Posted on 10/10/2011 9:05:29 AM PDT by justsaynomore
UPDATE: 9/27/2011 We were contacted directly by the Cain Campaign's chief economic advisors last week, and were advised that base numbers in our analysis significantly understate the initial revenue generated in the first year of the 999 plan. The Cain Campaign had indicated a willingness to share their raw data so that we might adjust our projections. We anticipate that this information will be made available shortly, and we'll review their data, and will modify our analysis if warranted.
While the nation awaits Barack Obama's "Jobs Plan," which will be countered by the Romney "Jobs Plan"and the Wall Street Journal swoons over Jon Huntsman's economic plan; we thought we'd take a moment to review the economic plan proposed by Herman Cain.
About two weeks ago, Presidential hopeful, Herman Cain announced his "Vision for Economic Growth" which he calls 999. The previous link is to the official campaign brochure describing the plan. The brochure appears to be rather poorly constructed, stringing together often unrelated talking points, policy initiatives, and goals. (For anyone interested, we've done a point by point critique on the shortcomings of the brochure here, and cut and pasted our own suggestions here.)However, on closer inspection, one can see what is likely to be the unedited stream of conscience thought of a singularly brilliant individual. Despite the explanatory shortcomings of the brochure, the "Vision for Economic Growth" is quite simple in nature
Cain's "Enhanced Phase I".
Cains vision is;
Limit all personal income taxes (including SS / Medicare) to 9%
Reduce Corporate Taxes to 9%
Introduce an national sales tax of 9%
Phase II would be to eliminate the personal income tax and the Corporate Income Tax and replace them both with the "Fair Tax"
Cain's brochure claims that the plan is revenue neutral, which would mean that it would generate a similar amount to the current Federal Revenues of about $2.162 Trillion. At first glance it seems difficult to fathom. It fortunately it isn't difficult to test this contention. We'll simply assume zero deductions and multiply the aggregate totals of each sector by 9%.
Our best, or perhaps most optimistic, estimate of aggregate U.S. personal income comes from University of New Mexico's Bureau of Business and Economic Research. According to UNM's BBE - total personal income in 2011 will be $12.590 Trillion.
Corporate Taxable income is a bit more difficult to ascertain due to the ability of Corporations to make business decisions and accounting allocations based on prevailing tax law. Data is readily available for total Corporate taxes paid, but this includes a large number of deductions and accounting allocations to define depreciation, capital gains, etc. Again in the interest of erring on the high side, we'll use our own extrapolation of data. Last year, Corporations reported after tax profits of about $1.5 Trillion. Based on a current corporate tax rate of 35% and corporate propensities to shift "profits" into capital gains or other lesser taxed classifications, one could make a reasonable case that the core gross profit to which tax would be applied could conservatively be estimated to be twice that amount. That is $3Trillion.
Total Consumer spending is quite a bit easier to identify. According to the latest annual report from the U.S. Census Bureau (calendar year 2009), the total amount of sales for the U.S. Retail Industry (including food service and automotive) was $4.13 Trillion.
A quick acid test of the numbers would be to total them and see how they compare to total GDP. The total of our factor is about 19 Trillion. Recognizing that to a large extent "retail sales" are largely previously counted in Personal Income, and that the total GDP is estimated to be around 15 Trillion, our estimates of "Taxable Base" against which to apply the Cain 9% tax rates appears to be reasonable. Now applying the 999 tax rate yields the following.
|
|
Total Aggregate |
Tax Rate |
Gov. Revenue |
|
| Personal Income | $12,530,101,184 |
|
0.09 | $1,127,709,107 |
| Corporate before Tax Income | $3,000,000,000 | 0.09 | $270,000,000 | |
| Gross Consumer Purchases |
|
$4,200,000,000 | 0.09 | $378,000,000 |
|
|
|
|
$1,775,709,1 |
As we can see from the above referenced table, the 999 plan, when applied to current economic levels of activity; falls significantly short of the current Government revenue of 2.162 Trillion. In this blunt and rather static analysis, the 999 plan would result in a $387 Billion revenue shortfall when compared to current tax revenue estimates.
So is the plan unworkable?
Not so fast....
One of the difficulties in estimating tax revenue is that both people and corporations change their behavior in order to take advantage of tax policy. Obviously, this plan is proposed encourage economic activity, and create an environment where economic growth can occur. 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. Remember, the Federal Budget Baseline assumes an 8% annual growth in Government outlays, and that after 4 years of no growth - there may be significant "pent up demand" making this possible. And honestly, if we don't get some economic growth out of a dramatic policy change, why bother anyway. So, lets scale back a bit, and for the sake of rhetorical simplicity, assume 9% growth....
| 9% Growth Projection |
|
|
|
|
| Personal Income | $14,887,013,217 | 0.09 | $1,339,831,190 | |
| Corporate before Tax Income | 3564300000 | 0.09 |
|
$320,787,000 |
| Gross Consumer Purchases | 4990020000 | 0.09 | $449,101,800 | |
|
|
|
|
|
$2,109,719,990 |
Now we're getting somewhere. If one assumes that we can achieve significant growth after instituting such pro-growth policies; we are now within $50 Billion of being Revenue neutral. In fact if the growth continues for another year, we would surpass the revenue neutral point and then become "Revenue Positive."
