Cain's 9/9/9 Plan: Pros and Cons

[vvx]

Does the 9/9/9 change FICA taxes?

 

[upsideguy]

This 9/9/9 thing is amateur hour. It clearly is not very well thought-out, as he seems to be making it as he goes along. Its not clear, for example, what the 9% tax on corporations is all about. He calls it a transaction tax, exempting capital purchase and inventory. That would suggest a sales tax on all business expenses... which would impose taxes on businesses that were not even profitable. Another version taxes business revenue with no deduction, again this would be a much, much higher tax that what is imposed on businesses now.

Of course, then we have the 9% sales tax on top of 8% state taxes, making a 17% tax. As sales taxes are imposed on consumption and the lowest incomes consume 100% of their income, this group would be paying 18% tax on income. Meanwhile, the wealthy have a very small marginal consumption propensity, thus, their tax as a percentage of income would be 10-14%. This is one of the most regressive tax ideas ever conceived.

Of course, Cain has been in the back of the room....until now, no one has taken him seriously, so its easy to throw out not very well thought out ideas as long as they had sound-bite quality. But, now that he has climbed up in the polls, he will have to be accountable. I expect the press to have a field day with this over the next week or two, exposing him as a bit of a buffoon. He is going to have to scramble to add intelligent definition to this, back-peddle fast or, most likely, enjoy the free-fall death spiral that is just weeks away.

Welcome to the big leagues, rook.

 

[Camlon]

/facepalm

Businesses don't expand their businesses unless there is demand for their products and/or services. If you were in the business of manufacturing/selling widgets you would be crazy to expand your business if there was no demand for widgets. If the demand for widgets were high, you would be crazy not hiring the personnel required to satisfy that demand. edit: that's how capitalism works.

Many businesses in the US sell goods outside the US. They will certainaly benefit under the plan. The plan will solve a lot of problems

1. It will make the tax code simpler
2. It will stop the massive lobbying for corporate welfare
3. It will make sure that everyone pay some income taxes.
4. It will make it much easier for companies who don't get corporate welfare to expand
5. It will make it easier for exporting industries
6. It will add security to the tax system.

However, if I could decide, I would have added a 20% tax bracket for the ones earning more than for instance 100K, and add some exemptions

 

[vvx]

Of course, then we have the 9% sales tax on top of 8% state taxes, making a 17% tax. As sales taxes are imposed on consumption and the lowest incomes consume 100% of their income, this group would be paying 18% tax on income. Meanwhile, the wealthy have a very small marginal consumption propensity, thus, their tax as a percentage of income would be 10-14%. This is one of the most regressive tax ideas ever conceived.

Very regressive, but technically it'll end up less than 9% when you look at it as an income tax. The poor people you mention are already losing 15% of their income to FICA tax. Probably a bit more after SDI and the such, but let's say 15%. So that leaves them 85% to spend, and let's say they want to spend it all. Then of course you have the 9% income tax which is another $900. So if their total income was $10,000 they're already down to $7,400. If they spent $7,400 the 9% sales tax would be $666. Of course, they can't pay $666 because they have $7,400 not $8,066. In fact, the most they can spend would be $6789 which then has 9% tax of $611. So of their $10,000 income they only end up paying $611 so it's more like 6% when you consider it like an income tax. (Of course if the state has income tax, property tax, sales tax, etc... even less of their income is available to spend and the percentage that goes to the sales tax in terms of percent of total income is further reduced.)

So, if someone makes $10,000 and can spend $6789 of it because the rest goes towards various taxes, what's their tax rate? Like 32.1%? Nice. More if the state has uh, any taxes at all?

 

[upsideguy]

that's your only concern?.. .seriously?

you aren't planning for different economic environments?.. you aren't concerned with your expenses?.. you are concerned with regulatory compliance?
you don't concern yourself with growth strategies?... you don't concern yourself with upcoming regulation that will fiscally impact your business?

you are sitting here telling us that your ONLY concern is the one concern that is completely out of your realm of influence.

I don't believe you are being forthright with us.

Don't be silly. You are obfuscating the issue with nits. Of course, as a business owner you worry about a lot things, but you can be highly focused on one. I was addressing an assertion that people will not invest because of the regulatory environment and taxes, and I am telling you first hand that investing is about market and demand, the other stuff is noise. When you make an investment, you are making your bet on your ability AND on things that are out of your control. Certainly you work the things you have control over (your list) and worry about the things you can not control (market, taxes, regulatory environment, laws, etc...). If I were to advise Washington, it would be to do things that assured demand (consumer confidence), not waste time on reducing regulations or lowering taxes, which are moot if there is no demand for the service.

