Thursday, October 13, 2011

Mad Money

Jim Cramer, from the financial show Mad Money, has been on CNBC radio in the morning when I come to work. It adds a little knowledge to the mix which often seems like a discussion between a group of the Fox friends minus much of the bias. That said, there is still plenty of bias. The talk this morning in my 15 minute commute was of Cain's 9-9-9 tax plan. I believe the concept is that we start a national sales tax of 9 percent and the lower income tax and corporate tax to 9 percent. I only have to be mildly correct to know that a 9 percent sales tax would hit everyone who purchases more, rather than plays with their money like the rich. Sales taxes are always regressive and would obviously benefit the rich considerably, who even after all the generous income tax breaks they get, pay less than us, but more than 9 percent. And of course the rich purchase less things so they wouldn't be bothered much by the sales tax. Again, I don't know about the details but would they pay a 9 percent capital gains tax as well?

The interesting thing this morning about the discussion was that Jim Cramer said that Cain was at least playing up to the rich constuency of all Repupblican candidates but he had learned when he studied law in law school and had mainly studied tax law, that a sales tax was a regressive tax.

I often marvel every morning about how strange it is that these financial people have the jobs they do with their lack of knowledge, but Jim Cramer had the knowledge. Of course, anyone who took an introductory economics course of any kind should have this knowledge of sales taxes being regressive. The thing I find fascinating is that Jim Cramer had to pull out his educational credentials to present this obvious fact to his colleagues. In other words, he was warning them not to argue against him because he knew. But the deal is every one of them should know, it is their job to know things like that.

I truly do not have the credentials they do and barely understand the concept of standard deviations and the like, and certainly not how it applies to a certain stock. They are all very smart, but sometimes surprisingly dumb. You see, there is a further problem with Cains concept of taxes that wasn't even mentioned as the CNBC folks mulled it over. The problem right now is income inequality. That much is obvious and being accepted more and more. This income inequality causes a lack in demand, when added to our monumental problems, won't let us crawl our way out of the unemployment problem we have. The simple easy to understand problem with Cains tax structure is that it would move the burden of taxes onto consumption. In other words, people would be taxed if they spent money. DEMAND would be taxed heavily. Unless Cain has an entirely new economic system planned other than the capitalistic one we use now, this would be devastating to an economy already short on demand.

Cain's tax plan is a nightmare on a purely economic basis.

But really, I don't know, I didn't study tax law in college.