As many of you know who follow this blog, we like Herman Cain's 9-9-9 proposal with reservations. As a service to our readers, we thought the following critique of the plan by Dick Morris is important. Please read it and comment.
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In 1980, facing a terrible economy, Ronald Reagan called for a new tax program: 10-10-10. Based on the Kemp-Roth bill, he called for 10 percent cuts in income taxes for three years. He got it, and it kindled 20 years of prosperity.
Now, Herman Cain understands that we need fundamental reform to get our economy moving. He calls for replacing the current system with just three levies of 9 percent each on personal income, corporate income and consumption. There would be no capital gains tax, inheritance tax, Social Security tax or Medicare tax. Just 9-9-9.
His proposal is breathtaking. Currently, the lowest top tax rate is Poland's 18 percent. And Poland is the only European nation that had no recession. If Cain passes 9-9-9, we will thrive and become the destination of choice for every business and businessman. Look at what Reagan's tax cuts achieved, and at the best-performing state economies, where there is no income tax.
The proposal, naturally, attracts critics and skeptics.
Some worry that it will add to the deficit. But that's not likely.
· Americans now earn $12.5 trillion of personal income. Tax it at 9 percent with no deductions and you generate about $1.125 billion.
· We spend $10.3 trillion. A 9 percent tax would yield about $927 billion.
· Net corporate income (after dividends) is $1.1 trillion. A 9 percent levy would generate $100 billion.
· That comes to $2.152 billion, about the same as our actual revenues of $2.162 billion for fiscal 2010.
And then, when you factor in the economic growth this plan will engender, the scenario becomes even better.
Liberals worry that the tax would shift the burden from the rich to the middle class. No, sir. Americans making $50,000 to $60,000 a year now pay an average of 6 percent of their income in income taxes. But they also pay 6.5 percent in FICA levies and 2.9 percent in Medicare payroll taxes (a total of 15.4 percent). The Cain proposal would replace these with a flat 9 percent, saving them 6.4 percent.
Of course, the middle class would also have to pay a 9 percent sales tax, but it would be largely offset by the savings in their payroll taxes.
Cain says that competitive pressures would hold down prices and force businesses to eat much of the 9 percent sales tax. Employers would not have to pay their 6.5 percent share of payroll in Social Security taxes, and their corporate taxes would be cut. For commodities with high price elasticity -- like cars -- competition will hold down prices. But for inelastic purchases -- like food and drugs -- some of the tax would probably be passed on. For the middle class? It's a wash.
More compelling is the possible impact on the poor. A family making $20,000 to $30,000 a year pays only 3 percent of its income in taxes (much of it more than offset by tax credits). But it still pays 6.5 percent in FICA and 2.9 percent in Medicare taxes. So the requirement that such a family pay 9 percent in personal income taxes would probably be fully offset by the cut in payroll taxes. But the poor might face higher prices. Cain plans to spell out how he can mitigate the impact on the poor through special empowerment zones. We need to see the details. Certainly, the poor would benefit from the increased employment, wages and growth the Cain tax cuts would generate.
Conservatives worry that 9-9-9 will open the door to a European Value-Added Tax that starts at 9 percent but goes up each year. Cain proposes that a two-thirds vote be required to raise rates. But a simple act of Congress could change that.
The real answer is political. If the Republican Party surges back to power in 2012, captures the Senate, keeps the House and takes the presidency, it can make sure the rates don't go up. Republicans usually can count on 40 votes in the Senate; we just have to use them.
The 9-9-9 is a good, good plan that can save our economy. |
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What you need to look at with Cain is how much more the poor and middle class will pay as a percentage of their income in total tax compared to what millionaires and billionaires will pay. Everybody except the top tier pays more. If you see it some other way, I'd like to see your math.
ReplyDeleteHere's mine...
http://www.taxpolicycenter.org/numbers/Content/PDF/T11-0375.pdf
--David
David,
ReplyDeleteLooks like a good proposal to me--all people pay in the 20% range! At least this way we eliminate the 50% of the people who are not paying any taxes!
As the summary table shows, the Cain tax plan gives a huge tax cut to the people at the top who don't need it, and a huge tax increase to the people at the bottom who can't afford it.
