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comm
Joined: 22 Jun 2010
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 Posted: Fri Oct 14, 2011 1:21 am Post subject: Herman Cain's "9-9-9 tax plan" |
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| www.hermancain.com wrote: |
- Business Flat Tax � 9%
Gross income less all investments, all purchases from other businesses and all dividends paid to shareholders.
Empowerment Zones will offer additional deductions for payroll employed in the zone.
- Individual Flat Tax � 9%.
Gross income less charitable deductions.
Empowerment Zones will offer additional deductions for those living and/or working in the zone.
- National Sales Tax � 9%.
This gets the Fair Tax off the sidelines and into the game. |
The plan would eliminate all other Federal taxes, tax rebates, and tax credits. Cain says it would include a requirement for a 2/3 majority of both the House and Senate to pass increases to any element of the tax. After implementation of this, Cain intends to implement The FairTax.
As a supporter of the FairTax and one who detests the current system, I can honestly say that...
This is the worst tax idea I have ever seen. Lets start from the top, shall we?
9% "business tax"
The current Federal corporate tax rate goes from 15% to 35%. It is calculated much the same way as individual income tax, though deductions reduce taxable income both with the current and proposed system. It's a straight tax decrease, which I'm not inherently opposed to. Though since the proposed 999 plan intends to generate as much revenue as the current system, it has to make up for this in other ways... unpleasant ways.
9% income tax
Many Americans pay no income tax now, and their employer pays a 7.65% payroll tax out of their wages. Even if the employer passes all of that savings on to the employee (though it's more likely to be passed to customers to increase competitiveness) that would already be a tax increase. In fact, this data from taxfoundation.org indicates that approximately the bottom 80% of American earners had a tax burden of 9% or less once tax rebates and credits were included (it's in the first table on the page). That means a 9% income tax will be an increase for the VAST majority of Americans and a MASSIVE decrease for the highest earners, who currently have an effective tax rate of 23% or more.
9% sales tax
Saving the best for last, I suppose. Lets ignore for a moment the horror of trying to impose a 9% sales tax on all new goods and services throughout the country (and the internet).
As anyone who's thought about taxes for more than 5 minutes knows, straight sales taxes are regressive. If you have to spend your entire paycheck to live under a roof and eat, you pay the highest tax rate. If you make a boatload of money beyond that, you can save it or invest it to increase your wealth. This part of the 9-9-9 proposal makes it not simply fair for everyone, but actually has the poor pay the highest tax rate, while the wealthy pay the lowest tax rate.
This tax plan is like a pass/fail intelligence test for Americans. On the one side, it's disheartening to see so many people in favor of it. On the other, it's nice to know that Cain will not be elected if Obama can explain the plan with any measure of efficacy. Anyone here have thoughts on the 9-9-9 plan, Cain, or Obama's victory if Cain is the GOP nominee? |
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sirius black
Joined: 04 Jun 2010
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| Posted: Fri Oct 14, 2011 2:08 am Post subject: |
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I am no economist by any stretch of the imagination. So, how does his plan affect social security for example? Not to mention medicaid.
I assume people will lose the mortgage interest deduction. If it does I can't see the average home owner going for it. If it does allow for it, then its not truly a flat tax then. Homeowners get a lower rate than renters. |
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comm
Joined: 22 Jun 2010
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| Posted: Fri Oct 14, 2011 2:21 am Post subject: |
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| sirius black wrote: |
So, how does his plan affect social security for example? Not to mention medicaid.
I assume people will lose the mortgage interest deduction. If it does I can't see the average home owner going for it. If it does allow for it, then its not truly a flat tax then. Homeowners get a lower rate than renters. |
The plan intends to fund all Federal expenses with those three taxes, with no rebates or tax credits whatsoever. The taxfoundation.org figure of 80% of Americans paying less than 9% effective tax rate includes the mortgage interest deduction in its calculation of effective tax rate. Like all other rebates and credits, it would disappear.