As a matter of illustration, I am a pilot.... Flying an airplane is about keeping your eye on a lot of things. At different times in flight, however, you are highly focused on a few things.... On take-off, for example, you are highly focused on watching your airspeed and keeping your wings level. Lots of other things need some level of attention, but your primary focus is very clear.

 

[upsideguy]

Very regressive, but technically it'll end up less than 9% when you look at it as an income tax. The poor people you mention are already losing 15% of their income to FICA tax. Probably a bit more after SDI and the such, but let's say 15%. So that leaves them 85% to spend, and let's say they want to spend it all. Then of course you have the 9% income tax which is another $900. So if their total income was $10,000 they're already down to $7,400. If they spent $7,400 the 9% sales tax would be $666. Of course, they can't pay $666 because they have $7,400 not $8,066. In fact, the most they can spend would be $6789 which then has 9% tax of $611. So of their $10,000 income they only end up paying $611 so it's more like 6% when you consider it like an income tax. (Of course if the state has income tax, property tax, sales tax, etc... even less of their income is available to spend and the percentage that goes to the sales tax in terms of percent of total income is further reduced.)

So, if someone makes $10,000 and can spend $6789 of it because the rest goes towards various taxes, what's their tax rate? Like 32.1%? Nice. More if the state has uh, any taxes at all?

FICA is 7.65% (and even less, at the moment), but you are correct, it would never 18% as one reduces the other, but then you have to add back the states. In all cases, its beyond absurd. The candidate gets a C- for a decent shell of an idea (not a good idea, but an idea), but not doing the homework to be able to really explain and justify it.

 

[vvx]

FICA is 7.65% (and even less, at the moment), but you are correct, it would never 18% as one reduces the other, but then you have to add back the states. In all cases, its beyond absurd. The candidate gets a C- for a decent shell of an idea (not a good idea, but an idea), but not doing the homework to be able to really explain and justify it.

You can't actually believe that the employer portion of FICA isn't in fact paid by the employee as well? (Yes, it is temporarily less.)

 

[Camlon]

FICA is 7.65% (and even less, at the moment), but you are correct, it would never 18% as one reduces the other, but then you have to add back the states. In all cases, its beyond absurd. The candidate gets a C- for a decent shell of an idea (not a good idea, but an idea), but not doing the homework to be able to really explain and justify it.

You guys are absurd. If you want to attack him, at least learn the facts first.

He will undo the FICA tax, which means poor people don't have to pay 15.3% in payroll tax.

 

[atrasicarius]

if you are meeting demand now, and making a profit... what do you do with the money in this economy?

if you were smart, you sock a portion of it away so you can ensure you keep the doors open and keep your employees and expenses paid.
if you own a business and aren't planning for a potential worsening of the economy , in this day in age, then you quite simply don't belong in business, 'cuz you're an idiot.
it's imperative to plan for rainy days.. cash reserves are part of that planning.

we've increased our cash reserves to 3 times what we normally keep... just in case.
.. and we've also increase our workforce to 125 (102 domestic ) employees... but i don't foresee much more hiring unless business picks up... we meet demand fine right now.
I have the money to hire, but i won't.. primarily because I run a business, not a welfare agency.
until there is some stabilization and more sunny days, our cash reserves will grow until we deem it time to diversify

I know how capitalism works.. and more importantly, I know how it's supposed to work unlike those yahoos in DC.
I'm not to big to fail, i have no choice but to be fiscally sound in my planning and decisions.. again, unlike those yahoos in DC.

See the highlighted part? That's the key. Smart businesses don't hire unless there's demand for it, no matter how much extra money they take in. Tax brakes won't do anything for that.

 

[vvx]

You guys are absurd. If you want to attack him, at least learn the facts first.

He will undo the FICA tax, which means poor people don't have to pay 15.3% in payroll tax.

Thank you. Can't complain about that part of the change.

 

[upsideguy]

You can't actually believe that the employer portion of FICA isn't in fact paid by the employee as well? (Yes, it is temporarily less.)

Its not.... the incidence of the at tax falls substantially on the employer. If it goes up, I eat it. It goes down (as has been proposed), I am not passing the benefit along. Yes, its a cost of employment, but in no circumstance does the employee get it.

