Skip to comments.Can Herman Cain's 999 Plan Work?
Posted on 10/10/2011 9:05:29 AM PDT by justsaynomore
UPDATE: 9/27/2011 We were contacted directly by the Cain Campaign's chief economic advisors last week, and were advised that base numbers in our analysis significantly understate the initial revenue generated in the first year of the 999 plan. The Cain Campaign had indicated a willingness to share their raw data so that we might adjust our projections. We anticipate that this information will be made available shortly, and we'll review their data, and will modify our analysis if warranted.
While the nation awaits Barack Obama's "Jobs Plan," which will be countered by the Romney "Jobs Plan"and the Wall Street Journal swoons over Jon Huntsman's economic plan; we thought we'd take a moment to review the economic plan proposed by Herman Cain.
About two weeks ago, Presidential hopeful, Herman Cain announced his "Vision for Economic Growth" which he calls 999. The previous link is to the official campaign brochure describing the plan. The brochure appears to be rather poorly constructed, stringing together often unrelated talking points, policy initiatives, and goals. (For anyone interested, we've done a point by point critique on the shortcomings of the brochure here, and cut and pasted our own suggestions here.)However, on closer inspection, one can see what is likely to be the unedited stream of conscience thought of a singularly brilliant individual. Despite the explanatory shortcomings of the brochure, the "Vision for Economic Growth" is quite simple in nature
Cain's "Enhanced Phase I".
Cains vision is;
Limit all personal income taxes (including SS / Medicare) to 9%
Reduce Corporate Taxes to 9%
Introduce an national sales tax of 9%
Phase II would be to eliminate the personal income tax and the Corporate Income Tax and replace them both with the "Fair Tax"
Cain's brochure claims that the plan is revenue neutral, which would mean that it would generate a similar amount to the current Federal Revenues of about $2.162 Trillion. At first glance it seems difficult to fathom. It fortunately it isn't difficult to test this contention. We'll simply assume zero deductions and multiply the aggregate totals of each sector by 9%.
Our best, or perhaps most optimistic, estimate of aggregate U.S. personal income comes from University of New Mexico's Bureau of Business and Economic Research. According to UNM's BBE - total personal income in 2011 will be $12.590 Trillion.
Corporate Taxable income is a bit more difficult to ascertain due to the ability of Corporations to make business decisions and accounting allocations based on prevailing tax law. Data is readily available for total Corporate taxes paid, but this includes a large number of deductions and accounting allocations to define depreciation, capital gains, etc. Again in the interest of erring on the high side, we'll use our own extrapolation of data. Last year, Corporations reported after tax profits of about $1.5 Trillion. Based on a current corporate tax rate of 35% and corporate propensities to shift "profits" into capital gains or other lesser taxed classifications, one could make a reasonable case that the core gross profit to which tax would be applied could conservatively be estimated to be twice that amount. That is $3Trillion.
Total Consumer spending is quite a bit easier to identify. According to the latest annual report from the U.S. Census Bureau (calendar year 2009), the total amount of sales for the U.S. Retail Industry (including food service and automotive) was $4.13 Trillion.
A quick acid test of the numbers would be to total them and see how they compare to total GDP. The total of our factor is about 19 Trillion. Recognizing that to a large extent "retail sales" are largely previously counted in Personal Income, and that the total GDP is estimated to be around 15 Trillion, our estimates of "Taxable Base" against which to apply the Cain 9% tax rates appears to be reasonable. Now applying the 999 tax rate yields the following.
|Corporate before Tax Income||$3,000,000,000||0.09||$270,000,000|
|Gross Consumer Purchases||
As we can see from the above referenced table, the 999 plan, when applied to current economic levels of activity; falls significantly short of the current Government revenue of 2.162 Trillion. In this blunt and rather static analysis, the 999 plan would result in a $387 Billion revenue shortfall when compared to current tax revenue estimates.
So is the plan unworkable?
Not so fast....
