I have been talking with some friends about Herman Cain and the 999 plan and it has become painfully obvious that many do not understand the plan. Some do understand it and have some issues with it, and others understand it and love it. So today I thought we would pop the hood on it and give it a good look over.
Many folks have a problem with the 9% national sales tax. I have heard that complaint from a lot of conservatives and independents and it is understandable. The right has spent most of its existence fighting new taxes and I think many have a visceral reaction to the idea of a sales tax at the federal level. I admit that I too had a knee jerk reaction to the idea when I first heard it. Some of the critics also claim that congress can easily turn a 999 plan into a 15, 15, 15 plan or a 25, 25, 25 plan based on their past history and addiction to other people’s money. They also point out that the numbers just don’t add up and it would not do anything to reduce the deficit. One other worry is what the effects of the plan would be on seniors. Another concern is that it creates new taxing systems without really getting rid of the old systems at least at first. So I thought we should take a hard look at the plan and its positives and negatives. We should also explore the political impact of the plan as well as the political realities.
The 9% flat rate on income,
I first went back and looked at my personal finances. Now I cannot be considered a fat cat rich guy by any stretch of the imagination. I won’t get into specifics about my income but let’s just say we struggle at times like most all Americans do and wonder just where the money is going to come from sometimes. But when I looked at the 999 plan and applied it to my paycheck I was pleasantly surprised at the result. Cain’s plan is supposed to give everyone a flat 9% tax on income. All other payroll taxes are eliminated, that includes Social Insecurity payments and Medicare taxes. So first add all those up from last year’s pay stubs and your tax return. Figure the percentage of your gross that it was. Unless you make less than $34K you should see a lot less money coming out of your check.
The 9% national sales tax,
From what is left of your paycheck deduct your house payment and car payment and any other loans you are currently paying off. These are not new purchases and do not qualify to be taxed under Cain’s plan. From what is left, assume the worst case and figure that all of that money will be spent on taxable “new” products. Take 9% of that number and add this to the amount you would be pay at a 9% income tax rate and see how that stacks up against what you pay now in federal withholding, Social Security and Medicare. I already see a savings. But let’s go a little further and deduct every penny you pay in property taxes and all other local taxes and fees. This is starting to look really good. Currently the plan is to tax everything “new” but I really don’t see congress taxing food, at least staples, so we can probably consider that out as well.
The 9% corporate tax,
Just about everyone in the business world that has chimed in on the subject admits that this would be great for business. Just the drop in costs of compliance alone can save companies billions. In fact Cain’s figures on the subject are that it would save American companies 430 billion a year. The only downside there is all the accountants that would be put out of work as a result. Ronald Reagan’s supply side guru Art Laffer loves the plan and exclaims it would broaden the tax base and grow the economy almost immediately.
What about congress increasing the rates?Some folks are hesitant because they believe congress, being true to form, will raise the rates after a while especially if the economy improves. I understand their concern, the government is addicted to money. And that addiction is not going to go away overnight. But if this plan or one like it with a flat tax on income does become a reality, it can never be raised. It would be political suicide for any congressman to vote to raise those rates. The same applies to the sales tax portion of the plan. The class warfare game could not be played over the issue and all voters including the welfare queen baby makers would be affected. This is one of the things I love about the plan, everyone has skin in the game. This is also why during the legislative process on passing this plan the democrats will stir up riots like we have never before seen. Their political future will be tied to defeating this plan and they will pull out all the stops. If Cain is elected, gird your loins and load the guns folks, it’s gonna get hairy. Of course unless the plan has built in protections there is nothing to stop congress from raising the corporate rate so I guess it could become a 9, 15, 9 plan at some point as idiots in DC start trying to figure out ways to grab more of your money to buy votes and influence. Of course it all comes out of the same pockets in the end but most of the electorate is too ignorant on the subject of economics to understand that.
What about creating a new tax system without first doing away with the old one?
FairTax, which is a national sales tax to replace all other taxes. To be fair, (get it?) Cain does call for the FairTax and repeal of the 16th amendment in phase two of his plan. The issue is that some are worried about having a new sales tax and not getting rid of the income tax and corporate tax now. And they are skeptical of Washington following through with phase two which they see as vital. Once again, crack whores don’t put down the crack pipe easily and Washington won’t give up revenue streams from the private sector easily either. Getting phase one of Cain plan passed is one thing, getting phase two passed is another animal and another battle.
Seniors hardest hit?