Wednesday, October 19, 2011

Peter Schiff Endorses Herman Cain's 9-9-9 Plan

Peter Schiff is out with a commentary on Herman Cain's new 9-9-9 tax plan. He's sees one big problem in the plan. There is a hidden 9% payroll tax:

...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.

(Thanks2JeffWeech)

46 comments:

  1. I think of all people, Peter Schiff knows 9-9-9 is a long way from 0-0-0.....

    Don't bite the hand that feeds you Bob

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  2. Many people came to Austrian econ and/or libertarianism by way of Schiff. I won't lie, he was somewhat influential in my wanting to study Austrian econ. But, people still make the false connection of Schiff to Austro-libertarianism.

    I like Schiff and I think that he does a lot of good for the liberty movement, but I would not describe him as an Austrian, nor would I call him a libertarian. Sure, he has some Austro-libertarian influences (probably from his father), but these influences are not dominant in my view. My personal opinion from the past 5 years that I have been following Schiff is that he is a conservative republican politically and a supply-sider economically.

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  3. LOL, "don't bite the hand that feeds you"?

    God, I love stupid comments.

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  4. I'm suspicious of people who seem driven toward the "political means" and away from the "economic means." Peter Schiff ran for the U.S. Senate last year and lost. He should remain in the private sector where he has served many people with his wise advice.

    Unfortunately, something is driving him to once again run for the Senate in 2012. And now, I can't believe that someone such as Schiff, who of all people knows what a scheme of theft and servitude the income tax is, would endorse any kind of income tax whatsoever other than completely abolishing the IRS, and would endorse any kind of sales taxes that he knows are regressive.

    (I'm also disappointed in Rand Paul's wanting to close tax loopholes. What's with these guys?)

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  5. Schiff is comparing Cain's plan to what we have currently. It's not like he's holding up 9-9-9-9 as the ideal, he's just saying that it would be better than what we have now, all else being equal.

    If you listen to him outline his ideal role of government or explain the business cycle or describe the nature of money, you can't mistake him for anything other than an Austro-libertarian trying to appeal to (or debate) non-Austrians and non-libertarians. In that regard, he may be the best in the business.

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  6. "Don't bite the hand that feeds you Bob"

    Yeah, because everybody knows that Wenzel was just riding on Schiff's coattails.... Please tell me that you're joking.

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  7. Cletus,

    is that why you write them?

    Anyone who ACTUALLY follows Schiff knows that he does not endorse the 9-9-9 plan, in fact he wrote a entire article exposing it for the fraud that it is.......

    The headline on this article is shameful

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  8. Don't get me wrong...i like Bob and I enjoy this website, but this article is just dead wrong.

    Schiff woke up this country with Crash Proof 2.0

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  9. He definitely doesn't fit the mold of conservative republican politically, being pro-choice, anti-Patriot Act, and anti drug prohibition.

    Also, I don't know many supply-siders who are calling for draconian, across-the-board cuts in federal spending, Volcker style interest rate hikes, abolition of the Fed (assuming congress doesn't take the reins of the printing press), and a gold backing to the dollar.

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  10. According to Cain himself his tax plan is revenue neutral. I'm quite surprised at Schiff, I thought he wanted to cut government spending and taxes.

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  11. Wait wait wait, I listen to Schiff's show everyday and I don't think he went so far as to endorse it. He just said that moving towards a consumption based tax in leiu of an income based tax will produce somewhat of an economic windfall IF you cut spending equal to any lost revenue. After all, government burden is equal to what it spends not what it immediately taxes.

    There's a lot more to it, and I would suggest finding Schiff's YouTube video blog that talks specifically about the 9-9-9-9 plan and listen for yourself.

    Herman Cain is Schiff's 3rd favorite candidate, behind Ron Paul and Gary Johnson.

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  12. +1 on what trent said. To the extent that he endorses it, he endorses it over the status quo. The guy is a clear ron paul supporter. I'm surprised anyone who has listened to him regularly would think he "endorses" it. I watched the video when he posted it and when I saw this headline I was very confused by it. If I support a 30% cut to something because I think we would be better off it doesn't mean I endorse the remaining 70%.
    I'm not sure what he would be if it isn't austrian.

