Posted on 10/11/2011 6:56:32 AM PDT by SeekAndFind
Herman Cain's 9-9-9 plan, which the former Godfathers Pizza CEO and current Republican presidential front runner claims will slash taxes and consequently boost the economy, includes some tax increases that may not go over well with many struggling Americans: specifically, sales taxes on both food and clothing.
During an interview with CNN's Candy Crowley on Sunday, Cain said food and clothing would not be exempt from the 9 percent national sales tax he would attempt to enact if elected in 2012. Crowley, who seemed surprised by a potential tax on those basic necessities, pushed Cain to expand on his reasoning.
"So a poor person is paying the same amount of taxes on groceries as I am? Does that sound fair to you, just in a vacuum?" she asked.
Cain responded that "Yes, it does sound fair," claiming the tax would even out since under his policy, those same low-income individuals would not pay taxes "if they need to buy a car or a home or some hard goods that are used."
Cain argues that because the 9-9-9 plan -- which would implement a 9 percent flat-tax on personal income and corporate income, in addition to the national sales tax -- would lower income taxes for many Americans, they will have more money to spend and will be able to afford higher taxes on food and clothing.
However, Michael Linden, the Center for American Progress' Director of Tax and Budget Policy, told Think Progress that because the bottom quintile of earners currently only pay about 2 percent of their income in federal taxes, under Cain's plan they would be paying considerably more. Specifically, he said with the 9 percent tax on every dollar they make, as well as every dollar spent, the poorest Americans would pay a whopping 18 percent of their income in taxes.
Comparatively, Linden said middle-class earners would see their taxes rise from 14 percent to about 18 percent, while the richest one percent of Americans would see their tax rate fall from about 28 percent to 11 percent under the 9-9-9 plan.
"It would be the biggest tax shift from the wealthy to the middle-class in the history of taxation, ever, anywhere, and it would bankrupt the country," Michael Ettlinger, the vice president for economic policy at the Center for American Progress, told The Wall Street Journal.
While Cain has touted his plan as the solution to the nation's economic struggles, Linden's analysis found that, based on 2007 tax data, it would actually result in the largest budget deficits since World War II. If applied that year, the 9-9-9 plan would have yielded just under $1.3 trillion in total federal tax revenue -- 9.2 percent of the GDP -- compared to 18.5 percent of GDP in tax revenue that was actually collected that year.
Cain's plan to tax food is so surprising that even the Tea Party group FreedomWorks assumed certain vital goods, such as food and medicine, would be exempt from the 9 percent national sales tax.
"If you're one of the minority of people -- the top 10% of the population -- who pay 70% of the income tax revenues, you might see the change as a good deal.But if you're lower down the income scale, and especially if you're one of the 50% of Americans who don't pay any income taxes, then you might not see it as such a good trade," FreedomWorks' Web site states in an Oct 6. blog post titled "Herman Cain's "999 Plan": The Good, the Bad and the Ugly.
Thirty-one states as well as Washington, D.C. exempt most groceries from the state sales tax, according to the Center on Budget and Policy Priorities. In addition, seven states tax groceries at lower rates than other goods and five states tax food, but offer credits or rebates on some of those taxes for low-income earners. Only two states - Alabama and Mississippi -- currently apply their states full sales tax on grocery items.
I didn't know that, but I don't see how that could possibly happen under our system. There is no precedence to require a 2/3rds vote of congress to make a law. They need simple majorities. You can't pass a law that changes the rules of a future house or senate when considering new laws.
If you could, I can guarantee you the Obamacare law would have required a 2/3rds vote for repeal.
The reason the 9-9-9 plan poses a SPECIAL risk for increased taxation is that it introduces a NEW tax that has never existed. It is very hard to do that, and it is likely he'll never be able to do it either. But if he succeeded, it will be much easier to change the tax rates than it was to get the new tax put in place to begin with.
The FairTax proposal, which I oppose for technical reasons, assumed the repeal of the income tax amendment, which would have prevented anybody from re-imposing it.
Look around -- you know a millionare's tax is coming. We will lose that battle, one way or another. The media and democrats have worked together to set up the perfect storm to make sure the "patriotic" and "country-loving" "rich people" join the "rest of us" in "sacrificing" for the country.
Because apparently the government cutting spending is actually a SACRIFICE the poor people are making for the rest of us. And frankly, none of our presidential candidates are really fighting that, because they are too busy ganging up on Rick Perry for Gardasil and a 2001 unanimously-approved Texas law on in-state tuition.
Every single one of our candidates SHOULD be out there pointing out the absurdity of this "shared sacrifice" argument.
But not if there is a 9% MORE incentive to buy a used car than a new car.