One of the difficulties in estimating tax revenue is that both people and corporations change their behavior in order to take advantage of tax policy. Obviously, this plan is proposed encourage economic activity, and create an environment where economic growth can occur. It would not be unreasonable for the 999 plan to result in a 10% growth rate. Ok, that's a bit aggressive, but not unreasonable. Remember, the Federal Budget Baseline assumes an 8% annual growth in Government outlays, and that after 4 years of no growth - there may be significant "pent up demand" making this possible. And honestly, if we don't get some economic growth out of a dramatic policy change, why bother anyway. So, lets scale back a bit, and for the sake of rhetorical simplicity, assume 9% growth....
|9% Growth Projection||
|Corporate before Tax Income||3564300000||0.09||
|Gross Consumer Purchases||4990020000||0.09||$449,101,800|
Now we're getting somewhere. If one assumes that we can achieve significant growth after instituting such pro-growth policies; we are now within $50 Billion of being Revenue neutral. In fact if the growth continues for another year, we would surpass the revenue neutral point and then become "Revenue Positive."
Based on the assumed growth projections, the 999 plan becomes revenue "Positive" quite quickly. The underlying philosophy of the plan is sound, if not brilliant - both from the perspective of functional economics and political positioning. The broad and indiscriminate capture of ALL income at a low rate removes government from picking "winners and losers". For the above projections to maintain any degree of accuracy, ALL deductions are eliminated. That's right, no charity, no mortgage, no green energy etc. Just straight .09 from everyone. This removes market distortions from economic decision making. It also removes a great deal of power from the legislature to create private sector billionaire's with the passage of legislation. (Oh the humanity!)
It is, in short "Economic Liberty"
The diametric opposite of what has been in practice since the Obama administration took office.
Politically, it is of equal brilliance. The mainstay of Barack Obama's political rhetoric is class warfare. To be fair, it is at times the a common tool for the right wing media as well. Limabaugh frequently bemoans the fact that almost half the nations population pay "no income tax." While that's technically true, it is only so by a matter of semantics, not economics. About 20% of every wage earners productive income is confiscated by the Federal Government and labeled "Social Security, and Medicare" contributions. Once confiscated it is thrown into the exact same General Fund that higher wage earners "Social Security, Medicare, and Federal Income Taxes" are placed. Other than the label - there is no difference in these funds.
Consequently, we have Obama on one side chiding "millionaires and billionaires" for not paying their "fair share." - When they already cough up 50% of their income. And on the other side we have Limbaugh, Levin, and Boortz lamenting the fact that half of the country are "freeloaders" paying nothing in Federal Taxes - "When the freeloaders" are busting their butts for $10 bucks an hour, and taking home $8 an hour.
This Tax structure creates the fertile ground on which the seeds of class envy are planted and harvested by antagonists on both sides.
The 999 plan puts all Americans on equal footing and eradicates the root of class warfare.. When Legislative issues arise that will call for more spending and imply the need for higher taxes, it would be a great change of pace to see every productive American evaluate the issue from the standpoint of a taxpayer/stakeholder. (Even illegals would object to higher taxes!)
The 999 plan is an outstanding concept, unfortunately; it only addresses one side of our current Federal Fiscal Crisis. Even if 999 initiates a period of extended 9% growth, it still leaves an annual deficit of more than a $Trillion annually. Even if revenues grow at 9% per annum, the current budget baseline of 8% annual growth, when added to the required interest payments to fund the increasing deficits - yield a budget that NEVER balances.
As bold and dramatic as the 999 plan is, it addresses only the revenue side of the Federal Financial issue. As Cain often says, "First you've got to identify the problem." The revenue "problem" is how to most equitably, and efficiently extract about 20% of GDP from the nations producers? 999 is an elegant and effective answer to that question.
The more pressing question remains, "How do we run the Federal Government on less than 20% of GDP?" This will require actual budget "cuts" - not the faux "cuts against the baseline" that are the Washington norm. The answer is this:
Combined with the 999 Revenue Plan, the Congressional Super Committee must establish a "Prosperity Baseline Budget" of $2.2 Trillion. (That's approximately 2004 level spending) and re-establish the "growth baseline" to be limited to 1% per year. Sparing everyone the laborious calcs after the first year of implementation the resulting outcome would be:
999 Revenue Plan + Prosperity Budget Baseline =
9% annual economic and revenue Growth, and the virtual elimination of all Federal debt - in 9 years.
|Year||Federal Revenue (in Trillions)||Payment on Debt|
Wishful thinking? Sure, but a solid goal for which to aim. If we achieve the growth sought and projected, the ability to cut the Federal Budget will be enhanced due to significant decreased reliance on unemployment benefits and Medicaid.
In other words:
9% Personal Tax +
9% Corporate Tax +
9% Sales Tax
9% Real Economic Growth and
ElIMINATE FEDERAL DEBT - in 9 YEARS
I’m not sure why the tables didn’t align correctly, maybe someone can fix that (or folks can go to the original article)
Only after the house and senate have their say. The tax attorneys and accountants will fight any change to the last k street. Thug standing.
Cain's 999 tax plan is nothing but a gimmick, a political ploy. Just like his Chilean plan is for SocSec. Cain is pandering for votes with a tax plan that expands the current federal tax system to include a national sales tax and that opens the door to the next step, a European style VAT, or Value Added Tax.
Cains 999 plan from his web site:
What the heck are those Empowerment Zones shown in bullet points 6 and 9 on the upper left of the second page?
If that is another way to redistribute income, or to treat one class of the unemployed more favorably than another, I want no part of it.
Social engineering like this is precisely the way the current tax code has become so unwieldy and unfair. If we are going to revise the tax code, then all social engineering and loopholes should be eliminated, not just some of them.
The “Empowerment Zone” special treatment has the feel of pandering to some special group.
This morning Steve Moore, who knocked this plan initially, said this plan would be like rocket fuel for the economy.
**However, on closer inspection, one can see what is likely to be the unedited stream of conscience thought of a singularly brilliant individual. Despite the explanatory shortcomings of the brochure, the “Vision for Economic Growth” is quite simple in nature.**
Sorta like the Constitution!
Every whiner should print and study this carefully for a Eureka moment.
“This morning Steve Moore, who knocked this plan initially, said this plan would be like rocket fuel for the economy”
Bravo! And God bless him for rethinking his “position”. The Perrywinkles are out in force and can’t stand a person who is not a politician!
Well Axel don’t you think you should let Fr know exactly who you are?
Romney, Connaly (when he was Dum or Rep?) BTW what project were you and Lemmie working on in east AUSTIN.
Frequent contributor to FreeRepublic? Townhall.Com.
Where is the TRANSPERANCY?
Why do would think Cain would want a VAT?
He IS a politician worked for John Connally and Romney.
Now he’s shilling for CAIN. Don’t any of you ever do any research?
sorry about that,
Why do you think Cain would want a VAT?
I’m with you. If a plan has “exceptions”, I’m out.
The table also does not take into account the 46% of the US population that does not pay any income taxes. Would they now be required to pay at least 9%?? Would welfare recipients be required to pay 9% on the money they get from the govt? When the one starts spouting off about paying their fair share I keep thinking about the 46% who pay nothing.
“Now hes shilling for CAIN. Dont any of you ever do any research?”
Did I miss the part of Cain holding any elected position?
Numbers and plans on paper don’t lie but they also do not account for the avarice and duplicity of the professional politicians controlling the process.
In this respect there is little to differentiate between the establishment pols in both parties.
The more money available to the politicians the more they will spend. Because they cannot be trusted in the slightest, the only workable solution to the budget and deficit crisis is to cut spending.
Once the Big Government politicians have a sales tax and an income tax effective at the same time they will never let it go.
“Can it work” is is superseded by “can it pass Congress?”
I like Cain and I like 9-9-9, but I think we know the answer to the question above.
However, I appreciate Cain at least OFFERING a new tax future.
What are Mitten’s and Perry’s plans? Tinkering on the edges. Status quo.
So WHAT is CAIN doing now. Running interference for Romney.
Everywhere you look re Cain you find Romney ties.
Why are all these Romney and McCain workers ending up with Cain?
Figure it out.
When Jim band the Romnuts from turning FR into a Romney site, I wonder what form their attacks would take.
They must be really proud they KO’d Bachmann.
Perry will not be that easy. Bet on It.
That is the next logical step and could happen if his 999 plan or any national sales tax plan was installed. American liberalism is the cousin of Euro-socialism. That was my point. Lowering the income tax and corporate tax rates is great. America doesn't need or want a national sales tax. Period. The issue stimulates debate and that is good, but in reality its a moot point. Its a gimmick that will never see the light of day.
So, a romneybot is pimping for Cain to keep votes from going to anyone that is a danger to Romney?
I wouldn’t put it past slimeball Romney.