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  13. Trent's comments are exactly right and spot-on. It's ridiculous to attack someone as not libertarian or not Austrian because they are not anarchist. I'm an anarchist and I sure wish everyone else was too, but there is value in people whom recognize the government should be much smaller. Like Peter Schiff for instance. Or Ron Paul.

    Ron Paul just announced his plan, he cut 5 department. The IRS wasn't one of them. Nor did he propose eliminating all federal income taxes. That just can't happen overnight and it's unrealistic and counterproductive to pretend like it can. If someone wants to simplify the tax code while reducing taxes as well, that's a step in the right direction.

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  14. It's ok, Trent. To some in here, if you deviate just a bit off the straight and narrow, you're an apostate. Schiff knows there is no ideal. He explains that this 9-9-9 thing is bogus if it isn't pared with real and substantive spending cuts.

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  15. @Scott

    I think both Peter and Rand are more Machiavellian than the one purist in government, Ron. And that's not an insult to either of them. Scheming and politicking and telling half-truths to achieve smaller government is no less noble than what Ron does.

    For example, Rand offered some very modest budget cuts that sent the establishment into hysteria. He realizes that his penny plan is a drop in the bucket, but he also realizes that the establishment types in Washington are going to make themselves look ridiculous by freaking out at such modest cuts. He wins public favor by offering a plan that he knows won't pass and that isn't radical enough to scare away the electorate.

    Here's another - when Rand was running for senate he had an ad that talked about "saving social security for future generations." Obviously he knows saving that program isn't possible, and even if it was we wouldn't want to because it's a ponzi scheme. But if he runs for office with his an-cap guns blazing then he doesn't win. He's working toward smaller government strategically, and after he's set up the chess board the way he wants he'll be able to say what he really believes. He just has to wait until he can force the checkmate before he lets it all hang out for the world to see.

    If you think about it like that you can justify the politics, just like you could justify sacrificing a knight to pin your opponent's queen to his king.

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  16. To be completely honest, I'd happily take the Cain plan, but that may be because I come from socialist utopia. Here, we have something like a 30-25-26 plan, plus a reduction-grid that you couldn't calculate even with a Cray computer. So if Herman Cain would kindly come to Sweden and implement his 9-9-9 plan, maybe I could save up enough money to GET THE HELL OUT OF HERE!

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  17. Huh? Schiff didn't endorse 9-9-9 at all. He speculates that it would be better than what we have now, but he wants all taxes abolished as much as any libertarian. The only reason he's offering his opinion on 9-9-9 is he received a bunch of emails from listeners of his radio show to comment on what effects it would have.

    You're drastically misrepresenting his true views.

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  18. Here's another endorsement by Art Laffer: http://online.wsj.com/article/SB10001424052970204346104576637310315367804.html

    These are my thoughts, though I need more study of the proposal:

    1. The sales tax component is a wholly new tax that ultimately will be raised once enacted.

    2. The hidden/fourth 9% on labor effectively raises the employer portion of the payroll tax, while eliminating the employee side. This effectively is a post-tax wage hike and a higher cost of employing US workers. Without corresponding salary adjustment downwards - impossible at the low end because of minimum wage - this would tend to increase unemployment and move labor overseas.

    3. I don't share the view that the 9-9-9-(9) will be more neutral or ultimately simple. Proponents need to read Rothbard's Power and Market component of Man, Economy and State as to why/how all such taxes distort the real economy.

    4. The political class won't let this stand as is. They'll accept the new 9 gladly, and then they will add in lots of other numbers, both positive and negative, to advance their interests.

    5. I don't share Laffer's enthusiasm for increased government revenue because/regardless of lower rates. As a 0-0-0-0-0-0... guy, government power/spending at all levels is the problem, not specific tax rates or compliance costs.

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  19. If the federal govt had my 70-something year old father in prison over income tax protest, I'd do everything in my power to destroy that government. Everything and anything. Not a day would go by without trying to infiltrate and undermine this murderous crime ring.

    Schiff's motivations may be driven by this unfortunate personal situation.

