Republicans Attack Cain's 9-9-9 Plan
Last night, at yet another Republican presidential candidate debate, Herman Cain was roundly criticized for his simplistic 9-9-9 tax plan by his fellow Republicans. I have to admit, it was a little bizarre (in a "Nixon goes to China" sort of way) to see Republicans disparaging a tax plan for being "regressive." Ron Paul was unafraid to actually use this word, and while several other candidates avoided the term they in essence leveled the same charge: 9-9-9 would wind up increasing taxes on the poor and the middle class. Being Republicans, though, they didn't also speak of the other side of this coin -- the fact that 9-9-9 would lower taxes on the wealthy and really lower them on the ultra-wealthy. But still, it was odd enough to see candidate after candidate speak of their concern for the tax burden of the lower-class and middle-class, since this is usually a Democratic argument. Perhaps all those 99 Percenters out there demonstrating in the streets are getting through to the Republican politicians? Stranger things have happened.
Herman Cain is becoming increasingly boxed in by his 9-9-9 plan. To his credit, he's done his best to push what is unquestionably a bold idea onto the public's consciousness. The problem for him is that every economist who does the math (who is not actually in Herman Cain's employ) concludes pretty much the same thing: this plan would massively raise taxes on the lowest earners, and massively slash taxes on the highest earners.
Rick Santorum even pointed this out in the debate:
[R]eports are now out that 84 percent of Americans would pay more taxes under his plan. That's the analysis. And it makes sense, because when -- when you don't provide a standard deduction, when you don't provide anything for low-income individuals, and you have a sales tax and an income tax and, as Michele said, a value-added tax, which is really what his corporate tax is, we're talking about major increases in taxes on people.
He also doesn't have anything that takes care of the families. I mean, you have -- you have a situation where, under Herman's plan, a single person pays as much in taxes as a -- as a man and a woman raising three children. Ever since we've had the income tax in America, we've always taken advantage of the fact that we want to encourage people to -- to have children and not have to pay more already to raise children, but also pay that additional taxes -- we gave some breaks for families. He doesn't do that in this bill.
And we're going to -- we've seen that happen in Europe. And what happened? Boom, birth rates went into -- into the basement. It's a bad tax for -- again, it's bold. I give him credit for -- for starting a debate, but it's not good for families, and it's not good for low-income....
If you ignore the babbling about low European birth rates, Santorum makes several very good points. Cain's response, as always, revolved around: "Don't look at anybody else's analysis, because they're all wrong -- look at our analysis, where every little girl gets a pony and every little boy gets a dirt bike, and everyone lives happily ever after."
Cain's problem is that it's pretty easy for just about every American to see through his tax plan. Sure, 9-9-9 sounds catchy and all, but upon consideration, most folks realize that what it is going to mean is a large tax hike on them, personally. After all, if a tax plan is "revenue-neutral" (meaning that it'll raise exactly the same amount of money that the current tax policy does), then some people are going to wind up paying more, and some paying less. With a new sales tax on everything, it's going to hit most Americans hard in the pocketbook.
Cain's plan is going to mean everybody who makes money paycheck-to-paycheck is going to be taxed at a rate of 27 percent. Income and payroll taxes will either go up or down (depending on how much money you make) to 9 percent. But businesses aren't going to be paying any income taxes at all. Instead, they're going to have a 9 percent "value-added" tax on all the products they sell -- meaning the consumer will be paying that tax, not the business. On top of this, there will be a new federal sales tax at the cash register of 9 percent. When you go into a business with the 91% of your after-tax income, you will be hit with a new 18 percent tax on everything you want to buy.
Cain is right about calling "foul" on one criticism, but it's not going to do him any good. His fellow candidates have been pointing out that the new federal sales tax will be on top of any state sales tax. Cain tried to use the "apples and oranges" metaphor to point out the silliness of holding his new plan responsible for what each state does (Cain's right -- the federal government has nothing to do with state sales taxes, one way or another). But the charge resonates with the public, because they're all calculating what their new total sales tax will be. In a state with no sales tax, it will be 9 percent. In a state with a 5 percent sales tax, it will be 14 percent. In a state with 8 percent sales tax, everyone will be paying 17 percent. Most of the public hasn't yet figured out that this number will be increased by the "hidden" value-added tax by another 9 percent, but they will eventually.
