Fair Tax Would be a 27.1% Sales Tax According to Herman Cain's Report

Real Estate Agent with Atlanta Communities Real Estate Brokerage GREC #208281

Last night at the Republican debates, Herman Cain directed everyone to his website where he said that he now has a detailed analysis of his 9-9-9 plan.  I was so happy to hear that because previously he had just leaked it out to select journalists.

Being the policy wonk that I am, I went there to read the details.  Warning. His ten page summary isn't the easiest thing to understand.  But I found some really interesting facts.

The report evaluates three separate tax plans and figures out what it would take for each taxing method to work individually.  Then it shows that by combining parts of the three plans he can come up with a nice 9-9-9 plan that would be the best of all plans.

One of the plans that is analyzed is the  "Fair Tax" which he calls a more comprehensive variant of the retail sales tax.  It is so interesting to see the numbers that they come up with.  Remember, the Fair Tax is what Herman Cain says on his website that he eventually wants to get to

"Amidst a backdrop of the economic renewal created by the 9-9-9 Plan, I will begin the process of educating the American people on the benefits of continuing the next step to the Fair Tax."

In his analysis, he says that a straight retail sales tax that could replace all of the other taxes that we pay would actually have to be 40% if we talk about it in terms that we normally use when talking about sales tax.  This is straight from his report.


"Replacing the revenues from our selected taxes would require a retail sales tax rate of 28.6 percent on an income-tax equivalent basis (not shown on table). This means that out of every dollar spent, 28.6 cents is tax.


A retail sales tax, however, is normally expressed as an add-on rate to the before-tax price of the item. An income-tax equivalent tax rate of 28.6 percent means the pretax price of the item is 71.4 cents. To generate 28.6 cents in tax revenue, the stated, or add-on, sales tax rate would have to be 40.0 percent."


And that's with no exemptions for food and medical care. The report goes on to say that if there were exemptions for those items it could raise the sales tax rate by one-half.  That sounds like it could be as high as 60% if those things were exempted due to making it politically feasible.


But wasn't the  Fair Tax supposed to be 23%?  They go on to explain that.  You see, the Fair Tax is what they call a comprehensive variant of the retail sales tax.  They somehow will put a special tax on other things that aren't currently taxed, such as compensation of general government employees.  At the Fair Tax site they explain that where a government provides a service that is free, those government employees will be tax 23% on their wages.


"A more comprehensive variant of the retail sales tax is the so-called “Fair Tax” that adds several special taxes to increase the tax base. Largest is a special tax on the compensation of general government employees and, in some cases, government investment purchases (not considered here). Also subject to tax is compensation in the institution sector and the untaxed services provided by the financial sector."


They say that when expressed as an add-on sales tax, the Fair Tax would end up being 27.1%



"The tax rate comparable to the others would be 21.3 percent, 27.1 percent when expressed as an add-on sales tax."


So there it is folks.  In Herman Cain's own analysis, his ultimate goal, The Fair Tax, would be a 27.1% sales tax on goods and services.  Services include real estate agents, house keepers, lawn service people, barbers etc. 


Does a 27.1% national sales tax have a snowball's chance in hell of ever getting passed?  I don't think so.  What is likely to happen though is that the 9-9-9 plan will stay around and therefore we'll have not only an income tax but a new national sales tax.


Herman Cain actually wrote an article in November of 2010 stating how horrible a national sales tax would be.  I kid you not.


"Giving the administration and Congress another tool to tax us and confuse us is like giving an alcoholic a key to the liquor store with no supervision, only to discover that he locks the door after he is safely inside.


A national retail sales tax on top of all the confusing and unfair taxes we have today is insane! It gives the out-of-control bureaucrats and politicians in denial one more tool to lie, deceive, manipulate and destroy this country."


To his credit, he does qualify it that it would have to be something like the Fair Tax that would eliminate all of the other taxes.  But I think that it's naive to think that we would actually get all the way to the Fair Tax.  It's more likely that we would be stuck with a new federal sales tax and in Herman Cain's own words, that would be "insane".


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About the Author:  Tim Maitski has been a full time Realtor since 1999. He has sold several hundreds of homes in areas around metro Atlanta.  Tim started with RE/MAX Greater Atlanta and is now with Atlanta Communities Real Estate Brokerage.


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Kenneth Cole
Weichert Realtors Appleseed Group, 2043 Richmond Ave. S.I.N.Y. 10314. office phone 718-698-9797, Appleseedhomes.com... - Staten Island, NY
NYS Licensed Real Estate Salesperson

I guess the only "Fair tax" is the tax someone else pays.  That's how the federal income tax started, it was to only effect the top 1%.  Interesting.

Jul 16, 2012 10:34 AM #1
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