Friday, October 14, 2011

Nein - Nein - Nein

Herman Cain's 9-9-9 sound bite budget plan makes a great bumper sticker, but probably not such a good budget plan.

On his website he elaborates a bit, but doesn't spell out the details of how it will affect different categories of tax payers or how much money it will raise.   You can see the expanded version and a few of my thoughts below.

Phase 1 - 9-9-9

  • Current circumstances call for bolder action.
  • The Phase 1 Enhanced Plan incorporates the features of Phase One and gets us a step closer to Phase two.
  • I call on the Super Committee to pass the Phase 1 Enhanced Plan along with their spending cut package.
  • The Phase 1 Enhanced Plan unites Flat Tax supporters with Fair tax supporters.
  • Achieves the broadest possible tax base along with the lowest possible rate of 9%.
  • It ends the Payroll Tax completely – a permanent holiday!
  • Zero capital gains tax
  • Ends the Death Tax.
  • Eliminates double taxation of dividends
  • 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.

Phase 1 Enhanced Plan – Summary

  • Unites all tax payers so we all pay income taxes and no one pays payroll taxes
  • Provides the least incentive to evade taxes and the fewest opportunities to do so
  • Lifts a $430 billion dead-weight burden on the economy due to compliance, enforcement, collection, etc.
  • Is fair, neutral, transparent, and efficient
  • Ends nearly all deductions and special interest favors
  • Ends all payroll taxes
  • Ends the Death Tax
  • Features zero tax on capital gains and repatriated profits
  • Lowest marginal rates on production
  • Allows immediate expensing of business investments
  • Eliminates double taxation of dividends
  • Increases capital formation. Capital per worker drives productivity and wage growth
  • Capital formation will aid capital availability for small businesses
  • Features a platform to launch properly structured Empowerment Zones to revitalize our inner cities
  • We all know the Fed has tripled the money supply since 2008. They have been printing money out of thin air to finance the Obama spending machine. While true Fed reform that restores sound money may have to wait for my election, the best thing we can do now is to pursue policies that increase the DEMAND for dollars to help mitigate the risks associated with the increase in the supply.
  • Pro-growth economic policies equal a strong dollar policy

A few thoughts  
 1.  How does this impact income to the government to run the various programs we depend on?  Or is the intent to gut government and give corporations free rein? People forget that the phrase "Power corrupts, absolute power corrupts absolutely" doesn't have the word government in it.  When corporations have absolute power - as some are close to having in their sectors - they are likely to be even more corrupt than any democratic government where at least the leaders can be voted out of office.

2.  We know flat taxes are regressive taxes which put a much greater burden on those who make less.  A larger percent of their money goes to necessities.  By making the income tax flat, and adding a sales tax (which is flat), the gap between the rich and poor will grow.  Check out this overview of a national sales taxes.

3.  End the "Death Tax."  If it were really a death tax, everyone would be taxed after their death.  This is an inheritance tax, which reverts a relatively small, yet collectively important, share of wealthy people's money back into the general kitty.  According to Wikipedia, in 2010 you had to inherit $5,000,000 before the tax kicked in.  An inheritance tax is like reshuffling the cards at the end of the game,  and we start out even the next game.  Except that we don't reshuffle the cards.  The heirs of the very rich keep most of the money and the inheritance tax is like throwing a few extra chips to the dealer. 

4.  Eliminates all payroll taxes.  Maybe he can explain how he plans to fund Social Security.  Or maybe that gets eliminated too in his plan. 

 I agree with Cain that the tax code is too complicated.  Lobbyists have gotten tax write-offs for all of their clients.  We do need to eliminate a lot of deductions, but because of the tax code's enormous impact on the economy, it does make sense - at least theoretically - to use it to give incentives that change people's behavior for our collective good.    The home mortgage deduction was instituted to encourage home ownership and has been supported by Republicans and Democrats alike.  Deductions for things like energy saving repairs on your house create jobs and lower overall energy use.  So there is legitimate use for them.  If they can be controlled, which is a big if. 

So, if Cain gives us the slogan 9-9-9, my response is Nein - Nein - Nein.


  1. Ha ha, I tweeted the very same thing yesterday. Nien.nien.nien

  2. Thanks. I am now better informed.

    Clever title. It drew me in.

  3. Teal, As I wrote the title I figured that I couldn't be the first person to think it up.

    Anon, thanks.


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