9-9-9 will get you...eventually
Re: Herm Cain鈥檚 9-9-9 tax plan, a number of commenters (very reasonably) question why you would assign the full 9% of the sales tax to people who don鈥檛 consume all of their income.
Perhaps the easiest answer is to just think of the sales taxes you face today, if you live in a city or state that has one. If it鈥檚 X%, you probably don鈥檛 think of it as <X just because you don鈥檛 spend every penny. You correctly think of it as X, because eventually, you (or your progeny) will spend what you鈥檙e not spending today, and at that point you鈥檒l face the tax.
If you don鈥檛 consume your income today, you will tomorrow, and it amounts to the same thing in 鈥減resent value鈥� terms (鈥減resent value鈥� is just the value of future income streams in today鈥檚 dollars).
Ed Kleinbard explains it here, but I grant you it鈥檚 not exactly intuitive:
Imagine, for example, that an employee has $500鈥vailable to spend on consumption goods. When she spends that, she will incur a sales tax bill on her purchases. If the sales tax rate is 9 percent鈥he will incur a sales tax bill of $45鈥�
But what if she doesn鈥檛 spend all the money today?
One way of seeing what happens in the deferred consumption case is to imagine that the employee sets aside $45 today into a little fund to pay her eventual sales tax bills attributable to spending $500. If the employee spends all her available money ($455) on consumption goods tomorrow, the money just immediately goes out of the little set-aside fund. If by contrast the employee defers consumption for a few years, then her budget for consumption (her $455 of cash, net of her mental sales tax set-aside fund) goes up by the time value of money [meaning she invests it, for example, so it grows--JB]鈥�, but so does her $45 set-aside fund. When she does consume she will consume more in absolute terms, but the same in original present value terms鈥�
The net consequence is that the sales tax is equivalent to another 9 percent payroll tax鈥�
