Can Herman Cain's 999 Plan Work?

Axel Whiteman ^ | 10/5/11 | Axel Whiteman

[MontaniSemperLiberi]

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.

Wishful thinking? Sure, but a solid goal for which to aim.

So wishful thinking is a solid goal? Who wrote this? Obama and Pelosi?

999 probably won't work at a level to bring in the current level of revenue ($2.2T), let alone 18.5% of GDP ($2.6T) that we historically count on to balance the budget and not nearly the 25% of GDP ($3.5T) required to pay for the current level of spending.

Moreover, Americans are smart. Americas will figure out a way to pay less taxes. If 999 doesn't tax second hand goods, the market for car and appliance repairs will sky rocket.

As mush as I like Cain, I can't get behind him because of 999.

He could convince me though if he were to be clear about how he will reduce spending to $2.2T or how he will increase taxes under 999 to pay for more spending.

I fear that 999 will be yet one more failed Washington policy that puts us over the edge of the debt cliff, that we will become like Greece. There is no room on our national credit card to fool around with one more experiment. We need to do what we know will work and that is to drastically cut spending.

[M. Thatcher]

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?

Are you claiming the brilliant economist Steve Moore (Cato, Club for Growth, etc etc) worked for John Connally and Romney?

[justsaynomore]

No one says the 999 is perfect, and I’m sure the idea will be tweaked as time goes on.

The hard truth is this. Our current tax system is not sustainable. Not anymore. We are quickly on our way to the goal of the socialists.

Cain is the only one thinking outside the box.

[roamer_1]

Can Herman Cain's 999 Plan Work?

No. Introducing a sales tax just opens another revenue stream. Soon enough 999 will become 101010... and so on infinitely.

As an interim position, perhaps, leaning toward pure fair tax... but then there is nothing to keep a later congress on the path of removing all other revenue streams...

[justsaynomore]

Cain’s economic plan is 2 phases.

999 is a (1-2 year) bridge to the repeal of the 16th and Fair Tax. The rates can only be changed by 2/3 majority vote

This will put more on Congress than are already there now with the current tax system.

Plus, with everyone paying, no special treatment, no tax loopholes, pressure will be enormous not to change these rates.

No sales tax on used goods.

9% income tax replaces FICA (15% or half whichever way you look at it) and it is minus gifts to charity. If you don’t like giving your money to government give it to the church.

[justsaynomore]

***This will put more limitations on Congress

[marty60]

The author of this supposed informative article.

Other econs are not quite as enamored. a little reality always helps.
The fact that proposals for “flat taxes” seem to be back in vogue. Take Republican presidential candidate Herman Cain’s “999 Plan.” A reporter called me about it, which was the only reason I went to the Cain website to check it out for a few seconds, which was all it took to “get” what his proposal is basically about: (i) switching to a consumption-based tax system that exempts income from capital–which on its own is “regressive”; (ii) switching to a single (”flat”) marginal tax rate schedule–which on its own is (also) “regressive”; and then (iii) switching to a not-just-double-but-triple tax of consumed income (instead of saved income) through the 9 percent business tax (exempting capital income) and the 9 percent sales tax (which naturally exempts savings) that are layered on top of the 9 percent income tax (which exempts capital income as well)–which means all that regressivity I already listed is tripled! Where did the 9 percent rates come from, I was asked by the reporter–and would it be revenue neutral? My response: “probably because 9 is one digit long” and theoretically, yes, it’s possible that a triple tax on consumed income with no or few exemptions which has an effective rate of 9+9+9 or 27 percent could indeed be revenue neutral. (From Cain’s description of the 999 base, it’s not clear what is exempt other than charitable deductions–oh, and all of capital income, of course.)

I don’t know if I’ll feel compelled to say anymore about the Cain tax plan unless the candidate actually seems to have a decent chance of getting the Republican nomination, but on the way to seeing if that happens I hope people recognize how insane his tax plan is (without needing any detailed analysis). This is one plan where my biggest reaction to the plan is not that it doesn’t raise enough revenue. Like I said, theoretically it could, but why would we ever want to do it that way?

http://www.csmonitor.com/Business/Economist-Mom/2011/0929/Cain-s-999-plan-Not-sane-tax-policy

[M. Thatcher]

Sorry, don’t know you. Do know Steve, however. And if he’s positively disposed to the Cain concept, I want to know more. None of your statements are persuasive, especially your raising “regressivity” as a bloody shirt; it’s word repetition masquerading as argument.

[palmer]

Business owners like the one I work for, who employ several hundred thousand people, cut all our salaries by 5 to 15 percent a couple of years ago. Not because they were losing money, but because they weren't making enough.

Must you be so blatantly socialist? Your salary depends on your own career choices and your job performance, so stop trying to shirk your responsibility for those.

[DTxAg]

Business owners like my husband, who employs 50 people said if FICA were cut, that would go back to them, for one.

Does your husband realize that under Cain's plan, his payroll to his 50 employees is now TAXABLE under the business income tax? Cain's plan only lets your husband deduct payroll if he is in an "empowerment zone." So, if your husband pays those 50 employees $50,000 each for a total of $2,500,000, your husband now gets to pay $225,000 in business income taxes. Under current tax law, he would have only paid $191,250 in Social Security and Medicare taxes.

But that's OK, right?

[DTxAg]

Hit post to early. Meant to finish with:

But that's OK, right? Your husband will still give all employees a 15.3% raise, he'll just pay the extra 9% out of his pocket.

[justsaynomore]

There is no “business income tax” in Cain’s plan.

There is a 9% flat income tax the employees pay that replaces all payroll taxes.

There is a 9% corporate tax (which is currently between 25-30%)

There is a 9% sales tax.

[DTxAg]

Call it whatever you want. Right now, if a company pays its employees $100,000, it pays $7,650 to Social Security & Medicare, but the $100,000 is a business deduction (so there is no 35% tax on that).

Under Cain's plan, the business pays $0 to Social Security & Medicare, but the $100,000 is NOT a business deduction, so the business owes $9,000 under the "corporate tax."

[DTxAg]

In case you're curious, here is the relevant part of Cain's plan:

Business Flat Tax – 9%
Gross income less all investments, all purchases from other businesses and all dividends paid to shareholders.(My comment: no payroll deduction)
Empowerment Zones will offer additional deductions for payroll employed in the zone.(My comment: payroll deduction)

[justsaynomore]

LOL, you still miss the point that the business tax is still much LOWER than the the current business tax. Your assumption that we would pay more does not take into account what tax amounts we had to start with. Even minus a payroll deduction we would come out on top

Have you actually run the numbers? My husband and I have run them for our business and ourselves and we save in both cases.

[DTxAg]

I don't miss the point at all. The Cain plan redefines what falls under the "corporate tax". Regardless that the tax rate is lower, the business is paying more for payroll. If you've got a small business where the profit is near zero every year because the owners take what profits they can as income, the Cain plan increases the tax burden on that business. If you're any business that has an operating loss for the year (in which case you'd pay no corporate income taxes under current law), you'd get stuck with a larger tax bill under the Cain plan since the 9% exceeds the 7.65% now, so the Cain plan increases the tax burden on that business.

And the point you started with was that your husband would pass on the 15.3% FICA savings to his employees, apparently despite the fact that we'd owe an extra 9% on payroll.