To put it another way, the calculation will go something like this: right now, I can buy a snazzy new iProduct for $100, plus sales tax in my state of 8 percent -- total cost to me, $108. If Cain's 9-9-9 plan were in existence, the price of the product would be $109 (with the hidden value-added tax added in). I would then have to pay an additional $8.72 in state sales tax and $9.81 in federal sales tax, making the total cost to me $127.53. That is, roughly, an 18 percent tax hike. On every new product I buy.
Which is why 9-9-9 sounds good... right up until you start doing the math. After a few back-of-the-envelope calculations, most Americans are going to conclude that this isn't such a good deal after all. Which is Cain's main problem. Add on to that the report which Santorum referenced which shows that 84 percent of taxpayers will be paying more -- a lot more in some cases -- and Cain's plan really starts to look like a bad deal to 84 percent of the people. It's not exactly the "99 Percent" of the protests, but it's pretty darn close.
At the heart of any debate on a new tax policy lies the cold mathematical fact that some will pay more and some will pay less than they are now under the current system. Given the constraints of being "revenue-neutral" it is an inescapable truth. Cain's insistence that this is not really true is much like the line about Lake Wobegon, "where all the children are above average" -- it makes no sense, mathematically.
Cain is fighting hard to counter this fact, but in the end, he will fail. "I'm going to raise taxes on 84 percent of America!" is not the best way to get elected in this country, and it is definitely not the way to win a Republican primary.
It's hard not to feel a little sorry for Herman Cain. After all, he did come up with a plan -- something not all of his fellow candidates have bothered to do (most of them just offer up straight Republican tax dogma, in one form or another). He probably never expected that his plan would receive the level of scrutiny which it is now getting, both in the media and on the campaign trail. Cain's plan is unquestionably bold -- this is one thing that cannot be argued. It would be a radical change to the way the federal government collects taxes. But its very boldness is also its biggest weakness. Because it is so simplistic, it makes it very easy for most Americans to quickly figure out that they will be paying more in taxes. And while most of the attention from the Tax Policy Center's report has so far rested on the 84 percent figure, just wait until people read a bit deeper into the charts and figure out that the top 0.1 percent of earners will be getting an average tax break of over a million dollars per year.
Of course, I don't expect the Republican candidates to start pointing this out -- but then I didn't expect them to attack Herman Cain over the regressive nature of his 9-9-9 plan, either. As I said, stranger things have happened, so we'll just have to wait and see.
-- Chris Weigant
Cross-posted at Business Insider
Cross-posted at The Huffington Post
Follow Chris on Twitter: @ChrisWeigant
cain is an interesting personality, faulty math notwithstanding. americans like an interesting personality. what fascinates me is the obvious snippiness between romney and perry. usually only democrats attack each other this way in the primary.
Cain's plan appeal is it's simplicity.
Yes, some people will pay more. But at least they will KNOW ahead of time how much more they are going to pay..
Put it this way... The Jones family is planning their budget for the year. They way things are right now, they have to sock all their money away because they don't know what their taxes are going to be like. The tax code is so confusing right now that they have to hire ANOTHER person to figure it out, costing them MORE money and adding MORE uncertainty..
Under Cain's plan, they know ahead of time how much they are going to pay in taxes... They don't have to hire anyone to do their taxes for them. (I guess that's another downside to Cain's plan. It will put a lot of accountants out of work,) Anyways, so they put that money away and that frees up the rest of their money to become disposable income that they use to stimulate the economy...
The one question that no one has bothered to ask is the ONLY important question..
Will Cain's plan get this country back on it's feet??
No, seriously, I am asking... :D
Will it??
Michale.....
Here's my favorite graph which shows how Cain plans to redistribute wealth (upwards):
http://jaredbernsteinblog.com/9-9-9-in-one-really-long-graph/
It takes the data from the Tax Policy Center report you mention.
Will Cain's plan get this country back on it's feet?
I think it would cripple our country by driving down demand even more. That is, 99% of the people are going to have to pay more taxes which is going to mean less buying power.
-David
Correction:
80% of the people will have to pay more. I was reading the red vs blue.
If you are in the top 20% you get a tax break, if you are in the bottom 80% you'll have to pay more.
