Wednesday, October 12, 2011

Intrade Odds: Perry vs. Cain

Intrade odds for Perry to be Republican Presidential Nominee: 10.1% and falling; vs. odds for Herman Cain: 10.0% and rising, see chart above. 

33 Comments:

At 10/12/2011 11:26 PM, Blogger Benjamin said...

Cain is an interesting candidate, and I like his tax plan.
Don't know if he has the cajones to cut defense in half.

And while we wage our war on drugs.....

KABUL — Opium production in Afghanistan, which fuels the Taliban insurgency, is set to rise by nearly two-thirds as prices soar after last year's harvest was blighted by disease, the United Nations said Tuesday.
Ten years after the 2001 US-led invasion to drive the Taliban from power, Afghanistan produces 90 percent of the world's illegal opium, funding much of the militia's insurgency despite an expensive Western eradication programme.
The UN said that cultivation of the poppy crop reached 131,000 hectares in 2011, seven percent higher than in 2010 "due to insecurity and high prices", said the UN Office on Drugs and Crime (UNODC) in its annual opium survey.

 
At 10/13/2011 8:58 AM, Blogger Paul said...

"And while we wage our war on drugs....."

We kill alot of terrorists in Afghanistan.

 
At 10/13/2011 9:09 AM, OpenID American Delight said...

Benjamin, it is interesting that fungus/disease do a better job at destroying Afghan opium than the drug eradication programs have...

But getting back to Perry-Cain.. Looks like Perry peaked too soon, as in, immediately upon his entry. But Cain may be peaking too early too--it would be better to be on the rise like this closer to the Iowa caucuses & NH primary.

 
At 10/13/2011 9:18 AM, Blogger morganovich said...

AD-

i'm not sure it was a function of perry peaking too early so much as blowing up on the launchpad.

many, myself included, were interested in him, then he came out with pronouncement after pronouncement that alienated us. he looked terrible at the debates, wanted more god in public life (and government) and made himself look like a fool by taking a good argument (bernanke is pursuing ruinous policies) and lampooning it by calling it treason.

he managed to lose the entire interested middle in 2 weeks.

he didn't peak so much as lose the benefit of the doubt. we took the wrapping paper off the present and discovered it was socks, not a new bike.

i am having the opposite experience with cain. while by no means a perfect candidate (who is?) i am liking him more the more i see him handle himself.

i think he has a real shot.

i certainly like him a lot better than romney.

to my mind, the other big question is will obama run?

i know a number of smart DC insiders that have real doubts about that.

that would make for a very different race.

 
At 10/13/2011 11:28 AM, Blogger Moniker said...

Is there an indepth review of the 9-9-9 plan somewhere on the web? I didn't see much on Cain's website. I did, however, see an article that said it includes a one time 9% tax on existing wealth. Not sure whether that's accurate, but certainly a point of interest for those of you with $$$.

In any event, I have some doubts about a 9% national sales tax. That's pretty steep. Slowing consumer spending may not be such a good idea in a recessionary & inflationary environment.

Hopefully, he didn't just pick 9-9-9 because it has a nice ring to it. Has anyone studied what the expected revenues of this program would be? Is it enough to cover the projected budget?

 
At 10/13/2011 12:10 PM, Blogger morganovich said...

moniker-

a couple things:

1. i have never heard of nor can i find anything about a 9% wealth tax. i think that's not true. where did you get that info?

2. a sales tax does not nesc reduce spending. if it is offset by, say, eliminating fica, then spending may be the same. you take more paycheck home, but spend more for items. you also likely get a bigger paycheck as employer fica goes away (and likely onto your paycheck). you are wiping out 12% and replacing it with 9. you could make a case that it could boost disposable income.

3. further, a really simple tax system will save you money every year. you won't need a CPA. more disposable income.

the 9-9-9 program was designed with 2 ends in mind:

to have comparable revs from a simple model with only 3 streams.

the levels were picked to produce the correct revenue.

i'm just going back of the envelope here but:

a 9% sales tax alone would raise anearly half of what federal revenues have averaged since ww2. it's roughly 8% of gdp, maybe a little more.

9% of $8 trillion in personal income is another 5% of gdp.

