First, your presentation is misleading.
Yes it is true that Cain’s plan imposes a 9% tax on wages.
But we NOW have a 15.3% tax on wages (ignoring the temporary stimulus reduction). (You show ONLY the employer’s portion which shows up in his income statement)
The 15.3% (combined employee & employer share) must be paid to the government REGARDLESS of whether a business is profitable.
Similarly, because the 9% is not deductible all or most of this must be paid regardless of whether the business is profitable (unless a business is so unprofitable that there is still a loss even after adding back wages).
So we have a REDUCTION in taxes on wages under the Cain plan from 15.3% to 9% (or less).
You are comparing the 9% tax on wages under Cain’s plan with the corporate income tax. But it is more meaningful conceptually to compare it with the 15.3% tax on wages we have now, which goes away, resulting in a TAX REDUCTION ON WAGES.
By ignoring the share the employee must pay of the SS/Medicare tax, which goes away under the Cain plan, your presentation is misleading.
Second, by shifting part of the federal tax burden from an income tax to a sales tax, Cain’s plan makes domestic production more competitive.
As it stands now, domestic producers pay the burden of paying income tax but foreign producers do not.
By shifting this to a sales tax, foreign goods bear part of the tax burden making the playing field a little more level for domestic production and improving the environment for JOB CREATION in the United States.
You seem to be under the impression the main point of 9-9-9 is to reduce some people’s taxes or to save compliance costs. The MAIN point of 9-9-9 is domestic JOB CREATION. It is intended to be revenue neutral, so some people’s taxes will go down, others go up, but the most important goal is to change the environment to encourage domestic production here in the USA.
And third, the next step after 9-9-9 is to move to only a sales tax, which DOES eliminate the calculation and reporting of income taxes, saving us the huge compliance costs businesses and individuals have to pay under the current code.
I don’t think it’s misleading at all. If anything it’s a comprehensive critique of the entire policy. Under the 999-Plan the employer pays a 9% tax on wages, and the employee pays another 9% tax on wages, so let’s see, that’s 18.0% versus the current 15.3%. Then the employer pays a 9% national sales tax on purchases, and the employee also pays a 9% national sales tax on purchases. Then by excuding deductions for expenses like mortgage interest, state taxes, etc... the proposal effectively places a 9% surcharge on the same, thus raising costs.
You have to separate business payroll taxes on wages from the individuals taxes. That’s because, currently, businesses pay 6.2% on only the first $108,600 of an employee’s wages, and 1.45% on an unlimited amount. Meanwhile, although individuals don’t get a deduction for payroll taxes, they only pay 6.2% of the first $108,600 as well. But under the 999-Plan a business will pay a 9% tax on wages without limit to the amount paid to each individual. Also since payroll taxes are deductible for income tax purposes, businesses really don’t even pay 7.65%. [For example, if a company is in a 35% tax bracket and pays $100,000 in payroll taxes, because payroll taxes are deductible, it really only effectively pays $65,000 (100,000 - 35,000).]
What’s most profound is that under our current system, those FICA taxes that you mention (15.3%)are currently being spent in their entiretly to cover the current burden of social security benefits, and only a fraction of Medicare benefits. Social security has run at a deficit for the last two fiscal years, so that both programs have had to dip into the general fund. So I ask you, where will the money come from to cover the government’s present burden of social security and Medicare benefits? Won’t most of the money collected under the 999-Plan simply be spent on these two programs alone?
If just in my little one-man company example, the businesses taxes went up to a degree that it suffered a loss, then how does that lead to job creation? How does it lead to a decline in prices? My presentation includes all of the factors you mentioned and more, and if you stop and think about it, and study it carefully, you will see that.
And if you made it to the end of this piece which I know is rather long (too long), then what expenses will be allowed for purposes of State income taxes. The 999-Plan will cause the 43 States that have an income tax to completely rewrite their laws. That ought to be a walk in the park, eh? I’m not going to sit on my hands while the entire nation is stuck on figuring out how to make this work. We don’t even need this. If the goal is to get to only having a national sales tax, then why not just do that from “J Street” rather than screw around with this madness?
The 999-Plan simply put, “won’t work”. It’s just not workable no matter how you spin it. You either need to be in business or work with business finances to understand it, but then again, that’s what I do.