Herman Cain has, of late, been surging in the polls. Many folks like the idea that he’s a businessman, not a lifetime political leech.
One of his more controversial proposals is his 9-9-9 tax reform plan. The concept is simple. Dump the existing tax code in its entirety and replace it with a 9% tax on income, a 9% tax on businesses, and a 9% national sales tax. Cain promotes it as being eminently fair but, like all such schemes, the devil is in the details. Since his plan is simple, lets do a simple analysis of the components.
1. 9% tax on income.
Everyone, rich and poor alike, pays 9% of what they earn. That sounds fair enough. Certainly, every citizen should be contributing to the cost of running the nation just as every family member should contribute to the cost of running a household.
The only problem is that giving up 9% of a $15,000 per year income, or $1350, has a greater negative effect on the quality of living than does giving up 9% of $150,000 in a nation where the current poverty level for a young couple is $14,710. Indeed, it pushes them back from just above the poverty level to 7% below it.
Hoo-rah, right? Finally all those evil corporations will have to start paying their fair share, too. No more loopholes and subsidies and special whatevers.
The only problem is that businesses do not pay taxes. They just act as tax collectors for governments.
Only people pay taxes. They pay them directly, when they write a check to the IRS or City Hall. They pay visible taxes when some percentage is added to their total at the register for a sales tax or to their phone bill for an excise tax, etc. And then there is the stealth tax, the hidden tax most never realize they are paying every single time they buy any product or service of any kind because figured into the price they pay is the cost of the taxes the business must pay.
If a farmer has to sell an orange for twenty cents to make a profit, some small portion of that twenty cents is the tax he has to pay Uncle Sam, another portion goes to his property taxes, and more goes to other taxes his business pays on communications, supplies, and labor. Without all those taxes, you might be buying that orange for fifteen cents instead of twenty and buying everything else for dramatically lower prices as well.
So, not only have our young couple been pushed below the poverty level by the 9% income tax, the 9% business tax has further reduced their quality of living by raising the cost of everything they buy, including food and medicine. Instead of having $13,650 in purchasing power after paying the 9% income tax, their money will buy only about $12,285 in actual goods and services. But wait, it gets worse!
3. 9% national sales tax.
Author P. J. O’Rourke said it best: Giving money and power to government is like giving whiskey and car keys to teenage boys. And Cain wants to give Congress an brand new way to extract money from your wallet or purse?
Keep in mind that this national sales tax will be on top of any state and local sales taxes you pay. Everywhere, the cost of buying everything would increase much more than 9% because businesses will have to factor in the 9% sales tax they pay for things they are not reselling.
Even if our young couple lives in New Hampshire or Oregon, states with no sales tax, they’ll still have to pay the 9% federal sales tax. That means, they can knock off about another thousand dollars of purchasing power.
My guess is that after realizing that he and his family only get to live on around $11,00o of the $15,000 he earns, he’s going to either have to get second job and become a never-home father, if he can even find another job in a nation with 16 to 20 percent real unemployment, or he gives his wife and kids a kiss and moves out so they can apply for welfare benefits that will provide a much higher standard of living even if it does end up destroying their quality of life.
What’s my solution? I don’t have one at the moment but I expect it would involve massive spending cuts and the reduction in the size of the federal government by at least 50%.
What do you think? Do you have a solution?