 

[upsideguy]

...well, the first endorsements of Cain's plan are in....

NEIN, NEIN, NEIN - YouTube

http://www.youtube.com/watch?v=4lPyllahuXc&feature=related

 

[Camlon]

Its not.... the incidence of the at tax falls substantially on the employer. If it goes up, I eat it. It goes down (as has been proposed), I am not passing the benefit along. Yes, its a cost of employment, but in no circumstance does the employee get it.

As a firm, you will have to pass it along, because other companies will reduce their prices, and your workers will leave to companies who pay more. But due to the sales tax, not raising prices will be a way of passing it on.

 

[BCR]

Pros- So simple a caveman could understand it.
Cons- He took it straight out of a video game (See sim city 4)

 

[Whoppletraps]

My taxes will be lower so no problem

 

[Camlon]

Pros- So simple a caveman could understand it.
Cons- He took it straight out of a video game (See sim city 4)

To information. I have played Sim City 4, and it is somewhat different from Sim City 4.

However, if this reform was ever to be implemented. I'm sure it would be much more complicated than 999. Don't worry. 999 is just the basic framework.

BTW: I love Sim City 4!

 

[jasonxe]

sim city 3 i believe 9/9/9 was based off of, not 4. Could be mistaken...

Times like this I like to quote Herman Cain

"Life can be a challenge, Life May seem impossible.
But it's never easy when there's so much on the line,"
- Pokemon 2000 song intro

 

[haymarket]

well, it's your right to reject the idea that businesses operate the same in stable and unstable times... but it's not an opinion i would hang my hat on... as a matter of fact, Its an opinion I reject outright.

it's been widely reported and studied as to if and why businesses are "hoarding money" ( cash reserves)... outside of political lefties, there is wide agreement that the unstable nature of the economy is the primary factor.

That is the new right wing conservative meme to apologize for business not hiring. For years we have heard their other so called theories --- allow the companies to keep more money and they can use it to expand and hire and we all benefit. Well right now today they sit on piles of billions of dollars and are NOT investing - are NOT expanding - and are not HIRING. And this silly excuse about an unstable economy is touted as justification for it.

Baloney.

You guys on the right always have an excuse why your theory did not work.

You guys on the right always have some excuse as to why your idea was terrific but somebody else screwed it up and thus it fell a bit short of achieving what you had promised.

Nobody has ever known with any certainty what the future holds. You do your best and hope it works out. That has been the way it is forever and will continue to be the way it is. The idea that I have a company with billions of dollars in reserve but am going to lay people off and ship jobs overseas, close domestic plants and stores all because I cannot see the future is just BS.

from apdst

It's a fact, that if companies make money, they expand their operations.

Prove it. Show us the many companies today in America that are expanding their operations opening up new plants and hiring new American workers because they are making money.

Prove it by showing us the many companies making piles of money, some of them record profits, that are expanding and hiring.

Flush your right wing theory and what some freshman Econ book tells you is the way its suppose to be - show us in real life 2011 USA where this is happening as you claim.

Just imagine the effect on the US economy if a significant portion of that $2 trillion in reserves US corporations are sitting on was properly invested in America and its workers.

 

[Camlon]

That is the new right wing conservative meme to apologize for business not hiring. For years we have heard their other so called theories --- allow the companies to keep more money and they can use it to expand and hire and we all benefit. Well right now today they sit on piles of billions of dollars and are NOT investing - are NOT expanding - and are not HIRING. And this silly excuse about an unstable economy is touted as justification for it.

Baloney.

You guys on the right always have an excuse why your theory did not work.

You guys on the right always have some excuse as to why your idea was terrific but somebody else screwed it up and thus it fell a bit short of achieving what you had promised.

Nobody has ever known with any certainty what the future holds. You do your best and hope it works out. That has been the way it is forever and will continue to be the way it is. The idea that I have a company with billions of dollars in reserve but am going to lay people off and ship jobs overseas, close domestic plants and stores all because I cannot see the future is just BS.

I don't know how name-calling is going to help. This has been exclusively a problem since 2007. What policies has the right implemented since 2007?

Why are not companies hiring, because they don't know if they will get returns on their investments. If I had a company, I wouldn't invest the money. I would save it, because I need money to prepare for a potential new economic crisis. (Europe's ills may cause another economic crisis) Secondly, I don't know if my taxes will go up or down, or what the congress will do.

