First off, let me start be saying that some aspects of Herman Cain’s “999″ plan I like. Many of you know I am an investor and manage my family’s investment portfolio.. Under Cain’s plan. I would go from paying 15 percent cap gain tax to zero. Strictly from a selfish point of view, I would love that, but it is not good for this country as a whole, and I must put the greater good of the people over my own good in this..
The basic assumption of Cain’s plan is that it will simplify things for business and investors, so they will be willing to take more risks with more clarity as to exactly what it would cost them to start a business, which in turn means more hires, more jobs.. I agree with this in part, but simply creating more jobs does not equate to creating more demand. What kind of jobs are we talking about? High paying jobs? Here is why his plan will not work and cause even more problems than we have now;
The average American is in a pinch now, and let’s say you make 35k a year before any income taxes, and have 2 kids and a home wife. currently, there is no pay roll tax, and it is a good bet the payroll tax will be cut all together, long before Cain’s plan would eliminate it.
1. It cost’s money to buy your kids clothes, books for school, and food.. Say right now you can take your family out to eat once a week.. that costs money, and when you do, that money is shifted to the establishment that serves food,, a once a week demand.. << Remember that word “demand”, I will be talking about it a lot here.
You know you are getting tax credits and deductions now that eliminate you from paying personal income tax. You do not have the time to get new job training because you are busy taking care of your family on a limited income. Under Cain’s plan, you would pay a flat 9 percent income tax, no deductions.. Now, that is OK and can work out nicely, IF, under Cain’s plan, you did not have to pay an additional 9 percent in sales tax on top of your state tax.. in some cases, the price to “consume” nears 20 percent sales tax in some states. Your kid has a demand for a new computer for his/her school work..Price of new computer = 500 bucks.. add 20 percent to that.. Remember, you cannot deduct anything under Cain’s plan and have to pay 9 percent on all your income.. 35k a year, current pay roll tax holiday which could become permanent soon before a 999, take off 9 percent.. about 3000 dollars… so you clear 32k.. before u clear 35..
Now, you have all your expenses as I mentioned before.. They stay the same, or even risk going up if we encounter inflation. Are you going to take your family out to dinner once a week now? will you buy that computer? You will be forced to consume less, unless Cain’s plan includes better jobs and training for those jobs? It doesn’t.
In turn, starting with corporations, they look at their bottom line.. taking in less revenue because of less consumption, even paying zero taxes, history shows they don’t give a crap about people, and without incentive for them to keep a job (refer to my plan when I blog about it), their only incentive will be to their stock holders, who under Cain’s plan, will pay ZERO CAP gain Tax. They will cut back on jobs to increase the bottom line to make up for the lesser revenue Currently, these large companies via the current tax code loopholes, get around paying that higher corp rate they claim is messing things up. Wall Street looks primarily at earnings and revenue to take a stock lower or higher. But that is only corporations, and what I said might not happen, but history shows it does. (trickle down)
The real issue? Small Business.. Sure, they pay less taxes under Cain’s plan.. But they hire and keep jobs based on demand.. Nearly 50 percent of people don’t pay any income taxes at this time and the average family meine income is around 40k.. That qualifies for many deductions to get them either zero income tax, or near zero.. These people will have to pay income tax and more sales tax which will = pinching dollars more= less demand, lesser GDP. These smaller businesses , like the restaurant that the 35k guy takes his family out once a week to eat, will see less DEMAND under Cain’s plan, Because demand goes down, people will be laid off to get the balance sheets in order. Potentially, this will cause more long term unemployment… Cain’s problem is that he assumes everyone is an investor, a risk taker, entrepreneur .. They aren’t. Most people these days are living check to check.
Cain’s 999 plan is wrong headed and will cause a further divide between “rich and poor.” I criticize Obama for talking “class warfare”.. With 999 ever passing, it WILL BE CLASS WARFARE!
It is a good starting point to get into a true flat tax system that still allows for deductions based on lower income earnings.. In my next blog, I will present my view and general plan for a real and fair/flat tax that benefits all classes, along with a real job creation plan and incentives to both produce and consume that will grow GDP beyond 3 percent a year.