    BTW...in the grand scheme of things, Schiff is anything but a problem for the liberty movement. Yes, he and Rand Paul are not where I'd like them to be on all issues. But these guys are massively better than what we've got...and I'd take 535 of them in Congress. Schiff's concerning support for Israel, for example, would be undermined by his inability to pay for it...because the money wouldn't exist to do it...the central bank would be reeled in and there'd be no way to "pay" for the extra-constitutional escapades because Schiff is solidly anti-FED. As long as these types of guys clearly identify the FED as the source of the business cycle and wars, I can live with a few kinks here and there on other issues.

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  20. I'm sure you know that for most libertarians the only feasible tax plan would be 0-0-0.

    But how will the government kill babies overseas and bail out bad bankers? Inflation? There is a limit to that you know. Damn you people need to wake up.

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  21. "endorse" seems to be a strong word here... it would seem that schiff has analyzed the plan and agrees that it *could* work and have benefits far better than the current system....

    and yes, the government will still find money for overseas baby killing and whatnot....

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  22. If Peter was in front of me right now I'd kick him squarly in his ass.

    WTH is he thinking?

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  23. @ Trent

    A neat trick, that.
    The one where you know what Rand Paul "realizes" and what he "obviously knows".

    Can you teach me that trick, so i know all i have to do to trust a Republican is to realize that they are just saying things that may alienate (or otherwise fail to impress) their own potential base, for the sole purpose of making Democrats look hysterical?

    Please stop pretending to know that the likes of Rand Paul mean something different from what they're saying.
    Even if what you say were true, it would be yet more examples of people who's words you can not rely on to be honest. That is NOT a compliment.
    And most of us also don't know that trick you know where we can read their minds, so that won't help anyone in the voting booth.

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  24. This just goes to show you that Austrians and libertarians are not immune to speaking about something they have not really even looked at seriously. Schiff has said that he prefers Ron Paul to Cain and has been ripping the 999 plan for a week now.

    Schiff wants to end the war on drugs, bring home the troops, get rid of crony capitalism and stop giving real capitalism a bad name.

    Somebody here heard one or two words and jumped to a conclusion.

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  25. Revenue neutral = government won't spend a penny less than it does now.

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  26. I have been listening to the podcasts of the Peter Schiff radio show and I did not find an endorsement in his words. He clearly endorses Ron Paul but if he had to pick the best of the worst then he would be for Herman Cain.

    He did go into great lengths to describe the 999 plan and the little hidden 4th 9. All he said was that this was better than the status quo. I would not describe that as an endorsement.

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  27. To everyone piling on Schiff for endorsing Cain's 9-9-9 plan:

    All he is saying is that it would be an IMPROVEMENT over the current tax situation, which I am sure everyone would agree on.

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  28. as long as the fed is in power it matters not what the tax code is. they are omnipotent. end.

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  29. Schiff doesn't endorse 999. He merely argues that it would be better than the current tax situation. Schiff is a classical liberal and a staunch minarchist, though slightly more bellicose in foreign affairs than Ron Paul. That said, although Schiff officially supports Paul, Schiff has been a little too kind to Cain for the past few weeks -- to a sickening degree. Schiff sees Cain as an improvement over Obama and, like the Tea Partiers, believes Cain can get elected because he is black. Rather than devoting so much energy to praising his third-best choice, Schiff should devote all his efforts to getting Ron Paul elected.

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  30. I listened to Schiff's video in which he address the 9-9-9 plan. It struck me as pro Austrian school and pro Ron Paul. But maybe I'm wrong.

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  31. Yeah sorry, I came to this post via Lew Rockwell and I hate to say, their assertion that Schiff "endorses" this is just totally baseless.

    Ron Paul's recent economic plan didn't mention the income tax even once. Is that an "endorsement" of income taxation? Come on now. We have to address these things honestly.

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  32. Bob, you aren't being fair. Schiff does not "endorse" Cain's 9-9-9 plan, or his candidacy (which is sort of implied in your headline). He merely critiques the plan. The title of his article is, "Herman Cain's Missing Nine" -- a reference to the plan's moniker being deceptive. Does that sound like an endorsement?

    And now Lew Rockwell is repeating your fallacious claim. Just what we DON'T need -- more fabricated dissension among libertarians!

    Schiff has been a consistent proponent of sound economics and a great friend to Ron Paul and the liberty movement. His article about 9-9-9 does not represent a change in his views.

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  33. Damn, Bob, I haven't seen this many people disagree with you in the comments...ever.