Disparate taxation skews market forces. There is a reason Amazon fights like mad to not have to collect sales taxes — because that 5% or so state sales tax makes a big difference to their sales.
I favor a flat tax for everyone, including the poor. Everyone needs skin in the game as an incentive for them to stay alert and resistive to government mismanagement of our money. The underclass would not vote for Dems if the Dems raise their taxes higher than 9-9-9. However, I would not tax basic food staples, such as rice, beans, corn meal, etc. I would cancel food stamps to offset that one tax break.
You are correct. Our income tax acts like a VAT tax on every stage of production. Speaking of transportation costs, I assume the 9-9-9 would lower the fed gas tax? That would be a boon to the economy too.
I also wonder if they calculated the revenue from imported goods that are now not being tax due to being made overseas?
Yes it replaces the Fed gas tax.
>>Can someone explain to me how 9-9-9 does NOT become 10-10-10 in the next congress, or then 18-18-18 under the next D admin?<<
Indeed, it might. But it’s less likely than with what we have now. I lived in Illinois when their 2.5% flat income tax had to be augmented by, I believe, a 1.5% “temporary” income tax surcharge (making it 4% for a year or so) because they couldn’t legally run a budget deficit.
When it came time for it to expire, or be renewed, there were plenty of politicians who wanted it renewed, or made permanent, but every taxpayer could calculate in his head how much money they were talking about taking from him (Make $30,000? 1% is $300, so 1.5% is $450...hell no!) and they all put enough pressure on that it was actually allowed to expire.
A flat tax is one of the hardest taxes to raise, which is exactly why politicians hate them. Granted, they’ll get raised, but not unless there’s a pretty good reason for doing so and a lot of political support for the expressed use of the money. It doesn’t get done in the dark, like a lot of other tax increases do.
Not according to his website. That says it replaces the payroll tax, income tax, estate tax, double taxation on dividends, capital gains tax, and business tax. It does not say it replaces gas taxes.
Easy. The article does not mention how 9-9-9 would also tap the underground economy for revenues.
For example, Ford reported totals revenue of $120 billion in 2010. A 9% sales tax would be about $10.8 billion in tax.
The actual tax Ford paid in 2010: One source says $69 MILLION. I did a comparison of pre-tax and after-tax profit, and got $722 million. It was definitely under $1 billion.
So, in 2010, the 9-9-9 plan, even if you did 0% corporate tax, would have increased the tax burden on ford car sales by more than 1000%, from 70-700 million up to 10.8 billion.
Cain says his plan is revenue-neutral. It clearly lowers the taxes on multi-millionares. So there are NO taxpayers in the lower brackets who should expect that their taxes could go down under the plan -- because total tax taken in won't change, according to Cain.
We'll be lucky to convince a majority of americans NOT to increase taxes on the rich. No way people are going to accept a tax increase that lowers the tax rate for the rich.
Been reading here a long time and I had to register to correct your math.
Companies are not paying 35% on revenue. That is only paid on revenue the company takes as profit.
You failed to factor in production costs of a vehicle, such as payroll, materials, shipping, and storage.
That $20,000 car earns the company around $200 in profit (or loses the company money!). So even cutting corporate tax rate to 0% would only save a buyer, at most, $200.
Basic theory (and the real world) shows that companies in competitive markets operate on a $0 profit margin. The companies make enough to cover payroll, costs and producing more things to sell.
I have already told you that all the details are not on his website brochure, but he has touched on these different points in different interviews.
A more detailed plan is coming out soon and it should help answer a lot of these questions.
So long as "tweaking" doesn't turn into pandering for votes.
I'm not a fan of FairTax, because I am a tightwad saver, and FairTax crushes people who have saved their money (it was taxed as income, and now it will be taxed when I spend it).
But the idea of fighting for a 9-9-9 plan which even Cain admits is not a good plan but just a step on the path to FairTax doesn't really interest me. The current tax system is overly complex, but I happen to think a graduated income tax isn't the horror some claim it to be. We need to eliminate deductions and lower the rates. Cain won't be eliminating the income tax anyway, just lowering the rates, and then we'll have a national sales tax applying to all the money I was taxed on and put in my bank account.
I'll explain that in more detail. I save money. I've been taxed at the high income tax rates. I put my after-tax money in my checking account, and my savings account, and in various other investments. Later, I want to spend it -- and right now, there is no federal tax on my spending.
But under Herman Cain's plan, all that money I saved, which I plan to eventually spend, will be taxed at 9%.
So the Herman Cain plan includes a 9% tax on savings, when you decide to USE the savings. That raises my tax on income I made in the past by 9%.
