Herman Cain's 9-9-9 tax Plan

The one policy position that makes Herman Cain noticeably stand apart from the other declared Republican candidates as well as President Obama is his 9-9-9 Tax Proposal.

The 9-9-9 Tax Proposal calls for replacing the 100,000 plus pages of the current federal tax code with a 9% tax on income, a 9% tax on corporate profits and a 9% national sales tax.

The current Corporate and Individual Income Taxes and the Payroll Tax (the Social Security and Medicare tax) would disappear under his plan.

In their place would be a 9% on gross income, a 9% tax on corporate profits and a 9% sales tax on new goods for consumption.

The 9% personal income tax plan calls for two exemptions.

There would be a deduction or credit for people living or working in blighted urban areas designated as Empowerment Zones, and a deduction for charitable contributions.

The 9% corporate tax would apply to total corporate income minus investments, purchases from other businesses and dividends paid to shareholders.

There would also be some deductions for employing workers in Empowerment Zones.

The 9% national sales tax would final sales (i.e., sales to consumers) of new items.

This tax would be paid once on the first sale of the item to a consumer and not added to any resale of the item (i.e., it would not apply to the purchase of a used car or re-sale of previously owned items on places like eBay).

The 9-9-9 tax is merely Phase I of Herman Cain’s proposed tax overhaul. The 9-9-9 tax plan is a combination of the often discussed flat tax, or one rate paid by all on income and the, also often discussed, fair tax which is a national sales tax.

A major criticism of the fair tax is the fear that a national sales tax would be simply added on top of the current federal income tax thereby giving politicians in Congress access to even more money to spend.

Herman Cain’s plan is to get Congress to immediately institute the 9-9-9 tax, which his advisers have determined to be revenue neutral meaning that total federal tax revenue would be the same as under the present system, as well as providing the economic growth stimulus of a major tax cut.

In one swoop he could both get the economy moving again and eliminate the current monster that the federal income tax has become. With economy back on track and taxes simplified, the next step would be to repeal the 16th Amendment to the Constitution.

The Sixteenth Amendment is the amendment that allows the Federal government to levy an income tax. The Sixteenth Amendment reads:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Once Sixteenth Amendment is repealed, there would be no threat of an income tax existing along side a national sales tax. With the income tax out of the way, the main objection to the implementation of the fair tax, which is a national sales tax, would be removed.

The 9-9-9 tax set up would then be replaced with a 23% national sales tax known as the fair tax.

Like many others, I like what I see in Herman Cain’s tax proposals but, like others, would like more information before making up my mind about them.

Currently, I have some problems with the 9-9-9 program and with the Fair Tax prebate.

My first problem is with the lack of an effective cap on the tax rates. I have no problem with the three 9% tax rates, but what is to stop Congress from raising them?
So far all Herman Cain and his supporters have said is that public opposition from the Tea Party and others would prevent this.

While I consider myself a Tea Party member and supporter, I have to admit that strong public opposition did nothing to stop the President and Democratic controlled Congress when they took it upon themselves to effectively nationalize health care in the United States by passing ObamaCare.

A second problem with the 9-9-9 proposal is that it is both a Federal Income Tax and a National Sales Tax.

In the event that the 16th Amendment is not repealed and we could end up with the 9-9-9 plan as a permanent tax system rather than a transition to the fair tax.

we will then be stuck with a national sales tax on top of an income tax and nothing to stop future Congresses from raising the rates on both of these taxes above 9%

Finally, while the idea of exemptions for Empowerment Zones and charitable deductions can be good tax and economic policy, there are a couple of dangers.

As I envision Empowerment Zones, based upon what little I have heard about them, they would be economically depressed areas, most likely inner cities, in which the tax deduction would attempt to revitalize economically.

However, tax subsidies usually tend to end up simply propping up an inefficient status quo and become a form of permanent economic life support like many other Federal subsidy programs have become.

My other concern with this is, that if we can justify these two exceptions then we can also justify other exceptions with the result that the simple 9-9-9 system will morph into a mass of special interest loopholes just like our present system with its 100,000 plus pages of loopholes.

On the fair tax (which is the 23% sales tax that would eventually replace the 9-9-9 tax) my concern is the cost and paperwork involved in handling the prebates.

In principle this is a good idea, however, the cost and paperwork involved in the tracking and processing of these monthly payments could be huge.

Also, while I may not be understanding this correctly, it seems that the only way to accomplish this would be for the government to track each individual’s spending and that would be scary.

Despite the concerns above, I am still in favor of Herman Cain's 9-9-9 plan.

By proposing to scrap the current system entirely and replacing it with a brand new plan, Herman Cain or, as he calls himself, the Herminator, has moved the tax reform debate to a whole new playing field.

In a perfect world, major reform of the present system would be a better path to follow

However, this will never happen.

The reason major change to the present system will never happen is simple. The current system has been structured in such a manner that every conceivable group in the nation benefits from certain parts of the current complex tax code.

The current system is so complex that few, if any, can see that the hidden costs of benefits to all the other groups far outweighs the benefits any individual group receives.

The result is that everyone, while favoring major reform, will tend to fight to save their particular benefits in the present system

The politicians and bureaucrats in Washington have become masters at maintaining this tax status quo by playing on the fears of each group. Of course, Washington benefits from the current status quo by being the recipient of a growing flood of revenue to spend keeping the current system going - and keeping their jobs running the show.

The beauty of Herman Cain's plan is instead of the crowd in Washington being faced with managing numerous squabbling groups, which their policies have created, they face a potential united front aimed at ending their reign with a new system for financing government.

There is no way that Herman Cain if he is elected President or any other President can change the current tax system by executive edict.

All a President can do is sell an idea to the people and then step forward to lead the debate that precedes the implementation of the idea.

Such leaders are rare and Herman Cain just may be the man that is able to slay the nearly 100 year old tax monster we have and replace it with something else.

Two things are certain. First, Herman Cain is on the verge of starting such a debate and, given the mood of the nation, such a debate could very well end up replacing our present tax system with something that is simpler and fairer.

Second, if Herman Cain proves to be the person capable of leading such a change, the end result, after debate, will be similar to what he is currently proposing but not the exact plan described above.

How much the final plan resembles his current proposals will depend upon how good a leader he proves to be.

I can't predict the future and don't know enough about Herman Cain to even hazard a guess as to how successful he would be as a leader.

However, from what I have seen so far, Herman Cain appears to be the only person at the moment who has articulated a plan that has begun to excite people. Only time will tell if he can duplicate his previous marketing success in the business world in the world of politics.