Wednesday, October 26, 2011
Herman Cain's 9-9-9 plan: Herman Cain's 9-9-9 plan, brilliant or bizarre
Herman Cain's 9-9-9 plan: Herman Cain's 9-9-9 plan, brilliant or bizarre: Herman Cain's standing in the polls for the 2012 Republican presidential nomination is on a rise. Many believe this popularity is primarily ...
Monday, October 24, 2011
Herman Cain's 9-9-9 plan, brilliant or bizarre
Herman Cain's standing in the polls for the 2012 Republican presidential nomination is on a rise. Many believe this popularity is primarily due to his 9-9-9 tax proposal, which has become his signature issue. Ordinarily, this issue would not get a lot of attention during presidential debates. Senator Bob Dole introduced a15% flat tax policy during his bid for presidency of United States in 1996. His flat tax did not raise much interest among voters. He lost that election and is now mostly remembered for his ED and endorsement of the drug "Viagra" than his flat tax.
New days, new world:
These are different times however. A few ticking bombs went off at about the same time period. In spring of 2001 dot-com bubble officially burst. Many working people lost their retirement money along with their trust in Wall street firms. On September 11th of the same year, Americans along with many other nations lost their sense of personal security. We realized that we are not as safe as we once thought we were. On October of 2007, we also lost our faith in two other key areas. We learned we can't trust our financial institute and we can't trust our government to protect us from them.
Plan's promise:
Cain's 9-9-9 plan claims that it will level the playing field by replacing the current complicated tax codes with a easy to understand and implement plan. He also claims that will his proposed plan will save us around $430 billion dollars a year. That is how much we spend to file our taxes each year. His plan has an appealing simplicity to Americans who are increasingly frustrated with the nation's labyrinthine tax system.
The (boring) math:
There are few financial experts who like his plan. But, a much longer list of economists say Cain’s plan would be a tax hike for the lower and middle class and a tax windfall for the wealthy. For example, under current tax laws a family of four with an income of $50,000 are taxed around $3,850 dollars. Under Cain’s plan, they would be taxed at 9 percent or $4,500 dollars. In addition, they will pay 9% federal sales tax on top of their state sales tax. For Texas that would be 17.25% combined sales tax on every thing we buy. Simply put, the cost of everything will go up by 9% cross the board. Average family of four will have to cut back on their spendings by 11% to compensate for it. On the other end of spectrum, Warren Buffet (who has graciously made his tax returns accessible) has to spend about 40 million dollars a year to pay the same tax that he pays under current system. One doesn't have to be an economist to know - that's not realistic.
Bottom line:
Mr. Cain's plan sounds catchy, and strike a cord with many average citizens who are tired of not understanding how tax system works. But, unfortunately the math is just not there. I understand that Governor Perry has just revealed his proposed flat tax plan. His plan needs to be researched by experts before any conclusions are drawn. He might have found the magic formula, or maybe his campaign wanted to tap into public distrust of tax codes as well. Yes, income in America is skewed toward the rich. But taxes are skewed far, far more. The top 5 percent pay well over half the income taxes says Stephen Moore of "the American". Its true that there are a lot of loop holes in the tax code. But things are not as bad as people think. The amount of tax breaks an individual or corporation can receive is limited by "Alternative minimum tax".
The lesson:
Thousands of revisions and provisions has turned our tax code into a scary abyss. Majority of Americans believe tax system is made so complex by design to benefit the rich corporations like GE who does not pay any tax, year after year. Most people simply don't understand or trust the fairness of taxation process. I believe such mistrust is at the root cause of "occupy Wall street" movements cross the country. It's hard to defend Cain's tax reform proposals. His plan is doomed. But the impetus behind it - tax simplification and reform - is not.
New days, new world:
These are different times however. A few ticking bombs went off at about the same time period. In spring of 2001 dot-com bubble officially burst. Many working people lost their retirement money along with their trust in Wall street firms. On September 11th of the same year, Americans along with many other nations lost their sense of personal security. We realized that we are not as safe as we once thought we were. On October of 2007, we also lost our faith in two other key areas. We learned we can't trust our financial institute and we can't trust our government to protect us from them.
Plan's promise:
Cain's 9-9-9 plan claims that it will level the playing field by replacing the current complicated tax codes with a easy to understand and implement plan. He also claims that will his proposed plan will save us around $430 billion dollars a year. That is how much we spend to file our taxes each year. His plan has an appealing simplicity to Americans who are increasingly frustrated with the nation's labyrinthine tax system.
The (boring) math:
There are few financial experts who like his plan. But, a much longer list of economists say Cain’s plan would be a tax hike for the lower and middle class and a tax windfall for the wealthy. For example, under current tax laws a family of four with an income of $50,000 are taxed around $3,850 dollars. Under Cain’s plan, they would be taxed at 9 percent or $4,500 dollars. In addition, they will pay 9% federal sales tax on top of their state sales tax. For Texas that would be 17.25% combined sales tax on every thing we buy. Simply put, the cost of everything will go up by 9% cross the board. Average family of four will have to cut back on their spendings by 11% to compensate for it. On the other end of spectrum, Warren Buffet (who has graciously made his tax returns accessible) has to spend about 40 million dollars a year to pay the same tax that he pays under current system. One doesn't have to be an economist to know - that's not realistic.
Bottom line:
Mr. Cain's plan sounds catchy, and strike a cord with many average citizens who are tired of not understanding how tax system works. But, unfortunately the math is just not there. I understand that Governor Perry has just revealed his proposed flat tax plan. His plan needs to be researched by experts before any conclusions are drawn. He might have found the magic formula, or maybe his campaign wanted to tap into public distrust of tax codes as well. Yes, income in America is skewed toward the rich. But taxes are skewed far, far more. The top 5 percent pay well over half the income taxes says Stephen Moore of "the American". Its true that there are a lot of loop holes in the tax code. But things are not as bad as people think. The amount of tax breaks an individual or corporation can receive is limited by "Alternative minimum tax".
The lesson:
Thousands of revisions and provisions has turned our tax code into a scary abyss. Majority of Americans believe tax system is made so complex by design to benefit the rich corporations like GE who does not pay any tax, year after year. Most people simply don't understand or trust the fairness of taxation process. I believe such mistrust is at the root cause of "occupy Wall street" movements cross the country. It's hard to defend Cain's tax reform proposals. His plan is doomed. But the impetus behind it - tax simplification and reform - is not.
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