9% of $6tn in corp profits is around another 4%.

that's 17% of GDP, slightly higher than current levels.

then add in the benefit of the sales tax for every foreign visitor to the US. that's not a small number in aggregate.

but, as it would be much easier to collect, you get savings there and as it would likely boost investment, economic activity, and growth, you get a bigger pie to take a % from.

there are about a zillion entrenched interests who do not want to see the code simplified and those who scream 'regressive tax' when they are being treated equally for a change, but i for one would love to see this tax plan tried.

it's clear that what we have is a disaster. time for a clean sheet of paper.

 
At 10/13/2011 12:38 PM, Blogger Ron H. said...

morganovich: "1. i have never heard of nor can i find anything about a 9% wealth tax. i think that's not true. where did you get that info?"

Does that rumor make you nervous? :)

Are you packing for St. Kitts?

If, in fact, Cain has ever proposed such a thing, I can take his name off my list of possibles.

 
At 10/13/2011 12:46 PM, Blogger morganovich said...

ron-

agreed.

if a 9% wealth tax is on the table, even as a one time, then i would walk away from cain instantly and out of the country if it looked to pass.

that said, i do not think it's true.

i cannot find any evidence that he ever said that.

 
At 10/13/2011 12:59 PM, Blogger Paul said...

Same here. I have not heard Cain say anything about a wealth tax any time I hear him discuss the plan.

 
At 10/13/2011 1:04 PM, Blogger Moniker said...

Can't find the original article on the web, but the link below was the likely source used by the author. That said, I think he distorted the information.

http://taxprof.typepad.com/taxprof_blog/2011/10/kleinbard-herman-.html

Bottom line, a 9% sales tax may amount to a one time tax on wealth, but only if (and when) you spend it.

On that note, I'd like to know whether the sales tax would apply to all purchases (gas? real property? food?)

Also, I think foreign visitors can claim a refund of sales tax if they take their purchases out of the country. Maybe Cain's plan won't allow that for the federal sales tax, but that is the current practice with state sales tax. It's generally on a reciprocal basis with other countries.

I still think that there will be upward pressure on wages under the 9-9-9 scheme. If you have broader participation, the money has to come from somewhere. Some of it will cut into people's disposable income and some will come (hopefully) from wage increases.

 
At 10/13/2011 1:15 PM, Blogger AIG said...

Cain's plan is never going to happen. Too many special interests to overcome to get something like that. Its a good idea, but it just ain't gonna happen. What are all the accountants and lawyers gong to do after this?

Cain will have to drop it, once everyone starts criticizing him for opening Pandora's box. But Cain doesn't have a chance anyway

Oops I almost forgot the obligatory scream: Ron Paul 2012!!

 
At 10/13/2011 1:25 PM, Blogger morganovich said...

moniker-

i don't think you can call a sales tax a tax on wealth. it's a tax on spending.

i am presuming that the sales tax will work like a VAT. that would exclude things like real estate (unless you were the builder).

sure, you can get the VAT back when you leave europe too. ever done it? pretty much nobody else has either (except maybe on cars). also, most of what they buy (hotels, transit, food, healthcare etc) would not qualify.

"I still think that there will be upward pressure on wages under the 9-9-9 scheme. If you have broader participation, the money has to come from somewhere"

i'm not sure i follow this argument.

if you save 15.3% on both sides of fica, a 9% sales tax is easily overcome.

you pay 9% income tax too, so even if you have a 0% savings rate, that's 18% max. more likely you'll pay about 17. that means that only if you currently pay less than 1.7% income tax does this affect you negatively, and frankly, i have zero issue with that. having so many taxpayers paying zero income tax is a big part of why we cannot control spending.

time to give everyone a bit of skin in the game.

there is some hidden long term brilliance in 9-9-9 though. it favors savings over consumption. in the intermediate and long term, that's more investment and more growth. you don't need to take as big a % if the pie if the pie is bigger and the US taxcode is a big part of the reason our savings rate is so low.

it favors current consumption vs savings in may ways. that's how to get all the write offs. i have bought cars purely for tax reasons.

that's an absurd system.

 
At 10/13/2011 2:11 PM, Blogger Moniker said...

Morganovich-

"you pay 9% income tax too, so even if you have a 0% savings rate, that's 18% max. more likely you'll pay about 17. that means that only if you currently pay less than 1.7% income tax does this affect you negatively, and frankly, i have zero issue with that. having so many taxpayers paying zero income tax is a big part of why we cannot control spending."

That is precisely the group I'm talking about. I don't disagree that they should have some skin in the game. The issue I raise is whether it will be feasible to impose a 9% income tax without wage increases.

