Would Herman Cain's '9-9-9' Plan Tax Poor People's Food, Clothing?

International Business Times ^ | 10/11/2011 | Ashley Portero

[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.

[justsaynomore]

Please. People who can afford to buy new now will still buy new under the new plan. The difference is, based on my calculations for my family (and I encourage everyone to run the numbers on themselves) my husband and I will have the extra income to buy more new than we are currently.

[justsaynomore]

Cain has said that in many interviews.

[sam_paine]

What is to stop them from raising income rates now? Nothing. And they raise them quite often. Cain’s plan will require 2/3 majority to change. Plus since everyone is paying, with no loopholes, there should be enormous pressure on Congress not to touch those rates.

LOL. Who needs a 2/3 majority in Congress when they've got an Anthony Kennedy on the Supreme Court?

In fact, if the individual mandate for healthcare is ruled constitutional on even a 5-4 split, then congress will haave unlimited power to tax in addition to the 12-12-12 plan.

[GraceG]

I thought that the tax only applied to new goods, so used items would be exempt. So the poor could buy their clothing from here:

OMG they won't be able to buy designer jeans and shoes without being taxed, THE HORROR!!!!!!

[SoJoCo]

I don’t know what you are reading, but none of those things are sales tax deductions under Cain’s plan and he reiterated that in the interview.

I know that. All of the items I listed, including food, will be taxed under the 9-9-9 plan. In fact his website doesn't list any exemptions to the sales tax, not even used items. So it's hard to know what exactly will be taxed since his website says one thing and Cain has different versions of what he will tax and what he won't.

[justsaynomore]

You don’t know Cain then. The way he turned failing companies/regions was to go in and cut. He got rid of franchises and employees in order to save the company. He cut hundreds of jobs to save tens of thousands.

In fact, he is the only candidate running that I believe make the cuts that need to be made. Horizontally and vertically.

[SoJoCo]

Bottom line is Cain's plan will never see the light of day. But it does show he is a man of ideas and that's something that is seriesly lacking in polluticians.

Ron Paul is a man of ideas, too. But his ideas are what will keep him from being elected. Same with Cain.

[GraceG]

[ The ignorant haven’t figured out that corporations don’t pay taxes, that banks simply pass on ‘punishment’ to the account holders, and that ‘free’ schools, clothing, food, and health care are not actually free. Call me a pessimist, but I don’t expect them to gain enlightenment on this point either. ]

Hidden taxes always hurt the poor more than anyone will ever realize and the poor just lap them up as “taxing those eeeevil corporations” but they don;t comprehend the costs get passed down the line and stifle productivity and encourage shipping jobs overseas.

A naked tax in the light of day is a good thing because it becomes very unpopular to ever raise it and everyone will revolt on rumours of raising it.

Hidden taxes are a very “Re-Progressive” idea.

[Brookhaven]

I agree, it would take a constitutional amendment to bind any future congress to a 2/3 vote to raise the rates.

But that doesn't mean Cain's plan is any more likely to have the rates raised than the current system. In fact, it is less likely because:

(1) Because it's not a "progressive" tax rate. A rate increase affects everyone. No more class warfare calls for raising tax rates.

(2) It's transparent. The instant tax rates go up, everyone knows about it.

The biggest problem I forsee is the temptation of congress to slowly reintroduce deductions for various things. But that's the major problem with the current system (which is so big and complicated nobody can actually say how many pages are even in the tax code).

[Prokopton]

Ford and Honda currently pay a 35% federal tax rate. I their federal tax rate went down to 9%, don't you think the competiton between car companies would cause them to lower their prices--lower them enough to cover the additional sales tax, so that the end cost to the buyer (even with the 9% sales tax) is LESS than it currently is?

Knock it off! Quit making sense. It doesn't fit in.

[GraceG]

[ You don’t know Cain then. The way he turned failing companies/regions was to go in and cut. He got rid of franchises and employees in order to save the company. He cut hundreds of jobs to save tens of thousands.

In fact, he is the only candidate running that I believe make the cuts that need to be made. Horizontally and vertically. ]

I like the idea of cutting of tens of thousands of Government jobs to make the federal government solvent so the employees who remain who work for the government can keep their jobs.

[SoJoCo]

No more class warfare calls for raising tax rates.

Except that a plan for raising the rates on about half the people in the country is going to give the Democrats the 'class warfare' flag to use against the GOP. And don't think they won't be waving it for all they're worth.

The biggest problem I forsee is the temptation of congress to slowly reintroduce deductions for various things.

The biggest problem I see is getting the majority of people to vote for a man who has said they will raise their taxes.