 

[haymarket]

I don't know how name-calling is going to help. This has been exclusively a problem since 2007. What policies has the right implemented since 2007?

Why are not companies hiring, because they don't know if they will get returns on their investments. If I had a company, I wouldn't invest the money. I would save it, because I need money to prepare for a potential new economic crisis. (Europe's ills may cause another economic crisis) Secondly, I don't know if my taxes will go up or down, or what the congress will do.

You bring up a good point and I do not take issue with all of it. In fact, you are supporting some of my position in that you point out other reasons for not investing in the economy even though you have piles of money to do so. All I am saying is that we have been LIED to over and over and over again by the right and their economist sycophants. We have been told that we need to reduce corporate income taxes so that they companies have more money in their back accounts. We have been told that if that happens the result will be new investment in the economy by those companies awash in money. That is what the theory has been.

Modern times are proving this to be a LIE. Companies have some $2 TRILLION dollars and they are NOT reinvesting it. They are not expanding. They are not hiring. The theory that extra money would cause them to hire and expand has been proved a LIE.

http://www.forbes.com/2009/02/08/corporate-tax-stimulus-opinions-contributors_0209_marc_miles.html

Jobs benefit as well. Keeping more of what is earned significantly improves companies' incentives to expand production at a time of layoffs and a shrinking economy.

As to the future - you NEVER have known what Congress will do. The future is known to nobody.

 

[TurtleDude]

You seem big on pronuncements but little on reply or numbers.
Of course that's who would like Cains nifty-sounding 9/9/9.

For the sake of this small part of the debate (I'm not conceding the point however), let's assume it Revenue Neutral/Collects just as much.
That means current 35% Bracket payers like Buffett (who feels/is making the case that his taxes are ALREADY too low) get a Giant Tax cut - to be made up by Working poor and of course Non-working poor who will Also pay 9% Fed Sales tax from -0- now.
Of course, you conspicuously dropped non-working Americans from your reply, but they would also pay 9% Sales tax on Everything: Food, RENT, Medicine, etc.
15 million Unemployed, not to mention retirees on SS, just got Raped. Prescriptions or food?

How does thas compare to the 35% Bracket?
Buffett saying his Effective rate, after 'cheating', and this goes for many, is 17.5%. (his spending relative to income, is inconsequential to the 9% sales tax)
You'd be Halving his (and a million+ others) effective taxes, and having Walmarters and Unemployed make it up.
Taking several Thousand dollars More out the pockets of each Working Poor family and Umemployed to pay for it.

As I said, a Giant reverse Stimulus program
Those people who've in past benefited from 600/1200 stimulus checks, (and who arguably need one now) would INSTEAD have to PAY 3x that much to the govt in new taxes.
Your talking Blood Money and of course economic disaster/Depression.
Non-starter.

The "from each according to their ability" mantra has to be scrapped

 

[Cameron]

Downsides: Less revenue despite raising the burden on the lower and middle class.

Upside: It's catchy.

 

[TurtleDude]

Right now there's a 36 percent top income tax rate and a 15 percent capital gains tax. The problem is that the rich are being taxed under the 15 percent rate instead of the 36 percent rate. Cain's plan reduced that to 9 percent income and 0 percent capital gains. See how that's not an improvement?

an article Catawba posted months ago established that the vast majority of the top one percent-those making under 5 mllion a year, paid the highest effective federal tax rate of ANY Group.

You all whine about a few thousand people and extrapolate their situation to everyone making more than 350K a year

 

[ALiberalModerate]

First off, you can't just have a flat tax on corporations because such a tax has no way of determining what a corporation's income actually is. One of the reasons why the corporate income tax rate is complicated is that from an accounting perspective its complicated determining actual net income for a corporation. Cain's 9-9-9 plan would impose a 9% tax on corporations gross revenues before they actually account for payrolls. That would kill most businesses. Being able to deduct capital investments will be more than offset by the new 9% sales tax on those investments.

Secondly, saddling the poor with what will be an effective tax rate of 18% is unconscionable.

Finally, right now you can deduct state and local taxes from your federal tax liabilities. Under Cain's plan you won't be able to, thus your putting a huge drag on consumption by imposing another 9% tax on it thats on top of state and local consumption taxes. 70% of the economy is consumption, and Cain wants to put a drag on that.

 

[haymarket]

The "from each according to their ability" mantra has to be scrapped

The only time I ever see that phrase expressed here is when rightwing posters rail against it.