If you're working a minimum wage job, making just over $22k, it will be tough to pay nearly $2k in income taxes. Consequently, there will be upward pressure on wages at the lowest levels.

If the labor input gets more expensive, then the price of goods will go up. Add that to the increased sales tax and you might have a perfect storm.

 
At 10/13/2011 2:13 PM, Blogger morganovich said...

aig-

you think ron paul has a shot and cain doesn't?

that seems a bit far fetched.

the last rassmusen poll had cain in the lead with 29% and RP with what, 4%?

 
At 10/13/2011 2:14 PM, Blogger Moniker said...

Also, FICA is collected by the employer, so it's a secure and dependable source. Compliance will be an issue if the 9% income tax is based on voluntary filing.

 
At 10/13/2011 2:51 PM, Blogger Paul said...

Morganovich,

AIG was being sarcastic about Ron Paul.

 
At 10/13/2011 4:17 PM, Blogger Ron H. said...

Moniker: "Also, FICA is collected by the employer, so it's a secure and dependable source. Compliance will be an issue if the 9% income tax is based on voluntary filing."

1. Under Cain's plan there would be no FICA, so instead of 15.4% there would be 9% income, plus 9% consumption taxes, for a total 18% if you spent every cent you earned. Not much of a change from 15.4%, plus any income tax now paid, except you would have more control over how much you spend, therefore your tax.

Reread morganovich's comment where he explains that.

2. Employers currently withhold for income taxes and FICA. It all comes out of your pay, and it all goes to the IRS. They could continue to do so. No change there, except for rates and the name of the withholding from FICA to Income tax.

3. For most taxpayers, it is already pretty much a voluntary system.

For some interesting information on how such a system might work, see here.

 
At 10/13/2011 4:21 PM, Blogger Ron H. said...

The only problem with Cain's plan is the 9% corp tax. That should be 0%.

I suppose he felt that was necessary to attract people who don't understand basic economics.

 
At 10/13/2011 5:07 PM, Blogger Moniker said...

I challenge the assumption that employer's portion of FICA will be paid to the employee if Cain's plan is adopted. Nothing compels the employer to pay it to the employee rather than the IRS. It's not a deduction from the employee's salary, it's acutally paid by the employer, so why would the employer forfeit it?

The change from 7.64% to 18% (or 17%) is a huge leap for the employee.


As to tax collection, there is income tax withholding by the employer, but it's not the full liability and you can make elections to minimize your withholding. Not to mention that you'll get more people working under the table.

 
At 10/13/2011 8:48 PM, OpenID Sprewell said...

Cain's a compelling guy, but the 9% sales tax is a deal-killer. There is no way we should open that can of worms and no matter what he says, you could not control what future govts would do about raising rates. Here's the full details of his plan that he has posted, not much detail there, particularly about what the lower threshold is for the personal flat tax. All real-world flat tax systems only tax above a minimum income and I see no details about what he would set his lower threshold at, so his plan is still woefully incomplete. Here's a good write-up by FreedomWorks, like that author, I'd prefer going back to the pre-income tax system of duties and excises, which in this day and age would mean pay for what you use. You want firefighter service or SS, you can choose to buy it, like that place in TN where someone didn't pay the fire insurance. Of course, this change is even less likely than Cain's plan passing.

My problem with Cain is that he's not quick or knowledgeable enough to really dominate a debate and while he's very likeable, he doesn't have enough wattage to win on that alone. I prefer a good debater like Huntsman or Romney, but perhaps elections these days are just about symbolism than anything else and Cain's cheery conservatism is what Republicans want to represent their brand.

 
At 10/14/2011 1:18 AM, Blogger Ron H. said...

Moniker: "I challenge the assumption that employer's portion of FICA will be paid to the employee if Cain's plan is adopted. Nothing compels the employer to pay it to the employee rather than the IRS. It's not a deduction from the employee's salary, it's acutally paid by the employer, so why would the employer forfeit it?"

The FICA tax splitting scheme is designed to make employees think they are paying only 1/2 as much. The full 15.4 % is part of the cost of labor, just as unemployment insurance, workman's comp, paid vacation, health care benefits, employer matching contributions to 401Ks, etc.

Everything an employer pays to, or on behalf of an employee, is part of the cost of that employee. They now pay you 1/2 FICA in your check and then take it out as withholding. the other 1/2, they send directly to IRS. They pay it now, and they have no more reason not to continue paying it, than they do to not continue paying vacation or sick days.