[GraceG]

[ The biggest problem I forsee is the temptation of congress to slowly reintroduce deductions for various things. But that’s the major problem with the current system (which is so big and complicated nobody can actually say how many pages are even in the tax code). ]

Excessive Laws/Regulations/Loopholes lead to selective enforcement which leads to the mess we are in right now.

What we really need is fewer laws and regulations and better enforcement of those laws that are left.

[MrB]

Excessive Laws/Regulations/Loopholes lead to selective enforcement which leads to politicians having more power, and that's the whole point.

[sam_paine]

Plus since everyone is paying, with no loopholes, there should be enormous pressure on Congress not to touch those rates.

Oh, and I suspect that people who now DON'T pay taxes, WON'T pay taxes.

IOW, those who don't pay now aren't much likely to suddenly put their shoulder to the wheel and get off the free dole.

Problem with "taxation via representation" is that the taxed are the least likely to exert their political will. It's the freeloaders who demand more political favors. So politicians favor the freeloaders.

If taxes are spread fairly now, then more of these Occupy morons who are even too lazy to show up to a protest will just stop going to work at mcdonalds if they get taxed more now.

We're all in favor of the same goals here, you me and txeagle.

I just don't believe that a logical, rational, head-on tax solution is the solution to our problems.

I think it has to be an annual/lifetime average plenary cap on individual contribution that individual taxpayers can claim relief on, a financial talisman against the IRS vampire.

Again, handle the affairs of tax filing reform or assesment method all you want, but at the end of the day, I want a Galt Lever I can pull and get off the contribution train without having to actually Go Galt.

Right now the only way out of the crazy system, whether you're a small business millionaire or a smelly stinky protester is to literally QUIT the economy altogether.

That, to me, is the most critical nexus of the problem. We need to be able to keep contributing and growing without fear of growing reprisal from the taxman.

[mbynack]

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?

That's my worry, too. Once we have a national sales tax, in addition to an income tax, what's to stop the liberals from jacking up the rates and giving different groups exemptions?

It's very likely that we could end up paying even higher taxes in the future.

I don't think the liberals will ever give up the control that they can exercise with the right to tax. They slap a tax on things they want less of and give an exemption for things they approve of. Then the politicians exempt themselves from all of it.

The only way we can fix this is with a constitutional amendment that controls spending and taxes.

[GraceG]

[ Ford and Honda currently pay a 35% federal tax rate. I their federal tax rate went down to 9%, don’t you think the competiton between car companies would cause them to lower their prices—lower them enough to cover the additional sales tax, so that the end cost to the buyer (even with the 9% sales tax) is LESS than it currently is? ]

Let’s do the Math on a 20,0000 car.

100% - 35% = 65% (How much the car is worth before taxes from feds.)

$20,000 X 65% = $13,000 (Actual price of car)

$13,000 X 9% (1.09) = $14,170 (Cost of car to Car Maker from 999)

$14,170 X 9% (1.09) = $15,445 (Price the car buyer pays)

How much did the consumer pay even after paying 9% tax?

$20,000 - $15,445 = $4,555 (Savings to the Customer)

So the customer saves $4,555 dollars on a new car which means the business could increase their profit by $2,000 and hire more workers if they wanted to and the customer would STILL save money.

[SeekAndFind]

You can buy great designer clothes from GAP, Lord and Taylor and many other stores when they are on sale. Clearance periods come so often that I have had to restrain my wife from going because we have clearance sales every so often. I was protesting that we have more than enough clothes already but that doesn’t stop her :(

I can’t even tell you the number of times my wife boasts of how much she saved ( buying designer clothes on sale below $10 dollars ) during clearance period. And this is the expensive state of New York i am talking about.

This worry is much ado about nothing really.

[Conservative Actuary]

While the economics would change some I don't know if it would be catastrophic. If we follow your logic if the price is driven up for existing homes and cars, that would have in the short term at least a very positive impact on helping those who are underwater in their homes get back to even.

In the real world it is hard to predict how a drastic change in the economic structure would play out, that is why I tend to support a flat tax more than the fair tax. Still though what is most important is spending not how the taxes are collected. As I once heard Dr. Williams say if the government only spent 3% of GDP almost any tax system is fine.

[justsaynomore]

The only deduction he has said, when discussing the details of the plan, is under sales tax is “used” items, and under income tax “charitable contributions”.

You are right, not all the details are not listed on the brochure you linked to - because it is a KISS principle.

He plans to roll out his detailed version in the near future so I am sure that will answer a lot of questions.

Even then, I am sure Cain is also going to tweak the plan as time goes on. He is talking and LISTENING to a lot of brilliant minds out there on this as well as what the people say.