A Few Thoughts about Herman Cain's 9-9-9 Plan

I have become a great fan of Herman Cain. I think it was sometime in May when a fellow political traveller recommended Herman Cain to my attention. I was skeptical at first. I heard a rather weak answer from him on the war in Afganistan which set him back in my mind. But he has since grown in my estimation.

It is amazing how far Mister Cain has come from just a few short months ago when I, a political junkie, hadn't heard of him till now when all one hears about is his 9-9-9 plan. In that time, he has gone from third tier to leading in certain polls. Before, he did not draw much in the way of attacks. Now, a sure sign of front-runner status, he is drawing all sorts of (mostly half baked or ill-informed) attacks.

One attack that I think is off base is the charge that the 9-9-9 plan is regressive. Low income people go from paying zero income to 9% income tax, they say, plus they have to pay a 9% sales tax. It's regressive, they say.

But they forget the payroll tax which is about 7.5% (unsure of the exact percentage). And when they do remember the payroll tax, they forget that the employer has to match that which brings the total tax that the poor have to pay on their earned income to about 15%. That 15% combined payroll tax drops to 9% under Mista Cain's 9-9-9 plan.

But wait, there's more! Now, as your income increases, your tax burden will increase to 25% and 30% and beyond as you get into the 10% and 15% (and higher) tax brackets. In other words, you are penalized for being successful!

And it gets worse as Obamacare kicks in. I can't remember the figure but when Obamacare was passed last year, I calculated how much a person's marginal income in the $30,000 to $40,000 income range would be reduced for additional taking into account the reduction in the healthcare subsidy that person would be getting unde Obamacare. Let's explain that. Let's say you are earning about $35,000 a year. You are doing yard work or snow clearing and you get $100 in payment. How much of that goes into your pocket. Well, take 30% off right off the bat between both halves of FICA (the payroll tax) and the 15% income tax. Then you have to take into account that your subsidy under Obamacare to buy insurance will be reduced. I don't have the precise figures at my fingere-tips anymore, but when I did the calculation last year, I found that the net amount of money into your pocket would be less than $50 on that $100 when Obamacare fully kicks in.

Well, that's horrible! Talk about moral hazard! Talk about discouraging people from getting ahead!

But under Mr. Cain's 9-9-9 plan, that drops to 9%! You earn an addional $100, you keep $91! That will encourage people to worker harder, to get ahead!

But what about the 9% sales tax? That takes you to 18%! It's regressive I tell you, it's regressive!

Well, I am not so sure. Herman Cain doesn't say what if anything would be exempt from the 9% sales tax, but let's assume food, rent and college tuition would be exempt. Well, when I was going to college, most of what I earned went to food, rent and tuition. I would have been better off under the 9-9-9 plan.

But let's suppose that nothing is exempt for the sake of argument. Let's say that every dime that the poor earn after the 9% income plan will then inevitably get hammered by the 9% sales tax. That's a combined 18%, 3% more than the baseline 15% payroll tax. If that were the price of having a job, would it be worth it?

What if you had to choose between getting taxed at the rate of15% on no income because you have no job and being taxed at 18% on income that not only exists but is growing. Which would you choose?

What's my basis for thinking that the 9-9-9 plan would actually increase jobs? The second 9. The second 9 is a 9% corporate income tax. Right now, corporations pay 35% but there's a huge and complicated asterix next to that figure. GE, for example, famously paid no income tax this past year even though they made a lot of money. They have an army of lobbyists, lawyers and accountants who apparently earn their keep with that company. Companies should not be getting special favors. Under Herman Cain's 9-9-9 plan, all corporations pay the same, no special favor's. That means that the next inovation will start on a level playing field.

But there's another reason. Corporations pay 35% tax on foreign earnings only when they are repatriated to the United States. This encourages corporations to keep their money overseas to avoid confiscatory levels of taxation. But under the 9-9-9 plan, corporation would not be penalized for bringing their capital back to this country. It is capital invested that creates jobs.

I think Herman Cain's plan is bold, no doubt about it. It should be evaluated. Maybe it should be tweeked herre and there. But is should be evaluated fairly and on the facts.