 
At 10/14/2011 7:52 AM, Blogger morganovich said...

moniker-

"The issue I raise is whether it will be feasible to impose a 9% income tax without wage increases."

but they are already laying it in fica. they will get an instant 7.65% raise from not paying the employee share of fica.

thus, we are really only talking about a 1.35% tax change. the employers will also stop paying 7.65%. that will mostly result in higher paychecks.

it's what employers are already paying and if the employees are worth it, they will still pay it.

as someone who has run 5 companies, i can tell you that you budget fica as a part of the wage line. if it went away, you'd just pay more. surely some employers would. if they did and you didn't, they could offer your employees more and take your good ones without affecting their profit margins.

in any market, if everyone suddenly has more to spend, prices rise as the same number of goods (or employees) get bid up.

 
At 10/14/2011 7:58 AM, Blogger morganovich said...

moniker-

also: you seem to be starting from the position that it is reasonable for these people to be paying no taxes and trying to maintain that staus quo.

that is where is disagree with you.

a large proportion of voters knowing that all spending will be paid for by someone else is lethal to a democracy.

if their tax burden winds up a bit higher (17% vs 15.3%) that's fine with me.

if we get better growth an investment as a result, that will rapidly push them into a position of getting more dollars anyway.

it doesn't take long for an extra point of annual growth rate to swamp an extra 2.3% of tax rate.

 
At 10/14/2011 9:00 AM, Blogger Moniker said...

Still, there is a fly in the ointment somewhere with the Cain plan. You state that it (1) will not significantly increase the tax burden on low income earners because the new taxes approximate FICA; and (2) tax revenues will remain constant.

However, the Cain plan will reduce the tax burden on businesses, anyone earning cap gains, dividends and interest, anyone who is currently above 18% in the fed tax brackets, and anyone who has the ability and restraint not to spend their disposable income on items subject to sales tax.

So how does the Cain plan make up the delta? Like they say, if you're at the poker table and you don't know who the s*cker is, it's probably you.

 
At 10/14/2011 9:02 AM, Blogger Moniker said...

Also, the notion that the sales tax is a tax on existing wealth rings true in some respects. For example, if you have cash that was earned and taxed in 2011, and you spend it after the Cain plan comes into effect, then the sales tax amounts to a double tax. In this respect you could say the sales tax is a tax on existing wealth. However, I agree that as a general matter, a sales tax is a consumption tax, not a wealth tax.

 
At 10/14/2011 9:08 AM, Blogger Moniker said...

On the FICA tax, I do take your point, that even if labor prices go up as a result of the Cain plan, the elimination of the employer paid FICA frees up money to put toward that additional cost. So net-net zero effect.

 
At 10/14/2011 12:28 PM, Blogger Ron H. said...

Moniker

"However, the Cain plan will reduce the tax burden on businesses..."

All taxes on business amount to double taxation. Any business earnings distributed to the owners of the business are again taxed as income to the individuals. This serves to discourage business activity by adding to the cost of doing business. Remember, if you want less of something, tax it.

"...anyone earning cap gains, dividends and interest, anyone who is currently above 18% in the fed tax brackets, and anyone who has the ability and restraint not to spend their disposable income on items subject to sales tax. "

In other words, this encourages savings and investment, and removes some of the burden from those who are most productive, and produce the most wealth.

"Also, the notion that the sales tax is a tax on existing wealth rings true in some respects. For example, if you have cash that was earned and taxed in 2011, and you spend it after the Cain plan comes into effect, then the sales tax amounts to a double tax."

While you are technically correct, consider the following:

- Most people already pay a double tax in the form of a state sales tax. While this may be unfair, it already exists.

- The amount double taxed would likely be quite small. How much of your earnings can you identify as being from a previous tax year? Most people have income flowing in and spending flowing out on a continuing basis. Picture some amount from your last paycheck of the tax year being subjected to a new consumption tax.

People already plan their earnings and spending, in anticipation of new tax rules.

 
At 10/14/2011 12:43 PM, Blogger Moniker said...

R-
The sales tax is a double tax on wealth if you need to use pre-Cain savings to make a purchase. We agree on that. So, it hits the middle class the hardest. If, for example, you need to save up for a couple of years before you can buy a new car, then this is becomes a wealth tax. If you're affluent enough that your savings from prior years can remain untouched or invested, and you're only spending dollars earned after the Cain plan is implemented, then you're right, no problem. I'm just pointing it out, I'm not saying it moves me to oppose it.