I haven't figured out how you exempt current savings, but that is what is essential to make the plan fair. Unfortunately, it would require some sort of nationwide "census" of exactly how much post-tax money everybody has in their accounts on the day the 9-9-9 plan takes effect, and some way of tranlsating that into deductions or rebates we would get back each year, requiring that we hold onto our sales tax receipts and claim a refund.
There is nothing in the Cain plan about this now, I guess I'll have to hope he adds it. Except I know there is NO CHANCE his plan will pass, so it's really just a freebie he gets to through around to show how he has "ideas". If he is in fact insisting that a 2/3rds vote to change the law is part of the law, it is clear he has no intention of passing it, because that simply isn't possible under our current system of government. You'd need a constitutional amendment, and if you could do that, you might as well go ahead and repeal the income tax amendment, or do an amendment that sets maximum income tax rates.
Frankly, THAT would be a plan I could support -- an amendment to the income tax that says that the highest income tax cannot be more than 3 times the rate of the lowest income tax, and that no more than the bottom 20% of income can be exempt from the tax.
So, under they current system the price of a new car is $20,000.
Under the 9-9-9 plan, the retail price of the same car is $18,000 + 9% sales tax = $19,620.
$19,620 < $20,000
It would cost less to purchase the new car under the 9-9-9 plan.
Haven’t had time to read all the comments so maybe someone’s already mentioned this...
The article ignores what is called the “tax wedge,” and the tax wedge is what both slows economic activity and increases prices for all.
If you’re a plumber and your neighbor is an electrician, it makes sense for you to do his plumbing in exchange for him doing your electrical work. And as neighbors, maybe you barter.
But generally, we price the services of the plumber or electrician, find that they’re pretty high, and gradually homeowners learn to do some of the basic plumbing and electrical work themselves, often doing a less than stellar job in the process.
At the margin, a successful plumber is probably looking at a combined 40% or so tax rate not to mention the corporate taxes and sales taxes he’s paying on all his materials, and the accountant he’s got to pay to help him cut his taxes, pay his taxes, fill out the forms, etc., as well as taking a day off occasionally to deal with the IRS inquiries if he’s unlucky enough to get audited.
In other words, for the typical plumber, the tax wedge is significant. He has to include the tax wedge in his pricing. Simplify taxes and cut taxes and you cut his tax wedge. Cynics will say he’ll just keep his prices the same and make more money, but the free market doesn’t work that way. Others will enter the field because plumbers are suddenly making way more than they should.
The point is that the price of plumbing will fall, and possibly by so much that paying the 9% sales tax on his services will be completely offset and then some. In other words, it’s actually possible that the “poor” might find it easier to hire a plumber, instead of harder. This might not be true, but it’s possible, if the tax wedge is large enough.
Cain’s plan attacks that tax wedge with a vengeance, because marginal tax rates determine people’s behavior at the margin, including the prices they set for their services and products. And any criticism of 9/9/9 that ignores the tax wedge is missing one of the main points of the plan, so should be taken seriously. Food prices, for example, might be cheaper WITH the 9% federal sales tax than they are now. Or they might not be. The point is that they could be, and many professional services probably would be.
Apparently he is making it all up as he goes along, is that it? So if his website is that far off on his 9-9-9 plan then what other proposals outlined on it are bogus as well?
Very nice explanation on the Tax Wedge and its effect on prices overall.
The problem is in a debate, you are given about 30 seconds to explain your tax plan and that kind of time won’t cut it.
That’s why I post in forums like this, so that we all get educated on the pros and cons of the 9-9-9 plan before we go all out with Herman Cain.
While you’re at it, you might want to try thibking of a response to posts #40 and #69 above.
Corporations pay a maximum of 35% on their profits, not their revenue. Most companies have a relatively LOW margin, which means most of the cost of things we buy are NOT profit. So you don’t see a 35% drop in the cost of production, it’s more like 35% of 5-10%. In order for the 9% sales tax to be lower than the 35% income tax, the profit margin for an item has to be higher than 25%. That would be true for some companies, but not many, and certainly not for ANY food items, where profit margins are very low.
For example, Pillsbury in 2010 had $553 million in sales, which means a 9% sales tax would be about $50 million tax. But their PROFIT for 2010 was only $1 million, which if taxed at 35%, would be about $350,000 in tax. So under 9-9-9, the tax paid on pillsbury products would go up by about 14,000 percent, almost 140 TIMES as much tax.
There is a reason that the Cain 9-9-9 plan is “revenue neutral”, even though it lowers the taxes on the richest people, who spend a lower percentage of their income.
Uh, not if it replaces the gas tax. That was my question.
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