Herman Cain’s Peculiar 999 Plan

While some bloggers are engrossed with the Occupy Wall Street movement, I got pre-occupied with the former Godfather Pizza CEO Herman Cain. My curiosity is not based  on Cain’s sexual harassment trouble, even though I think that this particular predicament is another peculiar point in Cain’s debacles.

What interests me the most in Cain’s case is the fact that having absolutely no experience in elected office, this man managed to capture the minds of conservative America, rising in the polls. His proposed 999 plan sounds like a pizza price promotion to me. Wasn’t there a Domino’s pizza promotion some time ago that offered a 5-5-5 slogan?

The reasons of my pre-occupation with Cain’s plan are much simpler than his plan:

I am amazed how fast he got propelled to the front of GOP party;

– I am amazed how fast he got propelled to the front of GOP party, promoting a plan that doesn’t make any sense (at least to me);

– I am amazed how fast he got propelled to the front of GOP party, promoting a plan that doesn’t make any sense and fiercely sticking to it.  

In my amazement with all of the above, I decided to take a closer look at the substance of Cain’s 999 plan. I wanted to understand if this plan is a showcase of Cain’s political naiveté or there is, after all, something significant behind his proposal.

The following three factors of Cain’s 999 methodology bother me the most:

1. Get rid of the entire federal tax code. I bet a lot of people are liking this idea. I even can hear some cheers. Not so fast, folks! Those of you who are cheering for virtual elimination of federal tax code, should realize that all those credits and deductions that you are using to reduce almost to zero your income taxes, would be eliminated as well. What it means for you and me is that the exemptions that keep our cost of living from being taxed will be eliminated. Still cheering?

2. Impose 9% tax on:

 – corporate income;
 – national sales tax.

What it means, according to Cain, is that the top tax rate for individuals and business would be reduced from 35% to 9%. I can hear the applause of those who believe that being liberated from these horrible 35% tax, corporations would immediately start creating jobs and increasing salaries. I can hear loud cheers again. And let me say it again. Not so fast, folks. What kind of job creation are we talking about? Somehow, I think we are not discussing high paying jobs for the average American. What would be the incentive for corporations to keep the jobs under Cain’s plan? None. Corporations more than anything are concerned with their bottom lines and not job creation. Would you and me benefit from any of it? I don‘t think so.

3. The plan ignores one big and important part of the US population. Cain’s 999 plan does not take into account those who are in the low tax bracket, those who live on a fixed income, those who live from one social security check to another. I am talking about our seniors. Their tax burden is low today. Many of them don’t pay federal income tax because their income is not high enough. However, under Cain’s plan, whatever income they receive (and some of our seniors do not receive much) would be taxed at 9%. But this is not all. They would go to stores, buy clothes or groceries and pay 9% in sales tax. Their purchasing power would diminish. Their standard of living will go down. Is that how our seniors who worked hard all their lives pictured their retirement? I really doubt it.

A lot of statements don’t make sense. So why does a former pizza executive and his plan get so much attention everywhere? (Including this blog!)

24 thoughts on “Herman Cain’s Peculiar 999 Plan”

  1. Most middle class, lower class, and seniors would pay more under the program. It’s nutty that people are actually embracing him. I think that Obama is praying that he gets the Republican nomination, because once it really gets out what he is proposing, there’s no way the majority of Americans would vote for him, so Cain’s nomination pretty much would ensure Obama’s re-election.

      1. Not if it was Ron Paul. He could point out Obama’s blatant hypocrisy on the wars and economy while highlighting his record on both. And how about abolishing the income tax and replacing it with nothing? And abolish the Federal Reserve while we’re at it. After all, both of those institutions are planks of the Communist Manifesto. They don’t belong in America.

  2. Point number 3 is huge. I have no idea why so many people are in favor of this plan – especially those with low incomes. These people must not realize that this would cost them thousands of dollars per year. If nothing else, this is a sure sign of how money-dumb some people are.

    1. Those people who are in favor of his plan don’t really understand what is behind his proposal. They should take a closer look, do some research and run some numbers. They would be outraged.

