Is it 999 or "666?"
Herman Cain, the new GOP candidate/darling has catapulted into second place within the pack of Republican candidates by touting his 999 tax plan.
The basic structure of the plan is simple. It involves three separate taxes: a 9% personal income tax; a 9% corporate tax and a 9% national sales tax. Eventually, if Cain had his way, he would replace all of that with a single "consumption tax," which would tax purchases rather than income. The national sales tax included in the 9-9-9 plan is meant as a step in that direction.
Democrats have called the plan unfair for reducing taxes on the wealthy while increasing them for middle to low income Americans. Republicans hate it as well, primarily because of the fear that future presidents would be enabled to increase three separate tax streams as opposed to just one. The plan is also criticized because it oversimplifies the complex problem of improving the current tax code—something by the way that everybody says should happen but nobody really wants to do, reminiscent of the popular saying "Everybody wants to go to heaven but nobody wants to die." Critics of the plan also state that the burden it would place on low and middle-income Americans far outweighs any benefits for the economy as a whole.
On paper, as Cain said in a debate last month, the plan "treats everyone the same." In practice however, it taxes low-income Americans at a higher rate than their affluent counterparts because how much a person would pay under the national sales tax and how much they would save from the estimated taxes on savings and investments depends on how much of their income they spend, save and invest. In other words, the taxes take a disproportionate share of a low-income American's disposable income.
Consider two Americans: one who earns $30k a year and spends all of it by necessity and one who earns $500k per year, spending $100k of it and saves or invests the remainder. Under Cain's plan, the first person would pay an 18 percent tax on that $30,000: 9 percent on income tax and 9 percent towards the national sales tax. The second person however would only pay about 11 percent in taxes on their $500k income: 9 percent in income and 1.8 percent in sales tax, since only 20 percent of their income would be subject to the sales tax and savings and investments wouldn't be taxed at all.
Robert Williams, a senior fellow at the Urban Institute has written that under the Cain plan "People when they receive their wages will pay 9 percent tax on it and then when they spend it, they'll pay another 9 percent."
That is again an 18 percent tax on wages—but a zero percent tax on income from investments and capital gains. "The obvious winners are the big guys who get a lot of their income from capital gains, and capital gains would not be taxed at all" Williams wrote. Conversely, the majority of Americans who make their living from wages, not capital gains, would be hammered under the 9-9-9 plan.
The recent controversy surrounding the billionaire Warren Buffet's statement that his secretary paid a higher tax rate than him should have been an astounding one to everyone. Under the 9-9-9 plan it is difficult to fathom a hedge fund manager paying a higher effective tax rate than his or her secretary. The reality is that Cain's plan would make it possible for wealthy financiers to receive all of their compensation as tax-free investment income and...The windfall from eliminating investment income taxes would accrue to the top one percent of earners, who will pay over 70 percent of all capital gains and dividends taxes in 2011.
Herman Cain's 9-9-9 plan only makes sense if you are willing to believe that the problem with the current tax code is that low and middle-income households have it way too good and they should give up more of their income to those poor Americans making more than half a million dollars a year.
Those of us of a certain age certainly remember President Reagan's diatribe that the economic benefit of cutting taxes to the wealthy would "trickle down" to middle class and working class Americans. This would work—as long as you have humongous macroeconomic gains at the top. Only then would there be any kind of trickling down, and even then, somehow in my mind, the image of a "trickle" is not a lot. It's actually less than a little.
What worries me the most about 9-9-9 is that our political leaders, including all those in Congress, have failed miserably just attempting to manage one stream of income. Imagine if they had three separate streams of income with which to wreak havoc. How soon would it be before 9-9-9 gave way to 19-19-19 or 29-29-29?
Michele Bachmann the other night called Herman Cain's plan "666." I am horrified that I am even writing these next words, but could she have something?
The basic structure of the plan is simple. It involves three separate taxes: a 9% personal income tax; a 9% corporate tax and a 9% national sales tax. Eventually, if Cain had his way, he would replace all of that with a single "consumption tax," which would tax purchases rather than income. The national sales tax included in the 9-9-9 plan is meant as a step in that direction.
Democrats have called the plan unfair for reducing taxes on the wealthy while increasing them for middle to low income Americans. Republicans hate it as well, primarily because of the fear that future presidents would be enabled to increase three separate tax streams as opposed to just one. The plan is also criticized because it oversimplifies the complex problem of improving the current tax code—something by the way that everybody says should happen but nobody really wants to do, reminiscent of the popular saying "Everybody wants to go to heaven but nobody wants to die." Critics of the plan also state that the burden it would place on low and middle-income Americans far outweighs any benefits for the economy as a whole.
On paper, as Cain said in a debate last month, the plan "treats everyone the same." In practice however, it taxes low-income Americans at a higher rate than their affluent counterparts because how much a person would pay under the national sales tax and how much they would save from the estimated taxes on savings and investments depends on how much of their income they spend, save and invest. In other words, the taxes take a disproportionate share of a low-income American's disposable income.
Consider two Americans: one who earns $30k a year and spends all of it by necessity and one who earns $500k per year, spending $100k of it and saves or invests the remainder. Under Cain's plan, the first person would pay an 18 percent tax on that $30,000: 9 percent on income tax and 9 percent towards the national sales tax. The second person however would only pay about 11 percent in taxes on their $500k income: 9 percent in income and 1.8 percent in sales tax, since only 20 percent of their income would be subject to the sales tax and savings and investments wouldn't be taxed at all.
Robert Williams, a senior fellow at the Urban Institute has written that under the Cain plan "People when they receive their wages will pay 9 percent tax on it and then when they spend it, they'll pay another 9 percent."
That is again an 18 percent tax on wages—but a zero percent tax on income from investments and capital gains. "The obvious winners are the big guys who get a lot of their income from capital gains, and capital gains would not be taxed at all" Williams wrote. Conversely, the majority of Americans who make their living from wages, not capital gains, would be hammered under the 9-9-9 plan.
The recent controversy surrounding the billionaire Warren Buffet's statement that his secretary paid a higher tax rate than him should have been an astounding one to everyone. Under the 9-9-9 plan it is difficult to fathom a hedge fund manager paying a higher effective tax rate than his or her secretary. The reality is that Cain's plan would make it possible for wealthy financiers to receive all of their compensation as tax-free investment income and...The windfall from eliminating investment income taxes would accrue to the top one percent of earners, who will pay over 70 percent of all capital gains and dividends taxes in 2011.
Herman Cain's 9-9-9 plan only makes sense if you are willing to believe that the problem with the current tax code is that low and middle-income households have it way too good and they should give up more of their income to those poor Americans making more than half a million dollars a year.
Those of us of a certain age certainly remember President Reagan's diatribe that the economic benefit of cutting taxes to the wealthy would "trickle down" to middle class and working class Americans. This would work—as long as you have humongous macroeconomic gains at the top. Only then would there be any kind of trickling down, and even then, somehow in my mind, the image of a "trickle" is not a lot. It's actually less than a little.
What worries me the most about 9-9-9 is that our political leaders, including all those in Congress, have failed miserably just attempting to manage one stream of income. Imagine if they had three separate streams of income with which to wreak havoc. How soon would it be before 9-9-9 gave way to 19-19-19 or 29-29-29?
Michele Bachmann the other night called Herman Cain's plan "666." I am horrified that I am even writing these next words, but could she have something?