Herman Cain’s 9-9-9 tax plan is imperfect, but it’s by far the best plan on the table. As such, criticism of 9-9-9 comes from all quarters.
The left is unhappy that its egalitarian nature is the opposite of the progressive tax structure we’ve had for a century. I suspect however that it is not simple tax policy that drives their antipathy, it’s revenge. You don’t have to listen very long to one of President Obama’s “fair share” speeches to recognize it. Or watch much of the “Occupy your city here” demonstrations going on around the country to see the envy. The notion of those fat cat Wall Street bankers paying the same tax rate as a single mother of three who works two jobs to support her children is simply unacceptable.
The other main criticism from the left is that poor will pay more taxes than they do now while that rich will pay less. That is simply not true. Let’s imagine the most difficult of possible situations, where a family of four has an income of $25,000 a year, all in the form of untaxed government benefits. Let’s assume they spend every dollar they have every year. As it stands today, they would ostensibly pay no taxes.
In reality however if they spend their entire $25,000 income they are actually paying $5,750 in embedded taxes. According to the people over at FairTax.org, 23% of every dollar a consumer spends in the United States is due to federal taxes levied on employees, on corporate profits, in the form of excise taxes, etc. If that is the case, then when that family spends its $25,000, in reality, $5,750 of that is for federal taxes.
Under Herman Cain’s 9-9-9 plan that 23% would go away. Here’s an example: Let’s assume this family goes to the store and buys $100 worth of groceries. Under the current system, $23 of that total represents embedded taxes. If you remove that $23 from the total, then the cost of those groceries without taxes is $77. That 23% of embedded taxes would now become 9% as both profits and employees have a 9% tax rate. Therefore, the price on the shelf of the goods will now reflect the 9% embedded taxes and would cost $84. At the register the 9% sales tax would be added and the final price becomes $91.50. That’s 8.5% less than they would have spent under the current system.
If you expand the $100 to the family’s entire $25,000 income, they would actually end up spending $22,962 rather than their entire $25,000. In this case they actually end the year $2,037 richer than they do under the current system. While prices would not come down the day after 9-9-9 went into effect, competition would bring them down rapidly.
As for a family with an income that actually pays taxes, in almost all circumstances they come out ahead via the 9-9-9 plan. Read Ed Morrissey’s piece over at HotAir.com to compare the numbers with a family of 4 earning $50,000. In the few cases where the family does not come out ahead, they too will pay less in taxes as a result of the lower embedded taxes.
From the right criticism comes in the form of suggesting that it has no chance of ever getting enacted. This is a red herring. If conservatives take the White House and the Senate, it will pass easily. And they won’t need 60 votes to get it done as Harry Reid has decided that the nuclear option is no longer particularly toxic.
A more substantive complaint from the right is the very understandable notion that they don’t want the kleptocrats in Washington to have another tool with which to beat the American taxpayer about the head, i.e. a sales tax that starts out as 9-9-9 could easily become 10-10-10 or 25-25-25. I can certainly appreciate that as our current system started out with a top rate of 7% in 1913 but reached 77% by 1918.
That rate creep danger does exist, but the truth of the matter is that it already does. If the passage of the wholly unconstitutional ObamaCare demonstrates one thing, it’s that Washington thinks there are no limits to its power already. It’s only the Tea Party and a few Republicans who are keeping a sales tax from happening today. Remember Nancy Pelosi proposing the VAT not so long ago? Besides, Cain is proposing that a balanced budget constitutional amendment be passed, and I would recommend that he adds language that requires a 2/3 majority in both houses to increase taxes. As a cherry on top, the 9-9-9 plan would eliminate the ability of politicians to skew the tax code to help their friends or harm their enemies.
At the end of the day, the thing that is most compelling about the 9-9-9 plan is the economic growth it will stimulate. This growth comes from two directions. The first is the $350 billion Americans spend each year simply complying with federal tax regulations.(here and here) That is the equivalent of a boost of 2% to the economy, or a $1,000 per person that Americans would have to spend. The second part of that is the investment and jobs that would be created. Today the United States corporate income tax rate is 35%. If the corporate income tax rate went from 35% to the 9% included in the 9-9-9 plan, you would see trillions of dollars in investment flood into the United States as companies repatriated profits held overseas and sought stronger financial results.