  3. You’re poking a hornet’s nest, which is awesome. Add a fourth bullet: why doesn’t Cain stress the fact that he was the Deputy Chairman of the Board at the Federal Reserve Bank of Kansas City? Perhaps with all the ‘End the Fed’ talk from the Tea Party, he’d rather not mention his involvement.

    The plan itself definitely has some strong backing, with Arthur Laffer (a Conservative hero and architect of the Reagan tax plan) lining up behind it. The problem would be creeping sales tax rates – most countries that enact a national sales tax (read: VAT) end up increasing it over time. The VAT is a sneaky way to raise revenues, since the price is built into everything you buy. The odds of a sales tax staying at 9% are low – plus sales taxes are regressive. Even though ‘the rich’ spend more money in aggregate on goods than ‘the not-so-rich’, the ‘not-so-rich’ spend a higher percentage of their income. Makes one wonder about those 9+% sales taxes in Progressive California, no doubt!

    As far as the business taxes, they are a sneaky way to tax the investor class, which is “Politically Okay”. Since investors usually have a decent amount of money, this probably even helps the plan. Most people don’t understand that these taxes will be passed on to either the business owners (or shareholders), or passed through to the products. Fine – at least it’s better than the crazy loophole-ridden 35% tax now, that allows some companies to pay 0% while small companies can’t get that sort of break.

    A flat tax has it’s benefits – it is strictly progressive, (for people that are into that sort of thing) and hits people with more income with a higher percentage. It’s all about the size of the deduction in this case… someone making $1,000,000 will be paying almost the full percentage with a deduction of $50,000, while someone making $50,000 will pay nothing with that deduction. You’ve got to choose wisely though – the amount of the deduction will make a huge difference in the revenue numbers.

    It’s interesting to see flat taxes on both sides of the aisle – I’d prefer one that didn’t add a whole new sales tax to the United States, although in theory whatever you tax you will reduce (Tax income? People will have less incentive to earn more. Tax consumption? Less incentive to buy things. Which is better?). It’s too hard to get there from here, so something like what Jerry Brown ran on in 1992 (a flat tax of 13% as a Democrat!) would probably be better – and I think Rick Perry’s plan is closer to the Jerry Brown standard.

    I look forward to the other responses!

    1. Very interesting. Somehow I missed the fact that Cain was the Deputy Chairman of the Board at the Federal Reserve Bank of Kansas City. This fact alone makes his situation so much more… entertaining. 🙂

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  5. What bothers me is that his plan ignores state and local taxes. In California, my sales tax rate would go up to almost 18% with his plan. Talk about killing consumption. He is basically shifting the tax burden, not really changing or fixing the spending problem.

  6. Agree with Robert on the sales tax side of things. Local and state government would be forced to find other tax options to minimize it’s sales tax. Where I’m from, Chicago, sales tax is already at 9.75%. Toss another 9% on there and the low to middle income earners couldn’t afford to buy groceries let alone shop for anything else. Tax on $100/week in groceries would add up to $975 a year. Insanity.

    As far as the other two 9s, I’m all for a flat tax and redoing an overly complicated tax system, maybe at the 15% area to alleviate the sales tax burden. But for now it’s just a catchy campaign slogan.

  7. We already have a 9% state income tax here so we’ll get 9-9-9-9. Yeah, not good.
    There is no way he would get the nomination. Now that people are taking a closer look at him, the seams are coming apart.

  8. I’ve spent years with people debating how best to run the tax system. You know what? I don’t know of a way to make taxes good. That’s really the problem with coming up with any of these schemes.

    For informational purposes, the first part has been proposed by democrats as well. Also democrats have called for VAT taxes, which aren’t all that different than a national sales tax.

  9. Great post, do we get a pizza with that? Perhaps he is tapping into his marketing expertise from back in the day, but what does that say about the general public who pushed him to the top? Does eye catching slogans beat sound tax policy reform?

    1. I think those who support him, don’t really understand how the numbers work. All they see is a flat tax, reduced rates and a catchy slogan.

  10. Generally speaking, big bold brash plans almost never get political approval — it’s hard for the President to get Congressional approval for such a game-changer — but they’re great for sparking the conversation. I think that’s what he’s trying to do; spark conversation.

    1. Well, he sparked a lot of different conversations all right. 🙂 We will see if those conversations will have any meaningful conclusions.

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