David -
That is one excellent graph. Check it out, Michale.
-CW
the problem with all these taxes is that they happen at different points along the way between the market and our pockets. whether the money gets stalled at one point or another along the chain is hugely subject to manipulation. the only really fair thing to tax is something we already have.
in that vein, i have a plan that is simpler than mr. cain's, a lower percentage, and in my not so humble opinion more fair:
1. abolish all income, corporate, payroll, capital gains and almost every other current federal tax.
2. institute a flat 5% tax on net worth (calculate all assets and liabilities including anything held in trust).
obviously it would have to be tweaked to facilitate a change-over from the current system, and accountants would stay employed because it takes work to figure out exactly what someone is worth. but since our national net worth is about 50 trillion and our current tax revenue is about two and a half trillion, the overall taxes collected (2.5T) wouldn't change much, just the incentive structure.
this would stimulate the economy because nobody would be taxed for using their assets, only for having them. the more you put into the economy, the less you end up paying. perhaps there could be a penalty if it's discovered that you're hiding them out of country to avoid paying, but the details could all be worked out.
2. institute a flat 5% tax on net worth (calculate all assets and liabilities including anything held in trust).
Bravo, Mr. Poet! This is something to think on.
Right now, I can honestly say, I'm not sure if that would be a good idea or not. It is certainly an intriguing one though.
-David
nypoet22 --
That is, indeed, a stunningly thought-worthy post. There are many loopholes which could be exploited, but the basic idea is one I've never even heard before.
I gotta think about this one....
-CW
I thought a Flat Tax was a Right Wing idea??
You guys are confusing the hell outta me!! :D
But I like NYpoet's tax idea for several reasons. It's simple, easy to understand and it doesn't result in massive unemployment for accountants.. :D
When Cain is elected president, he should give the SecTreas job to NY! :D
Michale......
thanks for the feedback, everyone. i'm not sure where exactly the idea came from and i have no idea how it would fare when it met the complexities of the real world, but i figured i'd put it out there.
Still haven't had a chance to think through enough to provide decent feedback, but I'd highly encourage you to post this idea over at dKos.
They have a couple economics groups over there and trust me, this will get noticed. And you'll likely get some good feedback.
-David
A tax on net worth? Preposterous.
3 people go out and earn the same amount of money for doing similar work look what happens over the course of time if their incomes stay comparable.
1) drinks, partys, travels and is a spendthrift, living a lavish lifestyle he cant afford and wracking up huge debt. He accumulates no wealth but is in debt over his head. He pays no taxes?
2) the second lives with in his means but makes bad financial decisions, rents a house and never buys, leases cars never buys, invests in assets that lose money etc and he accumulates little wealth. He might pay some but very little
3) the third lives well but saves for the future. He buys a house or two and sells them at a profit buying a better one as his income level rises. He puts 10% of his money in investments (and about 10% to charity). he invests wisely in diversified holdings, has a few luxury items he pays for and lives a quiet life providing for his family.
He accumulates the most wealth and pays the most tax! How is that even REMOTELY fair?
We now want to encourage people to run up debt, not save and invest for the future and live above their means and if you dare to live a wholesome and wise life we will crush you with taxes?
More on the "net worth" tax
The scenarios I presented above are my family sort of.
My older sister, is single made a little less then me and has huge debt and no net worth. She goes out almost every night, travels, hosted a huge party at a Melissa Ethridge Concert (yes, I know), upside down on her mortgage and never saves. But she is single and makes decent money.
Her lack of wealth is her choice. Why should she not pay Tax?
My Brother, a doctor, makes a bit more then I do. But he has huge student loan debt from him and his wife (who can't work). He bought a house that has not gone up in value, does not make extra principle payments, has little if any equity, drives new cars, not used rarely holding them long enough to pay them off, and has no savings.
Even though he makes more then me and a lot more then most, and lives in a nice house and drives nice cars he has little material wealth. He would pay less tax then me.
I have 4 paid for cars, A nice home with a lot of equity in it, a rental property with equity, I have been investing for 20 years, no real debt, a boat, etc so I have some material wealth.
But you want to tax my wealth because i made smart choices? Preposterous.
