Wednesday, October 12, 2011

THE ABSURDITY OF THE CAIN TAX PLAN

In a blistering Op Ed piece in the NY Times this morning, Bruce Bartlett, a major player in the Reagan and Bush White Houses and a senior adviser to both Jack Kemp and Ron Paul, clinically dissects Herman Cain's 9-9-9 tax plan and concludes with the following :

" Even allowing for the poorly thought through promises made on the campaign trail, Mr. Cain's tax plan stands out as exceptionally ill conceived." See if you agree.....

**Phase One of Cain's tax plan is seen as an intermediate step to an overhaul of the U.S. tax system and a means of jump starting growth. In Phase One
The maximum rate for individual and business taxes are reducede from 35 % to 25 %. There is no mention of reduction sin the tax rates for those now in the 10%, 15 % or 25 % brackets, so only people in the 28 %, 33 % and 35 % will receive a tax cut.

ONLY 4 % OF U.S. TAX PAYERS PAY TAXES AT THESE RATES

As for corporations, the plan would primarily benefit those with revenue exceeding $ 1 million/ year, because they account for 98.7 % of all Chapter C revenue. ( Chapter C corporations are different from regular corporations as shareholders pay taxes as individuals). All other business, like sole proprietorships, S Corporations ( small businesses )and partnerships would not benefit at all, because they are not taxed at corporate rates. However, these entities include 92 % of all businesses.

Additionally, all taxes on profits earned by multinationals abroad would be eliminated. The 50 largest corporations in the U.S earned half of their profits overseas. The actual benefit to these companies would be even greater because some companies like Phizer and Philip Morris derive 100 % 0f their gross profits overseas.

Finally, the plan would abolish all taxes on capital gains which generate $ 100 billion in federal revenues. Two-thirds of all capital gains are reported from those whose incomes exceed $ 1 million annually.

The above is only Phase One

***In Phase Two, the payroll tax is eliminated, causing a tax loss of $ 800 Billion annually. The estate and gift taxes are also eliminated further reducing taxes on the wealthy.
Finally, the 9-9-9 plan would be implemented;
The 9 percent rate on personal and business income would apply to a very different tax base from that today. For example:

For individuals, the tax would apply to ALL gross income, with no deductions whatsoever, except for charitable deductions.. There would be no personal exemptions , either. So, the 47 % of all U.S. filers who now pay NO taxes, would pay 9 % of their total income. Since the Earned Income Tax Credit would also be abolished, these folks would have no deductions and would pay the full 9 %.
Everyone would pay 9 % of all purchases for food, medicine, medical care, rent, home and auto purchases...........causing the poor to pay much more in taxes and raising the Cost of Living 9 % for everybody.

The business tax in the Cain Plan would bear no resemblance to the current plan. The tax , for example, would apply to gross sales less dividends paid. No deductions for expanses like wages.
Here's the kicker...

The above 9-9-9 plan is a transition to Phase 3 which is the Fair Tax. that replaces all federal taxes with a 30 % sales tax on all goods and services.

The Cain Plan represents a huge tax cut for the wealthy at a time when federal revenue is at an historical low and when the economy's fundamental problem is a lack of aggregate demand. The plan
** Increases the budget deficit without stimulating demand because rich people are already spending as much as they want and wouldn't spend more if their taxes were totally eliminated.
** The poor and middle class will unquestionably pay more. With no tax on capital gains, the rich would pay almost nothing, while raising taxes on everybody else........particularly those who currently pay no taxes at all.

"At a minimum, the Cain Plan is a distributional monstrosity. The poor would pay more, while the rich would have their taxes cut with no guarantee that economic growth would increase and good reason to believe that budget deficits would increase"

Jack Kemp had a Doctorate in finance. Bartlett was one of his key guys. I would hate to campaign against Barack Obama with this plan while the hedge fund guys received million dollar bonuses and the folks were camped out in the downtowns of America

CraigS

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9 comments:

leighrow said...

I would agree with this assessment. Attached is a review from Freedomworks which is a tea party website.

http://www.freedomworks.org/blog/dean-clancy/herman-cains-999-plan-the-good-the-bad-and-the-ugl

Slick-Willy said...

The good news: Cain's very bad plan has absolutely no chance of getting through. It is ONLY a campaign gimmick, so it's nothing to worry about.

The bad news: What policy proposals can Cain fall back on now that his only idea thus far is shown to be complete crap?

leighrow said...

@slick Willy

I agree completely. I really wish either a candidate or the moderator would pose this question to Cain. What is Cain's backup plan because the reality is his 999 won't pass. Cain could spend a 1 1/2 years trying to pass this piece of garbage and if it fails what is his backup plan.

You can tell the guy is really naive about the mechanics of passing legislation and that really bothers me. I really don't think that the Presidency should be this man's first elected government office.

Anonymous said...

I hate to admit it, but I think that a person should have some governmental experience before serving as President of the U.S. Pontificating about things and even coming up with plans is good, but being able to implement them is where such experience really comes in handy. Sorry, Mr. Cain, but I can't look at you very seriously as a candidate when you lack ANY experience in government.

AZ

Revolution 2012 said...

This 999 plan is geared to please the simpletons of the party.

The reality is, it won't work and won't bring in the revenue he claims

BOSMAN said...

You mean this is an economic Plan?....and here I was all set to order a meat lovers pizza.

Anonymous said...

santorum pointed it out.

Anonymous said...

His plan has flaws, and I'm not a supporter of Cain, but ANYTHING would be better than what we have right now.

Everything is targeted at what % of taxpayers will be effected instead of what is right and wrong.

Who cares if most people paying capital gains taxes are rich. It is wrong to tax people over and over again.

Currently, I pay income tax on my income. Then I pay capital gains taxes when I invest that income. And then if I buy a house, I pay ever-increasing property taxes on it. In the end, whatever I leave to my children will be taxed again. And if they invest it....taxed again...and again.

Meanwhile drug dealers and pimps pay no taxes, illegal aliens pay no taxes.

It can be a 999 plan, a fair tax, a flat tax or WHATEVER!

There are two victims mentioned in that article.
1) The government having to do without less revenue.
2) People who pay NOTHING now having to pay 9%.

Both of those things are GOOD!

Anonymous said...

Anon,

There are definitely more efficient means of taxation, but nothing will happen unless we amend the constitution and do away with the federal income tax. Otherwise, we'll pay our current taxes plus others. I just don't see that happening very quickly or easily.

Romney is a pragmatist, so he will look at things he thinks he can do--not so much at what might be done. I know some people hate him for that, but I also hear that he likes to have people around him who disagree with him. Maybe his cabinet will be something like Lincoln's "Team of Rivals."

AZ