Social Security is currently subject to income tax, but most people on Social Security are eligible for tax rebates that compensate for it. That makes the 9% sales tax a net increase on their current tax rate. If the 9% income tax applies to it as well, it's a particularly large tax increase. |
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Leon
Joined: 31 May 2010
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| Posted: Fri Oct 14, 2011 3:52 am Post subject: |
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| This is just stage one. He wants to use it to transition to just a 30% sales tax which sounds horrible. I mean consumption is already way down, so what do you think happens when you tax consumption. |
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comm
Joined: 22 Jun 2010
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| Posted: Fri Oct 14, 2011 12:08 pm Post subject: |
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| Leon wrote: |
| This is just stage one. He wants to use it to transition to just a 30% sales tax which sounds horrible. |
Ironically, I can see the benefits of the FairTax (which is far better than a simple consumption tax). But his "first step", which would likely be his only step, is the monstrosity I described above. |
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Unposter
Joined: 04 Jun 2006
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| Posted: Fri Oct 14, 2011 3:19 pm Post subject: |
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| Comm, you impressed me. Your analysis of Cain's tax plan is pretty good. You kind of lost me with your interest in the fairtax, though. Isn't that also regressive and put a lot more burden on those who make the least money? |
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Leon
Joined: 31 May 2010
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| Posted: Fri Oct 14, 2011 3:47 pm Post subject: |
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| comm wrote: |
| Leon wrote: |
| This is just stage one. He wants to use it to transition to just a 30% sales tax which sounds horrible. |
Ironically, I can see the benefits of the FairTax (which is far better than a simple consumption tax). But his "first step", which would likely be his only step, is the monstrosity I described above. |
How is the fair tax anything than a consumption tax? My understanding is that it is mostly just a 30% sales tax, which when put on top of state tax would be horrible. |
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comm
Joined: 22 Jun 2010
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| Posted: Fri Oct 14, 2011 4:12 pm Post subject: |
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| Unposter wrote: |
| Comm, you impressed me. Your analysis of Cain's tax plan is pretty good. You kind of lost me with your interest in the fairtax, though. Isn't that also regressive and put a lot more burden on those who make the least money? |
First, I want to highlight that though I like the FairTax, and Cain "intends" to implement it during his Presidency, I know that would never happen and we'd be stuck with Cain's despicable 9-9-9 plan. So I'm perfectly happy with you hating the FairTax if that means you'll vote against Cain ^_^
With that said... ideally no, it would be progressive. The concept of the FairTax is this:
A Federal sales tax on all new goods and services to replace all existing Federal taxes/rebates/credits, but with a monthly tax rebate for every American equal to the tax burden of poverty level spending.
SO: If you only make enough money to put a roof over your head, food on the table and medicine in the cabinet, ideally, your effective Federal tax rate would be zero. If you make extra money and save/invest it, you would still have zero net Federal taxation. If you make extra money and buy a boat, your effective tax rate (the % of your total income going to taxes) creeps up. If you buy LOTS of new stuff or services, your effective tax rate climbs and climbs. The idea would be to maintain a high velocity of money, keeping money flowing through the economy quickly. So a dollar might make a few loops between income/investment/dividend/etc. until being temporarily sequestered by the government through tax at the point of sale.
I like it because of it's simplicity and progressive nature. It provides the best possible path out of poverty, since those at poverty level spending (zero effective tax rate) who earn income beyond that can save or invest it with no additional taxation. However, many people get "sticker shock" at the estimated sales tax that would be required to equal current revenue for the government. But if it truly IS revenue neutral, then the taxes removed from the system (income, payroll, corp. income, cap. gains, etc.) balance out with the sales tax price. Plus, it works out that the higher the sales tax rate is, the more progressive the tax becomes.
Example:
20% sales tax @ poverty level spending = zero tax burden
20% sales tax @ poverty level + $100,000 spending = $20,000 tax burden
VS
40% sales tax @ poverty level spending = zero tax burden
40% sales tax @ poverty level + $100,000 spending = $40,000 tax burden
Other benefits would include:
More investment in the U.S. with no corp. income or cap. gains tax
Outsourcing of other country's jobs TO the U.S. with no income/payroll taxes to pay
Massive savings from reduced work for I.R.S. paperwork and enforcement
Extremely competitive goods on the international market, since no embedded taxes will be in the products sold overseas.
The aforementioned ability of the poor to save and invest without suffering additional taxation (until they buy beyond the poverty level)
There are downsides, obviously. It would apply to all new goods and services, so evasion would be an issue for small businesses. Goods purchased outside the U.S. would probably need some major taxes dropped on them if they're brought into the U.S. And most importantly: who gets to decide the poverty level? Overall though, if these final questions can be answered... I think the FairTax would benefit every single American. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Sat Oct 15, 2011 7:13 pm Post subject: |
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As usual, I agree with comm.
The 9-9-9 plan is garbage. It won't raise enough revenue, and what revenue it raises will be regressive. Cain wants to take a mildly progressive tax code and shatter it to pieces.
The Fairtax is a good idea to raise taxes. It would even be a compromise with Republicans. A fairtax is a progressive VAT, and can be used to eliminate the US's infamously inefficient corporate taxation scheme (presuming that capital gains preferences are eliminated as well). |
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northway
Joined: 05 Jul 2010
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| Posted: Sat Oct 15, 2011 8:53 pm Post subject: |
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| Kuros wrote: |
As usual, I agree with comm.
The 9-9-9 plan is garbage. It won't raise enough revenue, and what revenue it raises will be regressive. Cain wants to take a mildly progressive tax code and shatter it to pieces. |
I'm pretty sure he just wants to sell books. |
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