ReplyDeleteThe idea that low income households don't already pay a considerable percentage of their income is taxes is false. Cain's plan doesn't replace state sales tax. It just puts a federal sales tax on top of it. In some states, people would be paying more than 17% on sales tax. Imagine what that would do to consumer spending and, therefore, the economy. Meanwhile, the super rich, by contrast, pay only a tiny percentage of their income in sales tax and will get a $1 million tax cut from Cain.
"Don't blame Wall Street, don't blame the big banks," Cain said. "If you don't have a job and you are not rich, blame yourself!"
The time is now to decide whether you want to stand with the Wall Street bankers or the rest of America. Sorry Tom, but it seems to me that you straddle the fence.
--David
I disagree. I have condemned the banks. I have not stood on the side of the banks.
ReplyDeleteI like Cain, not only for his plan but for his out of the box thinking. I have also said that I would eliminate both the personal and business taxes and do away with the IRS and move totally to sales tax.
The one point that I have NOT heard from anyone. The current system does not tax all the "services for cash" people out there. It is not only the drug dealer who is not taxed. It is your handyman (or Mitt's landscaper) who tells you he will charge you $100 if you pay by check or $70 for cash. This subterranian economy would be taxed by my (or Cain's) proposal. How many dollars--I would bet it would be billions if not trillions. What do you think of that.
You say, "It is your handyman (or Mitt's landscaper) who tells you he will charge you $100 if you pay by check or $70 for cash. This subterranian economy would be taxed by my (or Cain's) proposal."
ReplyDeleteHow so? The reason drug deals are done in cash is to leave no paper trail. You proposal would serve to expand the underground economy, because there is no way to tax an underground cash deal. The contractors I know who participate in this economy do just enough legitimate business to not raise suspicious from the IRS (which I assume you will replace with some other tax collection agency called by a different name), and this allows them under-report the business income by a large amount. Your plan gives every business a huge incentive to do this and -- for those already doing it -- to do it more, not less.
--David
P.S. You can give lip-service to the anti-Wall Street movement, but if you vote for somebody like Cain who is an unabashed apologist for Wall Street banks, there is a disconnect between your words and your actions.
--David
David, that is not correct. The sales tax is on new items. The new car that the person buys, would be taxed. The clothes, the shoes etc would all be taxed. Services would not. Used goods would not. You need to spend some time reviewing his proposal before condemning it.
ReplyDeleteThis is the same problem that his competitors have. They have not reviewed the proposal and are taking shots at it and are completely missing the target.
Well, you said, "This subterranian economy would be taxed by my (or Cain's) proposal." No, it would not -- at least not anymore than under the current tax system. For example, Mitt Romney's landscaper (under current system or Cain's) pays sales tax on plants he buys wholesale to resell to Mitt. He can still avoid income tax on the labor portion of his bill to Mitt by making it a cash transaction (i.e., the $70 cash instead of the traceable $100 check). That is what I was talking about.
ReplyDeleteAs far as commodities, Cain's plan will really hurt retail sales by giving people a 9% saving incentive to buy things at garage sales or on e-Bay. Retailers would retaliate by classifying all returned items as "used" and therefore exempt from the tax. Realistically, there is no feasible way for the federal government to police retailers on this.
I seriously doubt that Cain could raise enough revenue with only a 9% sales tax to run the federal government even after you abolish Social Security, Medicare, and Medicaid. Besides, his Phase 1 tax cuts would blow a cavernous hole through the debt ceiling before Phase 2 ever began.
I cannot find anything on his website or his document "Cain's Vision for Economic Growth" or his Wall Street Journal article that says purchases of services will not be taxed. Saying new goods are taxed does not necessarily mean that services will not.
I thought you might find this development interesting…
"Cain’s shift on zero exemptions comes after an independent analysis showed his tax plan would raise taxes on 84 percent of U.S. households. The Tax Policy Center, a Washington think tank, said low- and middle-income families would be hit hardest, with households making between $10,000 and $20,000 seeing their taxes increase by nearly 950 percent."
http://pajamasmedia.com/tatler/2011/10/21/cain-tweaks-the-9-9-9-plan/
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When confronted with this fact, Cain has already started back-tracking. That is good news for poor people, but how does it play with folks like you who want poor people to pay the same tax rate as billionaires?
--David