Herman Cain, the current front-runner in the latest polls for the Republican nomination for the President of the United States, is known mostly for his “999 Plan” and the financial relief he promises it will bring to most Americans. He freely admits that some will pay more than they do now, but most will pay less. A sound idea when he presents it, but is he telling us the truth? Or is he simply trying to sell us more “change” than we can afford? This week I’d like to take a look at Herman Cain and the issues on which he’s campaigning on, starting with 999.
First, what is the 999 Plan? At it’s heart, it sounds like a great idea. It’s a flat tax rate of 9%. Personal income tax, corporate income tax, and a new federal sales tax of 9% would be introduced, and the old tax system would be discarded. Simple, efficient, and fair, right? Here’s what Herman Cain had to say on the 9% Federal Sales Tax on Meet The Press on Sunday:
“On the price of goods, there are invisible taxes that are built into everything we buy. We’re simply…those invisible taxes are going to go away, and we’re replacing them with a 9% visible tax. For example, take a loaf of bread. The farmer pays taxes on his profits. The company that makes the flour. The baker. The deliveryman. By the time that loaf of bread gets to the grocery store, there are a series of invisible taxes, which are also called imbedded taxes, so in reality those taxes go away so the price of goods don’t go up.”
By my understanding, the new federal sales tax of 9% would replace all of the taxes that are paid during the production process. But he says the farmer pays taxes on his profits. On his profits. Does that mean the farmer no longer pays income tax? The company that makes the flour? The baker? If his 9% personal and corporate income tax are applied evenly across the board, then yes, they will still pay taxes on their profits. Is the deliveryman no longer to be paid for his services? I would assume he is, and thus his income is still going to be considered an expense by the baker. So what has he actually replaced?
The real problem is that the poorest Americans currently do not pay income tax (roughly 30 million homes). With Herman Cain’s plan, now they will not only be paying a 9% income tax (not to mention losing the tax credit they get each year from the IRS for their tax return) but they will also be paying 9% more for their goods. Eventually I believe the prices will go down as the market adjusts to the plan, but how do they get by until then? Reagan’s economic policies took almost 3 years to show results, and he had to increase the national deficit 3 times over to get it done. That doesn’t sound fiscally responsible to me.
Don’t get me wrong. I think the plan has merit. I do believe that the current system of endless social programs and government entitlements are wasteful and promote fraud and abuse. But punishing the families of America with such drastic and immediate measures is not the answer.