Cain Peaks Early As 9-9-9 Unravels

Herman Cain took off like a rocket ship over the last few weeks after he introduced his 9-9-9 tax plan to Republicans hungry for simple solutions to a lousy economy and radical changes to the unwieldy United States tax code.

He describes 9-9-9 as “fair, simple, transparent and efficient,” and has staked his entire nomination chances on its ultimate acceptance by his party.

Unfortunately, for Mr. Cain, a nice man who presents himself well, it appears from the results of the Las Vegas debate this week that his astronomical ascent in the polls, and top tier status among the other candidates, has peaked early. His 9-9-9 plan is coming apart like a two dollar watch.

The trouble is that 9-9-9 is a one trick pony which, upon close analysis, is not what most voters want, and the candidate has nothing left to offer. He’s put all his eggs in the 9-9-9 basket.

In summary, Mr. Cain proposes a 9% flat tax on gross business income; a 9% flat tax on gross individual income; and a 9% national sales tax on new goods and services, ergo: 9-9-9.

He claims that it: “… gets Washington D.C. out of the business of picking winners and losers; using the tax code to dole out favors; and dividing the country with class warfare ... It taxes everything once and nothing twice ... It taxes the broadest possible base at the lowest possible rates.

But close scrutiny demonstrates that these claims are not all true.

Both the business and individual tax parts of the plan create so-called “Empowerment Zones [which] will offer [special] deductions for the payroll of those employed in the zone … [and] additional [individual] deductions for those living and/or working in the zone ... [as well as] charitable deductions.”

I assume these “empowerment zones” will include economically depressed areas such as inner cities and the like, which may be good or bad depending on one’s point of view, but clearly the government with this plan would still be picking winners and losers, doling out favors, and dividing the country with class warfare, at least to some degree.

The claim that nothing would be taxed twice is belied by the fact that gross business income would be taxed at every level of the commercial process leading up to the finished product or service, i.e. raw material procurer, parts supplier, manufacturer, marketer, dealer to customer.

Yes, it does purport to tax the broadest possible base, but not necessarily at the lowest possible rates, and this is actually the biggest problem with 9-9-9 – it severely taxes senior citizens living on social security and other people with entry level jobs, or otherwise extremely modest means, who pay no taxes now, and in all fairness shouldn’t be taxed at all.

When elderly social security retiree’s wake up to the details and consequences of the 9-9-9, tax plan -- millions of senior’s who happen to vote in droves -- they are not going to vote for Herman Cain. They are not going to support his nomination for president.

Why not? Well, social Security recipients, most of whom live entirely on those meager pension benefits, month to month, average $1,082, or about $13,000 a year, according to government statistics. Deduct about $100 per month for Medicare, and they have less than $1,000 per month to spend.

Apply Cain’s 9% flat income tax on that would leave them with less than $900 to spend – almost all of it on goods and services. Then add Cain’s 9% national sales tax, and now they have only about $813 in spending power every month – far less than $10,000 per year.

Now add a 7% state sales tax: $56.91. That would leave them, not counting other state and local taxes, with about $756 per month for their basic necessities. If they own a home, for example, local property taxes would reduce their spending power even further, leaving many of them destitute.

So while Grandma and Grampa are forced to turn down the thermostat in wintertime, eat Spagetti-o’s for breakfast, lunch and dinner, and have no money left over for Christmas presents for the grandkids, the wealthy folks in their mansions on easy street enjoying big incomes will be toasting each other with champagne because of the huge tax break dropped in their laps courtesy of Herman Cain.

Much of the rich folk’s income is derived from capital gains, which won’t be taxed at all, and only a relatively small portion of all their income will be subject to the national sales tax.

Is that fair? You make the call. I know how the social security pensioners will call it.  

Cain's Republican presidential nomination debate rivals made Swiss cheese out of his 9-9-9 plan, and we ain’t seen anything yet, I reckon. Just wait until the next few debates and there will be nothing left of 9-9-9 after the sharks finish their feeding frenzy.

"The fact of the matter is, I mean, reports are now out that 84 percent of Americans would pay more taxes under his plan," said Rick Santorum, referring to a new Tax Policy Center analysis. Moreover, it doesn’t take "care of the families … [since] "a single person pays as much in taxes as a man and a woman raising three children." By removing incentives for people to have children, 9-9-9 risks pushing U.S. birth rates "into the basement," Santorum concluded.

Rick Perry noted that 9-9-9 puts a federal sales tax on top of state sales taxes, or adds a sales tax in states that lack them. It’s "not going to fly," he opined. Newt Gingrich observed that when you get into the details: "there are much more complexities than Herman lets on." Michele Bachmann noted that 9-9-9 would establish a value-added tax, "because at every step and stage of production, you'd be taxing that item 9 percent on the profit."

Cain kept insisting in vain that his rivals were "mixing apples and oranges." "Fine," Mitt Romney quipped, "And I'm going to be getting a bushel basket that has apples and oranges in it because I've got to pay both taxes and the people in Nevada don't want to pay both taxes." It was one of the more amusing lines during the debate.

The bottom line is that Herman Cain’s 9-9-9 plan, well meaning as it is, doesn’t get rid of the individual income tax and the onerous IRS; adds a national sales tax which is unprecedented in American history; is not any fairer than the present tax system; but actually penalizes senior citizens and the poor.

The United States of America got along just fine with no income or sales taxes for well over a century, not counting the century plus colonial period – that’s over 200 years without an IRS. In 1894, Democrats in Congress passed the first peacetime income tax. The rate was 2% on income over $4,000, which meant that fewer than 10% of households would pay any income tax at all.

By 1913, after ratification of the 16^th Amendment, giving Congress the power to collect taxes on incomes, the top tax rate was 7% on incomes above $500,000. That’s more than $10 million in today’s dollars. Very few individuals were burdened with an income tax then. Before that, the nation collected sufficient revenue largely by imposing taxes on commerce.

I’d like to hear a candidate for once propose a similar solution to solve today’s revenue problems without requiring every individual to report their private affairs to the government every year. There should be no individual income tax; no sales tax; no IRS, period.

All taxes should be levied upon commerce in my opinion. Businesses and corporations, large and small, are in the best position to do the accounting, pay their fair share of taxes, take their profits, and then pass the costs of taxation on to the consumer in the price of goods and services, just like they pass on all other costs. Competition would keep prices stable and the average individual wouldn’t even notice the process.

That’s my idea of fair. For all individuals, rich and poor, it could be called the Zero tax plan.

I like the way that sounds.