...the elimination of wage deductibility from corporate taxes replaces it with a 9% payroll tax. Therefore a more accurate name for Cain's proposal could be the 9-9-9-9 plan. The forth nine changes everything.
Cain admits that the 9% sales tax would fall heaviest on the poor, but he claims that the elimination of the payroll tax would more than compensate. But when the hidden 9% payroll tax is factored in, more than 50% of workers who currently pay an average income tax rate of just 3% would see a sizable tax hike, from 18.3% (former payroll tax plus income tax) to 27%: 9% payroll tax, 9% income tax and 9% consumption tax (poorer workers generally spend all income).But, even taking the hidden payroll tax into consideration, Peter seems to be quite comfortable with Cain's proposal:
Even with its flaws, the 9-9-9-9 plan would create an economic windfall by lowering the top corporate rate to 9% from 50% (35% at the corporate level and 15% on dividends taxed at the individual level), and simplifying the tax code to reduce unnecessary compliance costs and the economically inefficient behavior that is created by perverse tax incentives. These changes alone will make America far more globally competitive. Also by taxing individuals based more on what they spend rather than on what they earn, the plan will encourage more savings (which is a key ingredient for economic growth). As a result, the economy will grow faster, generate greater output of goods and services, and create more jobs.There is one other problem Peter sees though:
The problem for Herman Cain is that unless he slashes government expenditures, his pro-growth tax structure will inevitably shift more of the tax burden to low and moderate-income people. The only way to combine tax reform with tax reductions for most taxpayers is to shrink government to a more manageable scale.
But, Peter concludes:
In the final analysis, if Cain really wants a 9-9-9 plan that doesn't raise taxes he needs to remove the hidden 9% payroll tax. However, the only way this could be done, without blowing an even bigger hole in the federal deficit, is to combine his plan with significant spending cuts. If he can pull that off, three nines may be a winning hand after all.Hey Peter, spending cuts are very important, but they need to go way beyond what would make Herman Cain's plan feasible. I'm sure you know that for most libertarians the only feasible tax plan would be 0-0-0.
9-9-9 is a long way from 0-0-0.