    I think the 9-9-9 plan is flawed to the extreme, and wouldn't work. I also think that saying Schiff "endorses" it is off the mark. It IS better than the current system, but only marginally, and when the 4th 9 is calculated, maybe worse. As another commenter noted, it would depress wages on the lower end, and possibly raise unemployment.

    I assume you posted it as an intentionally provocative headline, and that you recognize Schiff as a good friend of Austro/Anarcho/Libs (even if he doesn't use the term) but it seems to have "raised the hackles" of your base. This kind of discussion is good, no matter what- I'm sure there are some Cain supporters that look at this site- maybe they will start to see the flaws.

    Cain is the least offensive Rep candidate, and I might even hold my nose and vote for him over 0bama if it came to it (though I probably won't vote for any of them except RP) if he will take some lessons from RP about cutting gov't.

    Any chance of a retraction?

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  34. Ron Paul calls 999 dangerous. Wasn't Schiff one of Paul's economic advisors?

    Anyway, I thank anonymous for exposing yet another distortion.

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  35. I have listened to nearly every episode of the Peter Schiff show. Other than Johnson and Paul, Cain is the only presidential candidate he has interviewed.

    That may contribute to his slight weakness for Cain(?)- hence his statement that Cain is his third pick and he doesn't have a fourth pick.

    But come on, this isn't really an endorsement, he is just acknowledging, that, in his opinion, 999(9) is better than the status quo.

    I might disagree with him, but I do hope for a correction from both you and Lew Rockwell. You guys are great, love your sites, mistakes happen. Maybe you could write up a short piece on why Peter shouldn't like 999(9) at all. Maybe he will respond, maybe you guys can debate it on his show. I am surprised you are not on the show periodically.

    BTW, Schiff is very Austrian/libertarian, unfortunately, he just not a purist.

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  36. Bob,
    You're a clown. Spend more time creating a business and stop with the non-sense blogging. Schiff is the only person to expose that you cannot deduct wages. You "academic" clowns don't understand what that means to a business. MOST business are pass through entities. Do you honestly think a corporation cares what the tax rate is? Nope. But, S corps, closely held firms, and LLCs sure do. I have 12 million in wages I pay. I'll end up now having a LOSS because of this. People will go from millionaires to bankruptcy. Why hasn't Bob or Lew pointed this out? Maybe we should post this as Schiff discovering the additional tax. I always knew these fake anarcho-capitalists hated Schiff. I bet your next target is Hans Herman-Hoppe.

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  37. @John Werner

    As for Peter's consumption tax. Here is Rothbard's take on this one:

    http://mises.org/daily/1768

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  38. How did an article about what is wrong with Cain's plan become an endorsement?

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  39. You don't think Schiff was attending all those Koch-sponsored conferences in an effort to repudiate their candidates, did you?

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  40. Ouch in regards to Anonymous at 7:56 pm. While, I don't think of Bob as a clown, I do share your sentiments regarding academics versus producers. As I said above, some of these libertarians are so fervent in their lust for purity that they overlook how in the hell we got into this mess in the first place. Ideal doesn't happen over night, if ever.

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  41. Of course the title is misleading. This is what Wenzel does. He did the same thing a week ago (coincidentally, in another post about 9-9-9)

    I really think the man's getting senile.

    If anyone wants to hear Schiff, he talked about it live on his radio show, as well as made a video post specifically dedicated to it.

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  42. @Melvin,

    Thanks for the link.

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  43. No, Wenzel is definitely right here. Surprised to see Schiff having such a statist position.

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  44. @Anon Oct. 19 12:22 PM & Chris @ 4:11 PM Oct. 19,

    That's exactly what I said in another post....

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  45. Are they trying to say that Cain's 9-9-9 plan changes GAAP by not allowing labor cost to be a cost of goods (or services) sold? I seriously doubt this and suspect that Schiff, as smart a fellow as he is, is confusing the deduction for payroll taxes paid with labor cost which figures into net income according to GAAP and is not a statutory tax deduction that can be lost in legislation. I mean lets get real. The services sector dominates the US economy and in a services company the vast majority of the cost of doing business is labor. If they must add this back to net income for tax purposes then this is a GIGANTIC tax increase even at 9%. You would have many companies paying huge taxes when they made very little or even negative profit...

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