To put that change in perspective, under the current tax structure a company that earns $1 billion in the United States pays $350 million in corporate taxes, leaving the shareholders with a net profit of $650 million. If the 9-9-9 plan were in place those same shareholders would instead enjoy a net income of $910 million, fully $260 million more, or 40% more money in their pockets. The resulting rate would be amongst the lowest in the world and would make the United States an investment magnet for investors and companies from around the world.
Then of course there are jobs. I began this post talking about how the poor would not be negatively impacted by 9-9-9. Actually they will be positively impacted. What is the single most powerful way to turn poor people into middle class taxpayers? More and better paying jobs, of course. With a 9.1% unemployment rate there is little incentive for companies to increase the wages of their employees. There are simply too many people willing to step in and fill the shoes of any disgruntled employee. At an unemployment rate of 4% the dynamic is turned on its head where employees are far better positioned to demand and get wage increases. As economic growth creates millions of jobs and as demand for workers begins to outstrip supply, the value of those employees increases and their compensation follows suit.
At the end of the day 9-9-9 is by far the best plan on the table. It’s easy to understand, it saves Americans money via lower prices, it means more investment, a growing economy, more jobs and higher wages. If Americans really want to return to prosperity, 9-9-9 will get them there. The question is, do they have the courage to finally walk away from incremental change and do something bold?
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I’ll tell you who really pi$$ed me off with his criticism of the plan in last night’s debate – Sir Mitt of RINO. He pulled the old Leftist trick of peeling off one part of the plan and attacking it with a straw man argument. Unfortunately, Mr. Cain’s ‘apples and oranges’ response was too abstract for most viewers. He should have just said something like ‘You will pay state and local taxes regardless – that’s a given. The offset you should be comparing the natioanl sales tax to is the savings from lowering your national income tax.’ Oh well – still plenty of time to sharpen the message and send Romney moping down road with his bushel of apples and oranges.
d(^_^)b
http://libertyatstake.blogspot.com/
“Because the Only Good Progressive is a Failed Progressive”
@LibertyAtStake:
Made me smile.
News flash: People who are being marginalized and discarded by a system that is funneling an increasingly disproportionate share of income and wealth to the top are not angry because they, too, are not driving $100,000-plus automobiles or wearing $600-and-up Gucci jeans. They are not angry because they can’t afford a Rolex. The American dream the average American is losing never included such status symbols to begin with.
Envy is not an economic issue. It’s a character flaw. From what I’ve observed, a strong case could be made that it’s more common among the wealthy than the poor.
@Greg: Between Goldman Sachs laying off 1,000 (MORE) and BofA laying off 30,000 and Wall Street in general (14% of NY’s total tax revenue) laying off an additional 10,000; it seems that the ”occupiers” are getting just what they wanted.
http://floppingaces.net/most_wanted/goldman-loss-offers-a-bad-omen-for-wall-street/#comment-345246
or
Now those occupiers can try to figure out how to wring money out of a turnip.
9-9-9 is a good plan. Kudos to Mr. Cain for running on this platform.
Sorry, I still don’t like this plan, no matter how many ways you slice it. The fed gov doesn’t have a revenue problem, it has a spending problem. And I think Mitt was correct, people who do not have state & local taxes will not want a consumption tax.
What I want to see are the p&l statements from Godfather’s Pizza during Cain’s time as CEO there. He refuses to release them. That is a huge issue for me. We already have a secretive president and I don’t want another one in the WH. If he was really ‘all that’ as a CEO, he would be proud to disclose that information.
And I would like to see Rich Lowrie’s analysis that 999 will generate more than 2.3 trillion. Do you have it?
Cain also has ‘misspeak syndrome’. Electric fence. I’m kidding. Well, I’m semi serious. Right of Return? I’d release all GITMO prisoners in exchange for one US POW. No, I didn’t understand the question. I misspoke.