Based on the assumed growth projections, the 999 plan becomes revenue "Positive" quite quickly. The underlying philosophy of the plan is sound, if not brilliant - both from the perspective of functional economics and political positioning. The broad and indiscriminate capture of ALL income at a low rate removes government from picking "winners and losers". For the above projections to maintain any degree of accuracy, ALL deductions are eliminated. That's right, no charity, no mortgage, no green energy etc. Just straight .09 from everyone. This removes market distortions from economic decision making. It also removes a great deal of power from the legislature to create private sector billionaire's with the passage of legislation. (Oh the humanity!)
It is, in short "Economic Liberty"
The diametric opposite of what has been in practice since the Obama administration took office.
Politically, it is of equal brilliance. The mainstay of Barack Obama's political rhetoric is class warfare. To be fair, it is at times the a common tool for the right wing media as well. Limabaugh frequently bemoans the fact that almost half the nations population pay "no income tax." While that's technically true, it is only so by a matter of semantics, not economics. About 20% of every wage earners productive income is confiscated by the Federal Government and labeled "Social Security, and Medicare" contributions. Once confiscated it is thrown into the exact same General Fund that higher wage earners "Social Security, Medicare, and Federal Income Taxes" are placed. Other than the label - there is no difference in these funds.
Consequently, we have Obama on one side chiding "millionaires and billionaires" for not paying their "fair share." - When they already cough up 50% of their income. And on the other side we have Limbaugh, Levin, and Boortz lamenting the fact that half of the country are "freeloaders" paying nothing in Federal Taxes - "When the freeloaders" are busting their butts for $10 bucks an hour, and taking home $8 an hour.
This Tax structure creates the fertile ground on which the seeds of class envy are planted and harvested by antagonists on both sides.
The 999 plan puts all Americans on equal footing and eradicates the root of class warfare.. When Legislative issues arise that will call for more spending and imply the need for higher taxes, it would be a great change of pace to see every productive American evaluate the issue from the standpoint of a taxpayer/stakeholder. (Even illegals would object to higher taxes!)
The 999 plan is an outstanding concept, unfortunately; it only addresses one side of our current Federal Fiscal Crisis. Even if 999 initiates a period of extended 9% growth, it still leaves an annual deficit of more than a $Trillion annually. Even if revenues grow at 9% per annum, the current budget baseline of 8% annual growth, when added to the required interest payments to fund the increasing deficits - yield a budget that NEVER balances.
As bold and dramatic as the 999 plan is, it addresses only the revenue side of the Federal Financial issue. As Cain often says, "First you've got to identify the problem." The revenue "problem" is how to most equitably, and efficiently extract about 20% of GDP from the nations producers? 999 is an elegant and effective answer to that question.
The more pressing question remains, "How do we run the Federal Government on less than 20% of GDP?" This will require actual budget "cuts" - not the faux "cuts against the baseline" that are the Washington norm. The answer is this:
Combined with the 999 Revenue Plan, the Congressional Super Committee must establish a "Prosperity Baseline Budget" of $2.2 Trillion. (That's approximately 2004 level spending) and re-establish the "growth baseline" to be limited to 1% per year. Sparing everyone the laborious calcs after the first year of implementation the resulting outcome would be:
999 Revenue Plan + Prosperity Budget Baseline =
9% annual economic and revenue Growth, and the virtual elimination of all Federal debt - in 9 years.
| Year | Federal Revenue (in Trillions) | Payment on Debt | |
| 2.3947 | 0.19473 |
|
|
| 1 | 2.6103 | 0.3882557 | |
| 2 | 2.8452 | 0.60095871 | |
| 3 | 3.1012 | 0.8345826 | |
| 4 | 3.3804 | 1.09102801 | |
|
|
5 | 3.6846 | 1.37236683 |
| 6 | 4.0162 | 1.68085762 | |
| 7 |
|
4.3777 | 2.01896235 |
| 8 | 4.7716 | 2.38936478 | |
| 9 | 5.2011 |
|
2.79499039 |
|
|
|
13.36609699 |
Wishful thinking? Sure, but a solid goal for which to aim. If we achieve the growth sought and projected, the ability to cut the Federal Budget will be enhanced due to significant decreased reliance on unemployment benefits and Medicaid.
In other words:
9% Personal Tax +
9% Corporate Tax +
9% Sales Tax
=
9% Real Economic Growth and
ElIMINATE FEDERAL DEBT - in 9 YEARS
No, 999 is not a VAT, it is on the final point of sale.
VAT taxes every level of production and hides the cost of the tax inside the cost of goods. It makes all business the Government’s cut out tax collector. Therefore VAT is a much more opaque and different form of taxation then a Sales Tax.
