Political Pistachio

Blog Home of the Writer and AM and FM Radio Host, Douglas V. Gibbs.
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Sunday, October 09, 2011

A Constitutionalist's View of Herman Cain's 9-9-9 Plan

A long time listener of the Political Pistachio Radio program (he used to listen to my show on the Internet in Thailand, but now is in the States), and of course a listener of my current Constitution Speaker radio program on KCAA 1050 AM, sent me an Email concerning Herman Cain's 9-9-9 Plan. He indicated to me in his Email that he was having difficulties with the current crop of GOP candidates for the presidency. He's searching out both what he believes to be the most electable, yet most qualified, and the two don't seem to mesh. His research brought him to Herman Cain, and he wants to understand more about Herman Cain's 9-9-9 Plan.

As Jerry has learned more about Cain's 9-9-9 Plan, his main thoughts are that Cain's plan may not generate enough revenue to meet current federal government obligations, much less produce a surplus that may be applied to the trillions of dollars of national debt.

Jerry sent me three links that he found that helped him understand Cain's 9-9-9 Plan a little more:

1. Can Cain’s 9/9/9 Plan Work?

2. Herman Cain breaks down his 9-9-9 plan

3. Herman Cain's 9-9-9 Plant is Great in Theory, but...

Jerry told me the third link is the most comprehensive. On Fox News, however, they said the plan would only generate about 80% of what we need. There has also been a number of statements made by the talking heads that the plan would never make its way through congress. One more thing, Herman believes the revised tax code will stimulate the economy and sort of jump start stagnant business, which in turn will create many new jobs.

Jerry concluded with, "This all sounds great to me but would he be able to get it through congress. If the republicans can retain control of the house and win the senate, the sky's the limit. Anything is then possible."

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A quick rundown of Herman Cain's 9-9-9 Plan is that it is a very simple plan. Cain's plan would replace today's complicated and economically burdensome federal tax code with a simple, three-part system, consisting of a 9% flat tax on individuals, a 9% flat tax on businesses, and a 9% national retail sales tax

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I initially told Jerry:

"What we need" is a matter of perspective. If spending was cut back to only Constitutional levels, our federal spending would only be about 5% of GDP, which would enable us to eliminate direct taxation, and repeal the 16th Amendment. Your concern over whether or not Herman Cain's 9-9-9 plan would generate enough revenue is a good observation, but let me say this. . . if let's say it only generated 80% of current revenue, it would force the politicians to cut spending on 20% of the unnecessary spending. Also, I like Herman Cain, but I believe his 9-9-9 plan taxes too much. I disagree with the National Sales Tax, and I would place the flat tax with all tax breaks eliminated at 8%. Most middle class Americans, at 8%, would see about a third of a percent drop overall (after taking into consideration the loss of various tax breaks available). Of course it would vary overall because each household's tax situation is different. The revenue lost in some places would be picked up in others, such as the lower incomes losing the income tax credit and paying taxes, as well as many of the higher levels losing tax breaks and therefore paying more in taxes. The rich who pay too much in taxes would see a reduction, and the rich that finds ways of skipping out of paying any taxes through creative tax break strategies would have to pay something more.

Despite my disagreement with a National Sales Tax, however, one good thing would come out of something like that. Because it is a consumption tax, people like Paris Hilton who produces nothing and earns nothing, would be paying taxes too. A consumption tax would ensure that illegals produce some kind of revenue as well.

In the end, my own opinion leans towards cutting spending incrementally until we reach constitutional levels, and eliminating the direct tax (like income tax) altogether down the road. Of course, that's just my take on it.

Blessings,

Douglas V. Gibbs
www.douglasvgibbs.com
www.politicalpistachio.com
KCAA 1050 AM, Sat/Sun 2pm Pacific

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In addition to what I wrote above, let me add this:

I don't know if Cain's 9-9-9 Plan would pass Congress, but whether or not it will pass is not the main thing here. If something is right, and will benefit the country, it is prudent to try, even if you think it might not pass. And then when it fails, you try again.

As for the different aspects of Cain's 9-9-9 Plan, when trying to decide if it is good or bad for America, it is just a matter of weighing the pros and cons.

Pros:

- The Flat Tax portion would eliminate all tax breaks, which would also do away with a certain amount of special interest favors.
- It ends all payroll taxes, and puts the IRS out of business.
- The 9-9-9 Plan would put an end to all Marxist influences on our tax system such as the progressive tax rate, and the estate tax.
- It eliminates double taxation, such as taxes on dividends, capital gains and repatriated profits.
- Cain's plan would allow immediate expensing of business investments.
- It increases capital formation, which will fuel productivity and wage growth, making Cain's 9-9-9 plan a "pro-growth" system.
- Herman Cain considers this just step one of his plan. He envisions the 9-9-9 Plan to being a launching point that would eventually, as spending decreases, repeal the personal income tax altogether.
- If Cain's plan reduces total revenue as some has suggested, in my opinion that is an advantage because it would force government to reduce spending.

Both a Pro and a Con:

- The plan would shift the burden of taxation from production to consumption, which has a whole list of pros and cons of its own.

Cons:

- National Sales Tax and Income Tax, in the beginning, would exist together. This would actually increase the tax burden on individuals, and may actually stall any growth. Also, if he plans to replace the Income Tax with the National Sales Tax, 9% would be such a drastic reduction that it would place revenues too low too quickly. To avoid that problem, the percentage would have to be set around 25%, which consumers would balk at, and in turn it would stifle consumerism which would in turn create a slow-down in purchases. Therefore, when it comes to the overall picture, I do not think a National Sales Tax is in this countries best interest.
- By implementing a National Sales Tax, it creates an infrastructure for a Value Added Tax, like what we see in many European nations. The VAT is a National Sales Tax that is collected at each stage of the process of production. This deceptive method of taxation is built into the price of everything and consumers can't see how much of the price is due to the tax. The line between market forces and taxation vanishes to the untrained eye, and in the long run such a tax allows the politicians to take more money out of your wallets while all the while enabling the politicians to be more deceptive in it. I am not saying that Cain's proposal is a VAT. I am saying that National Sales Taxes have a tendency to evolve into a Value Added Tax. . . under the guidance of the politicians, of course.

In other words, Cain's 9-9-9 Plan is fine, except for the National Sales Tax. I believe the consumption tax has the potential to grow into a Value Added Tax, and if the income tax is never eliminated as Cain suggests, then in the long run we would actually wind up taxed double - both on income, and consumption.

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