Thursday, October 20, 2011

Tax and Slide 9-9-9


The Other Side of the Tracks
By Perry Redd
BlackCommentator.com Columnist

Over the past few weeks, former Godfather CEO Herman Cain has surged into a frontrunner position for the Republican nomination for president. This surge is nothing new for the political world. Several have appeared to be what the GOP is looking for, then after peeling back cover, the truth comes out. Herman Cain’s “9-9-9” tax plan looked like something the conservative voter could hold onto. But just as any magician’s trick, if one looks intensely enough and long enough, the illusion will be unmasked.

An illusion is a distortion of the senses, revealing how the brain normally organizes and interprets sensory stimulation. While illusions distort reality, they are generally shared by most people. Cain’s 9-9-9 plan stimulated the senses. It was clear, concise and rolled off the tip of your tongue; besides, none of the other Republican candidates had a cognitive plan to fix the economy that they could articulate. All they could offer is that “Obama messed the economy up.” It’s obvious that coming with something was preferred to blaming the other guy.

The 9-9-9 plan would get rid of almost all current taxes and replace them with a 9% income tax, a 9% corporate tax and a 9% national sales tax. Sounds pretty simple doesn’t it? Nothing else - just 9-9-9, right?

What hasn’t been said yet is that when the dust clears, Cain wants the country to adopt a Fair Tax. The FairTax, a tax reform proposal for the federal government, would replace all federal taxes on personal and corporate income with a single broad national consumption tax on retail sales. The Fair Tax Act (H.R. 25/S. 13) would apply a tax once at the point of purchase on all new goods and services for personal consumption. The proposal also calls for a monthly payment to all family households of lawful U.S. residents (a side attack on illegal immigration) as an advance rebate, or “prebate”, of tax on purchases up to the poverty level. He’s not the first presidential candidate to propose it. In 2008, for instance, Mike Huckabee placed it at the forefront of his economic plan when he ran for the GOP nomination.

What also is not being said by the Cain camp - or the media - is that other taxes and fees will still exist. Those include excise taxes on things like gas and alcohol, tobacco and firearms, airline tickets and phone service. These items generate a helluva lot of revenue! That’s equal to nearly half the money now collected in corporate income taxes.

Another huge problem for Cain’s plan is that the average American family - the bottom 99% - would pay roughly $29,000 more than the richest 1% would pay Uncle Sam, according to Time magazine.

Economists and tax policy experts were quick to point out that under Cain’s plan, most Americans will actually pay more in overall taxes, even if they pay less in income taxes. The tax bill for the rich however is likely to drop - overall and on income. What has to be taken into account is that state taxes still apply. In states like Tennessee, the 9% sales tax will be levied along with Cain’s proposed 9% national sales tax - regardless of your income level. Rich people and poor people alike buy items like televisions, toys and toilet paper. That tax hurts poor people the most.

Edward Kleinbard, a USC tax expert studied the plan and did a comparison between a family making $50,000 and another making just below $500,000. According to the 9-9-9 plan analysis, the average family of four making $50,000 under our current system pays $8,416 a year, after deductions, in both income and payroll taxes. That equals an effective tax rate of about 17%. Now take the top 1%. To meet that mark that family would have to earn $530,000. Under current tax law, taking into affect deductions like charitable giving and mortgage write-off, the top 1% pay an average of 29% of their income to Uncle Sam in payroll and income taxes. So, under current law the family making $530,000 will pay $153,700 a year in taxes.

The Cain plan lowers the income tax rate to 9%, and does away with the payroll tax. Nice. How does Cain pay for that? Well, he adds on the other two 9s - a 9% sales tax, and replaces corporate income taxes with a 9% business transaction tax, meaning instead of paying taxes on just earnings, businesses will now have to pay a 9% fee to the government for their net purchases every year. Most company’s biggest purchase or expense is their workers, so it basically works out as a 9% payroll tax.

What would the $50,000 family and the top 1% have to pay? Well, under Cain’s plan, the family earning $50,000 would see their income tax bill fall to $4,500. But they would also have to pay a 9% tax on everything they buy each year. Since most families of four on a $50,000 income spend nearly all of their income, that works out to another $4,500 in taxes. What’s more, Kleinbard figures that most companies have a fixed budget to pay for wages. So if the government adds on a 9% payroll tax, companies will simply pay 9% less in salaries to their workers. So, for the family making $50,000, they pay another $4,500 in lower wages. Total 9-9-9 tax bill: $13,500, or $5,084 more than what they pay under the current tax system.

Cutting to the chase: Cain’s 9-9-9 works out well for rich folks…but the mainstream, working class American is getting the screw again. That’s pretty much par for the course with all Republican policies. This inequality, that appears equal on the surface, is the basis for the current Occupy Wall Street protests cropping up across the country.

There’s every reason to be suspicious of any elixir that rolls off the tip of your tongue. Slick marketing is the aim of corporate heads, like Herman Cain. You can make it look like a cake, but sprinkling sugar on doo-doo, doesn’t make it anything other than doo-doo. The illusion of 9-9-9 may excite the senses, but not only hurts the working class American, it makes no guarantee that corporations will hire because of this proposed change. This “trickle down” approach is actually a “piss-on” approach.

Herman Cain has placed the tax before you and is sliding the facts of its impact under the table. I’m truly hoping you don’t go for the tax and slide of 9-9-9.


BlackCommentator.com Columnist, Perry Redd, is the former Executive Director of the workers rights advocacy, Sincere Seven, and author of the on-line commentary, “The Other Side of the Tracks.” He is the host of the internet-based talk radio show, Socially Speaking in Washington, DC. Click here to contact Mr. Redd.

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