The fact that gets me is that Cain’s book is a bust. Not even on Amazons top 100.
His FEC filing showed that he was making dinations to his campaign from his own Corporation. Then in Expenditures he list his Corporation as a vendor. In reality moving money to make it look like he is raising money.
His refusal to attack Romney. Yet he attacks Perry without basis.
Now he’s running around doing my daddy’s goal was to buy a Cadillac. What is THAT?
typical sterotype of Blacks.
NAH he’s working WITH ROMNEY.
My questions: What will a 9 percent sales tax do to people who already pay up to 7 percent in sales tax? How will it affect revenues for those states when people start buying less? ...Does a national sales tax mean we can get rid of punitive taxes taxes on things like alcohol, cigars and fuel? If 9-9-9 works to balance the books for the government we have, why not go 7-7-7, and balance the books with a smaller government? Maybe that could create a movement that would get us to 5-5-5. Can we also have a moratorium on fed growth?
I doubt 9-9-9 will ever see the light of legislation, but it is a good conversation starter on tax reform and smaller government.
Everyone pays 15.3% FICA
9% income tax replaces FICA too.
Cain’s plan is FAR TOO CONSERVATIVE on how much the base would expand.
He could implement a 9 - 9 - ZERO plan, and the Federal government would still end up with an enormous surplus provided it simply froze spending in place (minus Obamacare)
I think it would be far easier for him to pass a 9-9-0 plan than it would be to add a new federal revenue engine in the form of a national sales tax.
No matter how you slice it, a federal sales tax is going to cut into state/local government’s ability to generate revenue the same way they do today.
We would be seeing states and local governments shifting taxes to more hidden areas, and raising income taxes at their level in order to compensate.
I say LEAVE THE SALES TAX OUT OF THIS Herman!
Other than that, Cain has my full support!
Sales tax revenues are vulnerable to economic downturns. When the economy tanks, so will government revenues, at the very time you need government to provide support through the safety nets.
Income tax is much more stable and not as subject to the vagaries of consumer psychology. And there is nothing unfair about a progressive income tax as long as top rates don’t become unreasonable. Those who earn more use more services. Though there is something to be said for almost everyone paying a share no matter how small to have some ownership in the system.
If you put income tax and sales tax in, you’ll end up with both rates rising.
Sales tax revenues are vulnerable to economic downturns. When the economy tanks, so will government revenues, at the very time you need government to provide support through the safety nets.
Income tax is much more stable and not as subject to the vagaries of consumer psychology. And there is nothing unfair about a progressive income tax as long as top rates don’t become unreasonable. Those who earn more use more services. Though there is something to be said for almost everyone paying a share no matter how small to have some ownership in the system.
If you put income tax and sales tax in, you’ll end up with both rates rising.
The problem is not the tax code. The problem is the trade agreements. Where are the tariff revenues? We’re taxing individuals 9%, and corporations 9%, how much are we taxing imports from other countries? Average tariff is 1.3%. And the consumer will pay 9% regardless of who he buys it from. So foreign competitors are at an advantage.
The rates are temporary and during that time will require 2/3 majority to change.
999 is just phase one bridge to the Fair Tax. http://www.fairtax.org is packed with information and answers to most sales tax questions.
Will the sun rise in the east tomorrow too?
Spoken like a true “moderate.”
Conservatives don’t support expanding the federal tax system to increase the power and scope of the IRS. That is exactly what Cain’s plan would do and why I oppose it.
This highlights Cain’s inexperience and lack of good judgment. We are electing the POTUS, not the President of Godfathers pizza. LOL
“He IS a politician worked for John Connally and Romney.”
Sheesh—I’ve worked on campaigns, too. Does that make me a “politician”? My family would be surprised to hear that bit of news.
“Perry will not be that easy. Bet on It.”
I have nothing personal against Perry and I don’t think beating him will be easy. I just think Cain is the better man for the job at this time.
Sorry I can’t trust a man that plays games with FEC filings.
And gives employees the Ken Lay treatment. then turns around and claims he cause some miracle to a Company that is barely surviving.
He is not an honest man. THAT is the problem I have with him.
So he IS a politician after all....
Too bad this thread is about done.
Cain, if you want my vote and a lot of others’ you’d better drop the sales tax now.
We can’t compete with China and other countries that are not subject to similar regulations as ours. If you tax their imports you are inviting a trade war. Use common sense and reverse all of the regulations that are destroying our competitiveness. ALL OF THEM!
Too bad this thread is about done.
Cain, if you want my vote and a lot of others’ you’d better drop the sales tax now.
We can’t compete with China and other countries that are not subject to similar regulations as ours. If you tax their imports you are inviting a trade war. Use common sense and reverse all of the regulations that are destroying our competitiveness. ALL OF THEM!
The sales tax is not negotiable because it is the key to phase two of his plan which is the FAIR TAX.
The best place to get information about the Fair Tax is http://www.fairtax.org
And he has already said that he would fight to reverse regulations. One of his biggest targets is the EPA.
That’s the first thing I think of as well.
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