I especially don’t like that he flat out ‘misspoke’ when he answered Paul during the Bloomberg debate. Paul was being diplomatic when he said Cain called those who want the Fed audited ‘ignorant’. Cain’s exact word was ‘stupid’.
I don’t want a president who will rely heavily on ‘advisors’ for everything and that is what I feel Cain will need. The current occupant in the WH already does that and we see how well that’s worked out for us.
Not again, please.
Take another 9 cents from every dollar a poor person spends and he will ‘prosper?’ What are you, stupid?
Only true in states that don’t have a sales tax.
I’d have to see the bloody details in black and white… using small words that I can understand before signing on to this. I can’t see the States and local giving up their sales taxes. Wresting all the other taxes that currently grace my pay stub from the Fed will NOT happen. Herman may have a lovely, simplistic idea – bless his heart – but unless CONgress gets behind it, it ain’t gonna happen. What WILL happen is more taxes to pay for the profligate spending we’re already enjoying!
A pox on all their houses!
@just me 95:
This does not change the amount of income; 9-9-9 is supposed to be revenue neutral. It is to make federal taxes more apparent and more fair.
I think nearly everyone hear agrees that the fed spend way too much. Cain wants a limitation on what the federal government can spend.
@liberalmann:
If the economy turns around, they will benefit greatly. It is obvious that Obama’s spend more and tax more is not the solution; there are not enough enough jobs to keep pace with new people graduating. Unemployment went up under Obama and his spending plans; not down.
Now he offers a plan to keep blue states from making hard choices for 1 year, and paying for it all over 10 years. He is such a brilliant man who understands economics so well.
@FedUp:
The states won’t. This is unrelated to their taxes. That is why Cain keeps saying “Apples and oranges.”
If Cain wins, that will be a mandate from the people; particularly, if the Senate and House are heavily Republican. So, that is how he will get it through Congress.
@Gary Kukis:
Really? Being a Fed man I have my doubts.
And then you write this:
If he understand economics so well why didn’t he write 999 himself? And why doesn’t he release the p&l from the time he was CEO of GF Pizza? If he ‘turned it around’ and it was such a great business, Pillbury wouldn’t have sold it just 3 years on from the time he took it over. From what I read he bought it at a much lower prive than Pillbury did so he didn’t improve the pizza joint.
And why does he intend to burden Congress with a plan he intends to do away with? 999 is temporary. He’s not at all brilliant. If he was he would have been bold and gone straight for the tax plan he wants. Piddly little steps don’t cut it. And as far as I can tell, he hasn’t come out with any cuts to the beast. This man has already said he’ll surround himself with ‘advisors’ acknowleding he doesn’t really know what the heck he’s doing. He won’t even have a foreign policy plan until he’s in office. Great. Another clueless POTUS.
Oh, and he lied to Ron Paul during the Bloomberg debate. Just flat out lied. You honestly want another secretive liar in the White House who surrounds himself with big corporation/FRB ‘advisors’?
I don’t.
But thank you for trying.
According to this LATimes article:
I saw this coming a mile away.
I wondered why Cain didn’t make it public before now.
Anyone living off of the interest from their 401K or other pension or savings on top of SS would also likely qualify for exemptions, I am sure.
@just me 95:
I wrote this? It does not sound like something I would write.
Is that what a straw man argument is all about?
@just me 95: I am basing Cain’s promise to restrain spending on 3 things (1) he is a believer in Jesus Christ; (2) as a businessman only, I believe he understands balancing the books; (3) I trust him.
There are others who would most certainly balance the budget: Ron Paul and Gary Johnson, but neither of them are going to get elected. I am glad they are both in the race, however. Bachmann, Gingrich, Santorum maybe.
When it comes down to it, I am simply comparing my views with the candidates, and then making a judgment based upon what I believe about their character.
However, no matter how this turns out, I will be voting for the Republican candidate.
