April 15th is tax day. To most Americans the approach of this day is filled with I-9s, W-2s, 1040’s or 1040x, and a wide range of other federal, state, and local tax forms. This may all change though if Herman Cain’s 9-9-9 plan is put into action.
Cain, a Republican presidential candidate, has jumped to the front of the polls in recent weeks with the buzz over his 9-9-9 tax plan that would institute a 9% corporate tax, a 9% individual income tax, and a 9% sales tax.
The idea behind the plan is that the economy is driven by production, not consumption. So for the economy to grow, production must be increased. In his 9-9-9 Brochure, Cain argues that recent plans to stimulate the economy have been based on the idea that we can spend our way into prosperity.
“Government spending is to take a bucket of water from the deep end of the pool, pour it in the shallow end, then hope that the water level will change,” said Cain. Instead of trying to create more wealth, the government is taking money out of the system from one place and putting it in another, thinking it will change the total amount of wealth. So far this has yet to work.
Production on the other hand, generates more wealth, which creates jobs, ultimately driving consumption. Cain’s 9-9-9 plan is created to encourage production and get the, “engine of the economy” moving once again.
According to the Tax Policy Center, the plan is revenue-neutral. That means it will bring in the same amount of taxes as the current tax system does, therefore further spending cuts will not be necessary.
The biggest benefit of the 9-9-9 plan is the lower, fairer corporate tax. The 9% corporate tax will be applied to gross receipts less payments to other businesses. This means that businesses will pay their own consumption tax, or a 9% flat rate on everything they pay for, including income. The exception to the taxable income are payments to other businesses, for example buying raw materials to make a product.
There are exceptions though. Due to lobbying for special tax breaks, many of America’s largest corporations pay much less than the standard percentage. According to the New York Times, General Electric, who had a profit of over $5.1 billion in American sales for 2010, paid no federal taxes. They managed to do so by spending tens of millions of dollars over the last decade in lobbying Congress for special tax breaks.
In 2008, when Congress threatened to let one of GE’s tax breaks expire, they and dozens of other financial companies joined together to write letters to Congress and hire lobbyists to ensure the tax break remained in place. Not surprisingly, it did.
Cain’s 9-9-9 tax plan would not allow this. There would be no loop holes and GE would be forced to pay a flat 9% or $459 million in taxes.
Beyond making sure that the giant corporations pay their fair share, the tax plan would make taxes on small businesses less. Unlike giant corporations, small businesses cannot lobby to get the amount of deductions GE receives, thus they usually pay close to the rate for their profit bracket, a minimum of 15%.
According to the U.S. Census Bureau, businesses with less than 100 employees employ over 42 million workers, approximately one third of the U.S. work force. Under the 9-9-9 plan, these companies would all get a permanent tax reduction.
These companies would then be able to use this money to do with what they wish. Considering that their goal is to make more profit, they would most likely reinvest it back into their company in an effort to produce more. To produce more they would need to hire more workers, who would then consume the new products being produced. This then turns into a cycle with production increasing, and thus allows the economy to grow.
Beyond the corporate tax reform, the 9-9-9 plan would simplify the tax code for all Americans. Instead of having to pay a 4.2% social security tax, a 1.45% Medicare tax, a 18.4 cents per gallon gas tax in addition to the 10-35% income tax, all Americans would pay a 9% income tax and a 9% national sales tax.
Now like any good political tax plan there are exceptions. Any person below the poverty line would pay no personal income tax, so only the sales tax would apply. Also, considering that the national sales tax doesn’t apply to rent, groceries, or utilities, three of the largest expenses for those below the poverty line, the amount of taxes paid to the federal government by those below the poverty line would not be the full 9%.
The ultimate goal for Herman Cain is to end up with a flat, fair consumption tax of 16%. This is the plan 10 years down the road, once the economy has recovered and the budget problem has been resolved.
This is phase two of 9-9-9. The flat national sales tax is fair to everyone. If a billionaire goes and buys a multimillion dollar jet, he will pay hundreds of thousands in taxes. If a Mines student buys a video game for $60, they will only pay $9.60 in taxes. Each individual pays for what they consume, not what they produce.
The 9-9-9 plan provides real reform to the United States tax system. It throws out all current rules and will help to drive production, and drive the economy. It provides key exceptions for those below the poverty line, and makes the entire system fairer and simpler.