Thomas Jefferson

Thomas Jefferson

Sunday, October 16, 2011

999, Is It Good For You?


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?
I have heard this argument before from conservative friends and it is a genuine concern.  They like the idea of the 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?
Another criticism of Cain’s economic plan is that it would put a heavy burden on our eldest tax payers.  Or as Rush calls them, “our seasoned citizens”.  Will those living on Social Security benefits and pensions have to pay the 9% on income?  What about medicines?  They are a “new” product and subject to a 9% sales tax under Cain’s plan aren’t they?  Cain’s plan outline is vague on details about such things.  Again I expect congress to exempt drugs and perhaps give a break on senior’s pensions.  Of course the sales tax would be hard on elderly with fixed incomes.  But their Social Security and pension benefits are being taxed already, so let’s not act as though they are not already carrying a bit of the burden as it is.  And if they have planned well for retirement they stand to gain from the plan like everyone else.

Deficit reduction,
Whether this plan is “revenue neutral” (a term that means it takes in exactly the same revenue as the old system) or not is really not the issue.  In my honest opinion deficit reduction is a weak strawman argument.  The idea is to grow the economy and the additional tax revenue that generates will help to reduce the deficit.  Of course that is if congress does not increase spending as they take in more money.  This is why Cain has also called for drastic budget cuts as well. 

Political Impact,
The effects of the 999 plan on politics in this country could be enormous.  If the bulk of the plan were to be passed and after the riots by the leaches on society died down, we would see a very different political dynamic in Washington.  The left would undoubtedly work with their lame stream media compadres toward repeal and run on that platform at least for a few election cycles.  If we can get past that assault though the face of the Democrat party would have to change or it would be wiped away from the political arena.  The class warfare tool that the left has used so effectively in years past will be gone and the resulting economic boom would mean those tactics would become less and less effective across all racial and socioeconomic groups.  They won’t completely go away, but it would set the socialists and communists back several generations.    

Realities,
Ok, all this talk of flat taxes and everyone paying in to the system the same rate is like porn to conservatives and libertarians, but let’s get real.  Even if Cain was swept into office in an overwhelming landslide and Republicans took over the Senate this plan would have a tough row to hoe in getting passed as is.  When Ronald Reagan was elected in a landslide in 1980 he had a bold tax plan that he managed to get some parts of passed even with a Democrat controlled Congress and Senate.  But it was not the original, and compromises had to be made to get some relief passed.  The temptation to play politics with Cain’s plan is too great and I just doubt that Republicans in Congress would have the steel backbones necessary to get it passed in its current form.  The Marxists in the Democrat party will scream bloody murder about the burden on the poor and how racist the Republican party is for just suggesting that poor people that have benefited from the system for years actually pay their fair share.  John Boehner would undoubtedly have several good cries over the subject and come out with a “deal” that would be extremely watered down.  I think the way to look at it is, that it’s kinda like negotiating the price on a car.  Your first offer must be ridiculously low to set the tone for future negotiations, just not so low that the used car salesman does not take you seriously.  The 999 plan is very bold and starts the discussion over reforming a broken system.  Just getting Congress to consider change is a step in the right direction.  Many people criticize the plan as being very light on specifics.  But it is not the President’s job to get specific with something like this.  The specifics are Congress’s job, the chief executive provides a vision and direction.     








3 comments:

  1. Hey, let's give it a whirl!!

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  2. Great analysis!!! I like Cain because he is right out in front with bold ideas.. and makes no appology for it!

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  3. Up till now, I was not on board with Cain. But with an analysis like this one, I'm having second thoughts about Cain, at least his 999 plan. Suddenly, I'm thinking thinking this plan could very well be a step in the right direction. As for his numerous gaffes, well, who among us hasn't misspoken at times. In any event, you might be on to something blogger guy, and Cain too. I just hope his decision to not go to the early primary states won't hurt him.

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