@Nan G: 2 possibilities come to mind: (1) either they are playing catch-up and fielding complaints as they come in; (2) or this was in their plan from the very beginning. As at least one person has pointed out, 9-9-9 on the surface is simple; the application of it is quite a bit more complex.
Free pizza coupons to replace the food stamp program?
Or maybe some sort of identification that makes it clear whether you’re poor and exempt from sales tax or not, that must be displayed when engaging in buying and selling. (No doubt Michele Bachmann is already working on that theory.)
The only thing we do know is that Herman Cain will be pressed for details during the next televised republican debate. I’ll wait to hear what he has to say. I think he’s the most interesting of all of Obama’s potential 2012 opponents.
@Greg:
Probably more like the Earned Income Tax Credit whereby many Americans file just to get money back.
Who knows?
It might even be done like a rebate where you get all of your 9% spent sent back to you on a monthly basis, like some supermarkets do when you use their membership cards at checkout.
Details will probably be forthcoming.
@Gary Kukis:
From your 15
Now from your 11 to liberalmann
Please do not accuse me of creating strawman arguments when it is your failed memory at play.
Before I support anyone, I want absolute, full disclosure of everything the candidate has ever been involved in. Call me a vetting freak should you so desire, but please do not dismiss my query because it does not conform with your goal. I was absolutely sickened by the MSM blackout that happened during BO’s campaign. My elderly parents don’t have cable and are not internet saavy, my mother refuses to even go on the pc, God Bless her, so the MSM was their only source of information on BO and we all know how rosy a picture they painted of him. I was the one informing them of BO’s shadey past and ties. And I am now the one vetting the candidates, not only for myself, but for them.
Cain’s plan is in two parts. Why? Because he wants to add a new tax so people can be educated about the Fair Tax and get used to it? Just go for the Fair Tax if that is his goal anyway. Let people debate about the pros and cons of that. And now he’s adding all sorts of caveats to what his phase one is all about. Will he now allow the business deduction for labor? His plan removes it. Will he change his mind and still allow the home mortgage interest deduction? Where did Rich Lowrie get the 999 plan from? He’s not an economist.
If Cain’s 999 was really so simple no explanation would be necessary. There would be no need for all these posts everywhere trying to explain it. He would have written a coherent plan, posted it on his website, and been done with it. As it stands, that is not the case.
And, please, do not attempt to stifle my concerns about Cain with false accusations. This is probably the most important election our country has ever seen. I encourage all to thoroughly vet every candidate.
I listened to Hannity this evening. Cain was on explaining his plan. I still need to do some research but it sounded like a good start. It is actually a combination of a flat and fair tax to bring both proponents to the table. He also talked how he would cut spending. It is a separate plan from his 999 plan. He also talked about abolishing the IRS because with his plan you wouldn’t need them. This will also neuter the fed gov a bit as some of the ” higher ups” have used the IRS to intimidate or threatened others. ( e.g. Bill and Hillary Clinton )
If you listen to the perspective candidates he is the only one who had presented any type of plan. The others are too busy bashing each other instead of concentrating on the issues.
I am retired. My husband, a teacher, retires in about 2 years. I receive a pension, so I don’t pay social security taxes, those were all paid before I retired. I am too young to receive social security payments. My husband is a teacher, no social security is deducted from his paychecks, but 8% goes to the California Teachers pension plan CalSTRS. In all explanations about Mr. Cain’s plan, it looks to me that our payments to the government would skyrocket under the 9-9-9 plan since we don’t get the social security “credit”. There appears to be a huge tax on those who have a stream of income that are not paying social security. What am I missing?
@Disenchanted:
That is not true. You are obviously ignoring other candidate’s plans. Gingrich’s plan includes abolishing the Natl Labor Relations Board, eliminating capital gains and estate taxes, and he wants to rplace the EPA, but I don’t know what with. Romney has his 59 point economic plan. Ron Paul has his cut $1trillion from spending by abolishing the TSA, closing the Depts of Energy, HUD, Commerce, Interior and Education while moving parts of them to other Departments where they can be handled and block-granting Medicaid and SS to the states where they can handle those things. They will all repeal Obamacare, Frank-Dodd and Sarbanes-Oxley. And now Perry is coming out with a straight Flat Tax plan – I don’t know if it’s out yet.
