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9-9-9 |
Herman Cain's 9-9-9 plan has become a major national discussion. We all know that our tax system is far too complicated and often results in the wealthiest Americans being able to skirt taxes because they can afford the best accountants. Is the system broken? Absolutely. Should it be simplified? There is no argument, it should. Is Herman Cain's 9-9-9 plan the way to do it? Absolutely not!
First, lets break down the plan itself. Under Herman Cain's 9-9-9 plan there would be:
A 9% personal income tax on all Americans.
A 9% corporate income tax.
A 9% national sales tax.
Pretty simple? Yes. So what is wrong with Herman Cain's 9-9-9 plan? It not only generates less total revenue, but it punishes Americans who earn less.
According to Bloomberg News, Herman Cain's 9-9-9 plan would generate approximately $200 billion less than the current tax system. Though Cain has said that he disagrees with their analysis, he has not shown what is wrong with it. In a time when our national debt has grown to record levels, decreasing revenue is the last thing that we can afford to do.
Lets run through a simple comparison:
Sam is married with two children. Sam earns $40,000 a year. Sam's spouse earns $30,000 a year. Under the Cain 9-9-9 plan, they would pay $6,300 in federal income tax.
Pat is married with two children. Pat earns $2,000,000 a year. Pat's spouse earns $750,000 a year. Under the Cain 9-9-9 plan, they would pay $247,500 in federal income tax.
That seems fair, right? So what is the problem?
The problem is the 9% federal sales tax. With a $70,000 a year income, Sam's family is going to have to spend the vast majority of their income to pay their household bills and living expenses. With a nearly $3 million income, Pat's family will likely be spending a significantly lower percentage of their income. Pat's family will save a lot more money.
If Sam's family saves 10% ($7,000) of their pre-tax income, they would pay $6,300 in federal income tax and then an additional $4681.70 in federal sales tax. That totals out to approximately 15.69% ($10,981.70) of their total income being paid in federal tax.
Pat's family is in a much better financial situation than Sam's. They can live a much more luxurious lifestyle while saving a higher percentage of their income. Lets say that Pat's family saves 20% ($550,000) of their pre-tax income. They would pay $247,500 in federal income tax and then an additional $161,220 in federal sales tax. That totals out to approximately 14.86% ($408,720) of their total income being paid in federal tax.
My point here is simple. The less you make, the higher percentage you pay. Someone earning $20,000 a year has to spend a much larger portion of their income than someone earning millions. The Cain plan splits taxes between what you earn and what you spend. A person who has to spend all that they earn gets double-taxed. A person that can afford to save more does not get double-taxed on what they don't spend.
The tax code needs to be such that is scales so that those who can most afford to pay taxes carry the heavy burden while those who can least afford it carry a lesser burden.
We have certain items that we don't tax, such as groceries. Why? Because we don't want to add to the burden of putting food on the table for a low-income family. Under Herman Cain's plan, all purchases would be taxed.
I give Herman Cain credit for coming up with a system that makes the tax code transparent and easy to understand. But a system that taxes the poor at a higher rate than the wealth is simply unfair.
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I guess we need to go back to the drawing board. |
*DISCLAIMER: The math used in this piece does not factor state or local sales tax or state income tax. It also does not factor money spent outside of the USA.*