“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker

Monday, October 17, 2011

A Benefit of Herman Cain's Federal Sales Tax When Collected Via Tax Returns

I don't know if Cain calls for his 9% sales tax to be collected by retailers or not.

But making it payable via annual federal tax return filing would allow it to be simply implemented.

From reported income, subtract money that increased savings or other investment accounts. Attach usual bank and brokerage, fund management documents, but now record net increases in balances. Those count as savings.

Allow spending on education- tuition, books, fees, etc.- and medical care to be subtracted and exempted as investment, too. In either personal productivity or health.

What's left is spending. Which has a 9% flat levy assessed as tax.

However, I'm not clear as to why Cain, and others, contend that his federal sales tax will somehow access the underground, cash-only tax-evading economy in America.

If one accepts cash and never deposits it in any bank or fund accounts, then it continues, for tax purposes, to not exist. If undocumented cash is deposited in a bank account, then, all other things equal, it will actually shrink the apparent spending level by raising savings without a corresponding rise in income.

It would seem fairly intrusive, though, to have the IRS audit returns in which undocumented deposits are material. For the average American not engaged in tax evasion, deposits are typically traceable to documented income, account transfers, or cash income involving a 1099 form. But for the IRS to detect large scale discrepancies would be to sanction widespread examination of personal bank accounts. Not something I would guess most Americans would desire, simply for reasons of privacy.

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