I feel it important for everyone to read each candidates economic plan. I would love to see all of them discussed.
Part of the problem with the 9-9-9 plan is not the plan itself, but what a “compromise” driven congress will do when their hot,corrupt little hands on it. I have not heard or read enough on this plan to convince me that it doesn’t shift the tax burden from the wealthiest to the lower and middle class. Nor are there is there any incentive forCongress to repeal all the other current taxes. This smacks of political naïv eté on Cain’s part. The other flaw in his statments is that he says that taxes wont be raised on anyone, but that it will be deficit neutral. Cain needs to explain in depth, or get off the stump. I refuse to vote for his plan to find out what’s in it. We’ve played that game too often.
@just me 95:
Okay, I see where you got that. I was being tongue-in-cheek, speaking about Obama and his latest “jobs bill”
Sorry for the confusion.
I take back my snotty remark to you and apologize.
@HChambers: You could be correct here. However, Cain says that he has plans for those who have a low income.
Most retired people have a variety of assets, including their house. A 0% capital gains tax and a 0% death tax could more than make up for whatever other taxes you pay.
No doubt, there are those out there who have retired, planning on NOTHING other than social security. That is unfortunate planning in some cases, but there must be people out there like that.
“Envy is not an economic issue. It’s a character flaw. From what I’ve observed, a strong case could be made that it’s more common among the wealthy than the poor.”
My guess is that case would be made by the poor, if they even would care to, or have you, as their idiot proxy, preach to the smelly progressives that would gather to listen. (those progressives not too busy in their quest through crony capitalism to raid the American tax payers through ‘green’ businesses.)
@Gary Kukis: your 25
No harm done 🙂 Apology accepted!
Debate is good. This election is too important to not get right. I just hope the candidates’ entire platforms and historys will also be scrutinized.
@HChambers:
Why would your husband not pay SS?
Re: Tom in CA… Why would your husband not pay SS?
Because California teachers have a separate pension system. They pay into it instead of Social Security. The social security he earned as a military officer will be offset up to 40% (there’s a max offset, but I don’t remember how much) because he has the state pension.
@ The 10th commandment:
You shall not covet your neighbor’s house. You shall not covet your neighbor’s wife, nor his man-servant, nor his maid-servant, nor his ox, nor his donkey, nor anything that is your neighbor’s.
@just me 95:
I agree completely. Good to agree on something once and awhile.
Vince– You might want to read this analysis before you decide. Here’s a link which will download the 24 page .pdf paper to your computer: Herman Cain’s 9-9-9 Tax Plan by Edward D. Kleinbard of the USC Gould School of Law. I thought it was way off base at first, but if the the author is correct and wages paid by a business are no longer deductible to them, the 27% wage hit might be true. The abstract:
Keep in mind that Kleinbard blogs at HuffPo, which tells us something…
Uh, I just read about Cain’s ‘opportunity zones’, and I’m not liking it at all.
Smacks of central planning and that is pure socialism. He also wants to address
Isn’t that a lot of interference by the fed Gov into state rights?
I agree that zoning is out of control, but that has more to do with the United Nations HABITAT garbage and Agenda 21 than anything else – at least that’s how I see it. Is he going to scrap all ‘sustainable development’ programs? That sounds alright, but I don’t know if that’s part of his plan.
Another thing, wouldn’t the most distressed inner cities be held by democrats? Why should dem strongholds be given special treatment when they created the problem in the first place? Or does he think the people living there will suddenly start voting Republican because he’s going to ‘put them to work’?
And then you have to think that his 999 part1 will have to last a pretty long time because, first, it’ll have to go through Congress, and after they frig around with it for 2 or 3 years and if the ‘o’ zones survive that process, the rewarded zones will have to be chosen, investigated, set up then given time to ‘prosper’ under his plan.
My head is hurting thinking about all of this so I’ll just let others ponder.