George Gibbs Center for Economic Prosperity

2011–Oc⁠t⁠25 Onl⁠i⁠ne Med⁠i⁠a: Sunsh⁠i⁠ne S⁠t⁠a⁠t⁠e News – Sr. Fellow Holcombe on Na⁠t⁠⁠i⁠onal Sales Tax Proposal

By: The James Madison Institute / October 25, 2011

JMI Sr. Fellow Dr. Randall Holcombe quoted in Sunshine State News article “Cain’s Revised ‘9-0-9′ Plan Raises New Doubts” regarding the proposed national sales tax plan.Excerpt:
. . . “The biggest issue I have with the plan is that it would introduce a new national sales tax, and it is easy to envision the tax rate starting at 9 percent, and doubling or more,” said Randall Holcombe, an economics professor at Florida State University.”Cain’s longer-term plan is to phase out the business and personal income taxes and replace it with a larger national sales tax. But one could easily imagine the larger sales tax along with rising rates on incomes when spending continues to be so much larger than revenues,” said Holcombe, a fellow at the James Madison Institute, a free-market-based think tank in Tallahassee.Even before Cain punched his large loophole in the 9 percent income tax rate, Holcombe said it was “unlikely” that working families would have paid more under the plan.”Those people would pay, at most, 9 percent of their incomes in income tax, and 9 percent of their incomes in sales tax if they spent all of their incomes on sales-taxable items, for a total of 18 percent in personal taxes,” Holcombe explained.”But the employee and employer shares of the current Social Security payroll tax is more than 15 percent, which is pretty close to the 18 percent in the [original] 9-9-9 plan. “If people don’t consume their entire incomes, and don’t pay the whole 9 percent income tax [Cain deducts charitable contributions from taxable incomes, and would have additional deductions for those in ’empowerment zones’] they would pay less than 18 percent. And, today, anybody who pays federal taxes beyond the Social Security tax already pays more than 15 percent.”Holcombe concluded that the claim of “higher taxes” under the Cain plan “only appears to hold water for people who are consuming more than they are earning.”
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