Among the crowded field of Republican Presidential candidates stands pizza mogul and radio host Herman Cain. With quips like, “Our tax code is the 21st century version of slavery,” and “If 10% is good enough for God, then 9% should be good enough for the federal government,” Herman Cain has been marketing his 999 Plan among the Republican faithful for some time. And since his surprise win in the Florida straw polls this past weekend, the rest of the country has started to take notice. If I were a local news anchor instead of a blogger, this is the part where I would say something like: Next up, more about what the 999 Plan is and why you should be terrified.
Cain’s 999 Plan is the first phase of a more comprehensive economic reform package, but we’ll just start with that part for now. The proposal is simple enough; it would replace the existing U.S. tax code with a package of 9% flat personal income tax, 9% corporate tax, and 9% federal sales tax. So what do these things mean?
First of all, right now the U.S. has a progressive income tax system. I’ve talked about this a little bit before, but the bottom line is that people who make more are taxed at a progressively higher rate. The more you make, the higher a percentage of your salary you pay in income taxes. In terms of federal taxes, everyone is eligible for a standard deduction from their gross income that does not count as taxable income, then you pay the appropriate percentage on the remainder depending on which tax bracket you fall into. (This is a pretty good outline of the tax brackets if you’re curious.) There are also itemized deductions that people can take advantage of, depending on how they spend their money and whether they have the time and resources to work the system.
Now, eliminating deductions and charging a flat 9% tax across the board does simplify the system. But it also creates a much higher tax burden on the lower income brackets at the same time it cuts income taxes for the upper tax brackets. So say Jane Worker is a married person, filing jointly with her spouse, and between the two of them they make $15,000 a year, which is just slightly more than the federal poverty line for a family of two. They would pay about $340 in federal income taxes (which wouldn’t include state income tax or property taxes). And say Joe Moneybags and his wife on the other side of town make a combined $350,000 per year in salary. If they took just a standard deduction, they would pay about $102,574 in federal income taxes (again, not counting anything state or local). Under the 999 Plan, Jane and her husband pay $1350 in federal income taxes, while the tax bill at Casa Moneybags is lowered to just $31,500. It’s the same rate, the same exact proportion of their salaries, but “same” does not always mean “fair.”
The federal sales tax is probably the most egregious part of the entire 999 Plan, in my view. First of all, there’s little to make me believe that the institution of federal sales tax would be accompanied by a reduction or elimination of state and local sales tax. So for people who live in areas like mine, that would result in a sales tax of 18.75%. For every 100 dollars someone in my region spent, they would have to pay $18.75 in sales tax on top of that. That is a lot of additional money. And who is most affected? The folks who already have less discretionary money to spend. In a departure with the typical Republican line of late, Cain believes that the way to improve the economy is for people to save money rather than spend it, and he believes this federal sales tax will encourage people to save. But while you can decide not to catch a play or buy a new television, you can’t just decide not to eat with any real long term health and success. You can’t decide to send your child to school naked because none of his clothes fit him anymore. The lower classes will be disproportionately affected by this tax, in addition to having to pay more in income tax. It’s a completely unsustainable system for the majority of Americans.
Let’s turn briefly to the corporate tax. Right now, the lowest corporate tax rate is 15%; that’s for small businesses that make less than $50,000 profit in a year. Like individual income tax, corporate income tax is also progressive, up to a rate of 35%. (Here’s a link to the different corporate brackets for reference.) Cain would have all businesses brought down to a flat rate of 9%. Granted, the informed readership of Persephone Magazine is smart enough to realize that many companies pay little to no taxes by mining the many, many loopholes in the U.S. tax code. Cain’s 999 Plan would eliminate those loopholes and simplify the system. But again, small businesses would end up paying more of a share than the enormous corporations, and in general far less than their fair share when compared to the burden placed on individuals.
Beyond all of this, the 999 Plan would eliminate all taxes on investments, which is where most of the top 1% actually earn their millions in the first place, not their salaries, and is where many corporations earn their profit, particularly banks. When Herman Cain talks about economic reform and how his plans will put money back in the pockets of Americans, what he really means is in the pockets of wealthy Americans at the expense of the already overburdened middle and lower classes. It’s simple math – very simple math – but the Tea Party masses still haven’t quite figured it out for Cain’s flashy marketing pitch.