I agree that a sales tax will encourage savings and curb consumption, both of which are desirable outcomes.

I also concur that I'd like to see a reduction of the tax on corporations. Of all the elements of Cain's plan, it's the one I like the most.

All that said, none of your observations answer the question I posed. If tax revenues remain constant and businesses, investors and higher income earners pay less, then which group does the tax burden shift to?

 
At 10/14/2011 1:25 PM, Blogger morganovich said...

moniker-

you are making some false comparisons based on the assumption that a drop in employer funded fica will not pass through to workers.

workers who do not get health insurance get paid more for the same job. many employers will just give you the cash instead if you ask for it. fica will work the same way.

you are also leaving out some important factors.

sure, if you make $20k, you are going to wind up paying a bit more in taxes. 17% (assuming you save some) vs 15.3%. but for the meat of the curve, it's pretty close to parity. (though eliminating deductions is going to boost everyone's taxable income)

the top end will pay a bit less.

corporations will wind up paying more than you'd think as they will pay a VAT too.

i walked through that math on this earlier.

it winds up a bit over 17% of GDP. that does not include sales taxes on visitors and sales taxes on imports.

that's less than we have averaged since ww2 by about 2 points, less factoring in those issues above.

i say well and good to that. we need to cut spending as well. that's a forgone conclusion no matter what the tax system is.

ultimately however, the cain plan produces more nominal revenue. it drives much more investment and more growth.

17% of an economy growing at 4% rapidly overtakes 19% of one growing at 3%.

after a decade, you are getting more actual cash at 17%.

lower US corp tax and preference to exports (which do not pay sales tax) will bring production back to the US.

a tax code more slanted toward investment will likewise up growth.

part of the reason the US has been sputtering for 11 years is a low savings rate and high debt accumulation to fund current consumption.

our current code favors this. you write off interest and current consumption both. the less you save, the lower your taxes.

that is not a recipe for success.

 
At 10/14/2011 2:44 PM, Blogger Junkyard_hawg1985 said...

I will be going to see Herman Cain tonight. He is visiting my little town in Tennessee. I don't know the last time we had a presidential candidate come here (if ever). I'm not sure if I support Cain yet, but I certainly support his 999 plan. There are two features that I think will make a HUGE difference for the long term health of America.

First, when everyone pays the sales tax, their demands for "free" stuff from the government plummets. In states like TN asnd TX that are income tax states, people demand less government from their politicians. I think this tax change wold have a huge impact on federal spending.

The second benefit is with the 9% corporate tax rate. I think you will see the trade deficit quickly evaporate if this 9% corporate tax is implemented. Right now, transfer pricing greatly affect the trade deficit calculations. With a lower U.S. corporate tax rate, export prices will rise and import prices will drop for companies to take advantage of the lower U.S. tax rate compared to other countries.

 
At 10/14/2011 2:51 PM, Blogger Moniker said...

I understand that corporations will pay the sales tax too. So if they spend every penny they're at 18% too. That seems lower than the ETR of most corporations in the marketplace today (except maybe Google and GE).

If all capital gains and dividends are exempt, that creates an additional and not insignificant revenue hole. Some people, like hedge fund managers, earn nothing else, so now they'll only pay sales tax? Sign me up and I'll do all my shopping on my lavish vacations!

Does the 1.7% increase on the lowest income earners make up for all those difference?

I'll take another look at your back of the envelope math, but my guess is that tax revenues will be lower.

 
At 10/14/2011 3:05 PM, Blogger Moniker said...

M-
All of that said, I actually agree with you that reform is absolutely necessary and that this may not be a bad approach. I just think that you have to go into it with eyes wide open and talk about all the implications. Cain is a little skimpy on the discourse at the moment, but it's still early in the game.

 
At 10/14/2011 7:11 PM, Blogger Ron H. said...

Moniker

"All that said, none of your observations answer the question I posed. If tax revenues remain constant and businesses, investors and higher income earners pay less, then which group does the tax burden shift to? "

You only know that those groups would pay less in income taxes. You don't know how their total tax burden will change.

The tax burden would shift to spenders. Who are they? Probably those who are now and will continue to be, high earners.

See the Fair Tax website for more info on a consumption tax.

 

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