Gratuitous "I was right" Note -
Looks like I called that Iraq thing right...
http://www.huffingtonpost.com/2011/10/21/obama-iraq-troop-withdrawal_n_1024108.html
:-)
-CW
Whoops, I think I posted that on the wrong column, let me try again.
-CW
I've been in favor of a wealth tax for some time now, but I wouldn't eliminate all other taxes. For any particular amount of taxation, it's almost always better to have a bunch of little taxes than one big one. The rate has to be higher if you have one big tax, and that means more incentive to avoid or evade.
tinsldr2,
your sister already paid tax to the state on all her purchases, and it was most likely more than five percent. then the corporations she bought from paid taxes on the money they made from her purchases, and that was definitely more. then the investors in those corporations paid capital gains, which was also more, so that money has been taxed several times over. meanwhile, living deep in debt isn't exactly a huge reward for her.
your brother took on debt so he could benefit all of society. wouldn't it be the best case scenario to give him more means to get himself out? he'll be more able to afford to pay a larger share once his debt is settled, and his investments might not tank if the market has no other taxes levied on it.
as for you, five percent is not exactly the end of the world. it's less than most investments make, you pay nothing beyond the 5%, and it has the added advantage of you knowing about how much it's going to be way ahead of time. furthermore, since corporations and capital gains aren't taxed, your investments will go up much more quickly, far surpassing the measly five percent that the government takes out.
The problem I see: does "calculate all assets" include having someone search my house for the gold ingots I have in my closet? And does that mean tossing out the 4th Amendment?
bashi,
that's a good point, i'm not sure how they'd figure out if someone was cheating by hoarding commodities. it's the sort of loophole you'd have to come up with something creative to close.
dsws,
obviously the plan has its flaws, most notably how to deal with commodity hoarders who don't report their assets. but i think a couple things you said were off-target.
first, wealth tax it a completely wrong way of framing it. i realize that wealth is a synonym for assets, but it's misleading because wealth implies a tax on the wealthy. while many of us do believe the wealthy should pay more, the flat net worth tax would not tax the assets of the wealthy even a fraction of a percent more than the assets of the middle class or the impoverished.
second, you're incorrect about the rate being higher. as i explained, the rate is actually lower than any other tax, much less a combination of multiple taxes. in spite of potential enforcement issues, i don't think the incentive to cheat would be any higher than it is already. goodness knows, how many people fudge their taxes right now?
certainly people would probably be able to fudge a bit and get away with it, but net worth is generally a much bigger number than income. i think it would be difficult to hide a very large percentage of one's assets without it leaving a trail that would warrant investigation.
You're replying to stuff from multiple people there.
Wealth tax is a tax on wealth. Yes, it would be primarily the wealthy who would pay it, no matter what you call it. I'm going to keep calling it a wealth tax, because that's what it is.
My version would be a much smaller percentage, and would supplement rather than supplant the income tax. In fact, I imagine a constitutional amendment that directs some part of the government, possibly the monetary authority (currently the Fed but my amendment would still leave the nature of the monetary authority up to Congress), to say each year what the real (i.e. net of inflation) interest rate is on money not at risk. The amendment would then authorize a wealth tax not to exceed a specified percentage of that rate.
A "flat" wealth tax is far more progressive than any income tax ever proposed. Pretending it doesn't fall more heavily on the rich is BS.
A combination of taxes can have a low total rate, and a single tax can have a high total rate. Or the other way 'round. The total amount of taxation needed depends on what we have government spend money on, not on how the taxes are structured. It's better to structure that tax as a combination of small taxes, than as one big one.
You're required to report income. You can be required to report wealth. If there's probable cause to think that you're concealing income to evade income tax, a search warrant can be issued. If there were probable cause to think you were concealing wealth to evade a wealth tax, a search warrant could be issued.
to say each year what the real (i.e. net of inflation) interest rate is on money not at risk
Ooops. That sounds as though I would have them impose a real interest rate by fiat. What I meant was to have them compile statistics and declare what it had been in the previous year, to use as in determining the limit on the allowable wealth-tax rate.
A "flat" wealth tax is far more progressive than any income tax ever proposed. Pretending it doesn't fall more heavily on the rich is BS.
i disagree. what's BS is the idea that income tax doesn't fall more heavily on the working, middle and professional classes. net worth tax (or "wealth minus debt," if you must) falls equally on everybody.