions on 1099 forms.
As sales tax rates rise, the incentive to understate sales rises as well. Our guide only accepts cash, because cash transactions can't be electronically tracked. If you combine Herman Cain's nine percent proposed sales tax with the five percent that we already pay in Virginia, you get a combined sales tax rate of fourteen percent – only one percent less that New Zealand's GST rate. As sales tax rate rise, activity in the underground, cash only, economy also rise.
Cain's Nine-Nine-Nine means most individual taxpayers will be paying eighteen percent in taxes – nine percent in sales taxes on purchases and nine percent in income taxes. That is more than the average tax rate paid by most of my tax clients. Nine – Nine – Nine is a tax increase for most individuals.
Tax rates of nine percent for sales, personal income, and corporate income probably won't raise enough revenue in the United States to even replace our current level of tax revenue let alone make a dent in the budget deficit. The rates will have to be more like fifteen percent for each. If we add a fifteen percent sales tax rate to a fifteen percent personal income tax rate, most U.S. citizens will be paying close to thirty percent of their incomes. I can see my wife goose-stepping and shouting, “Fünfzehn, Fünfzehn, Fünfzehn.” That's “fifteen” in German.
Enter the lobbyists. Do you really believe the second the ink drys on the President's signature on a flat tax plan, congress won't start passing exemptions? We will have oil companies,manufacturers, realtors, and all manner of other lobbyists in line for handouts – all the same people we have now. The reason we have a complex tax system is that a lot of people want it that way and always will.
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