Scott
I’m not defending or supporting 9-9-9 here, just commenting in general…
If I could make big changes to the tax code, what would I do? One element is simplify and minimize. There are thousands of pages of laws and regulations, and nobody understands them. They’re generally implemented for the purpose of micromanagement. You’ll face a high tax — but if only you’ll donate to such-and-such, or invest in such-and-such, your tax burden is lowered. So people devote their focus to jumping through hoops for the government, which is inefficient and dehumanizing. The claim is always that the government is giving us incentive to do “good” (such as the tax credit for buying a Dodge Volt), but in fact these little perks are wasteful payoffs to special interests that are in bed with the politicians that wrote the law (in this example, the auto workers, and Government Motors). We need a simple tax code with a rate that’s low enough that it doesn’t pay to evade. Then people can concentrate on what they do best, and ignore the bureaucrats. (Of course, the bureaucrats don’t want to make this change because they don’t regard themselves as destructive parasites, and they don’t want to believe that the people would be better off without them telling us what to do.)
Another huge problem that I’ve mentioned is that America is living beyond its means. We must achieve balance: Either produce more, or consume less, or both. I strongly disagree with the usual political focus, largely from the left but also from the right, on “stimulus”. When they say “stimulus”, they mean “spend”. The idea is that, by consuming, they encourage production, and thus jump-start the economy. It sounds good on the surface, but the underlying logic is dead wrong. You cannot consume your way to prosperity. By consuming stuff that you don’t have the money for, you run up the debt and eventually degrade the money supply. The ongoing “stimulus” is preventing America from moving towards the balance she so desperately needs. We can’t afford this crap from China, but we keep buying it because the money keeps flowing. Yes, we’ve “stimulated” plenty of jobs in China, and there will be hell to pay. Soon enough the essential function of government will be to suck money out of domestic workers to hand it over to the Chinese who hold our paper. Either that or we’ll inflate our currency into a state of worthlessness. Either way, the American people are going to suffer; especially those who have played by the rule and maintained sound personal finances.
So if we have to consume less as a nation, who among us are going to have to cut back? The rich? The poor? Me? You? I don’t know, and I know the question is very politically sensitive, but it’s not my greatest concern. I’m more worried about the existence of America as an independent state. Bring the nation into balance and we’ll work out the details among the people somehow. Fail to bring the nation into balance, and it doesn’t much matter how we relate to each other. The passengers on the Titanic didn’t fare well, whether in first class or in steerage.
I heard Cain speak on 999, and he offered an interesting defense. He noted that the existing tax structure resulted in most goods and service having embedded taxes. For example, you might buy a loaf of bread that’s supposedly tax-free, but in fact built into the price are income taxes of the people who made it, plus vehicle taxes on its delivery, etc. etc. So under a simplified plan such as 999, you might indeed pay a visible tax on the bread, but your out-of-pocket cost would in fact be lower because of the elimination of the various invisible taxes. Such a structure would have a number of economic advantages. First of all, transparency…we could actually see the taxes we pay, instead of having them hidden in bits and pieces. Second, in market efficiency…a simpler tax structure is so much easier to administer, and would cause much less waste and evasion. Third, the existing tax structure requires a government that’s intrusive to a degree that’s essential fascistic. With every transaction taxed, the government must have access to every transaction. You have no financial privacy whatsoever. If you pay someone, you must report to the government. If you get paid, you must report to the government. Whatever you buy or sell in a business context must be reported. Whatever you own. Your bank transactions must be reported. We are all required to turn each other in to the government. This is a troubling system we’ve built here. If we treated criminals, or criminal suspects, the way we treat our ordinary citizens, the courts would throw out those laws on Constitutional grounds. But it seems that we have no rights as long as we’re not charged with a crime. That’s pretty weird when you think about it.
The foregoing isn’t entirely what Cain said; I’ve taken his starting point and carried on with my own arguments.
Anyway, I’m liking Cain more as I think of these things. And his popularity is rising. I do remain concerned that he doesn’t have the experience base to prepare him for the presidency. Were Cain to be the candidate, I’d want his VP to be a very solid administrator.