I have to admit that I am quite enjoying watching the Republican Presidential candidates battling it out for the nomination at the moment. There have been some very interesting moves, some interesting policy ideas which have spawned further policy ideas from other candidates, some “moments of truth” where my thoughts on certain candidates have been confirmed, and the utter frustration of watching Mitt Romney and Rick Perry battle each other in to oblivion and irrelevance. On the latter two points, anyone who claims that Ron Paul is coherent clearly lacks even basic knowledge of the English language; and while I have my differences with both Romney and Perry, I wish one of them would just drop off so that the current crazy battle could cease and the other one could spend some time actually talking about policies.
Right now, my preferred candidate is Herman Cain, mainly on the back of his 9-9-9 tax reform plan where he would throw out the existing federal tax code (side point: I was amused by the infantile David Gregory on NBC’s Meet The Depressed being unable to understand the difference between state and federal taxes) and replace with it a flat 9% business income tax, a flat 9% personal income tax, and a 9% national sales tax.
There are five things I like about this plan:
1. It replaces a gigantic monstrosity of a tax code with something which is simple, eliminating most (if not all) of the existing loopholes and removing the need for much of the IRS bureaucracy in the process.
2. At the moment, the top ten percent of income earners in the US pay the vast majority of the tax bill, and 53% of the population pay ALL of the income tax bill. This is a serious impediment to the willingness of the high income earners to earn more and employ people, and an impediment to the low income earners to enter a job where they would start paying income tax. Making the income tax 9% across the board would eliminate all of these impediments and spur economic growth.
3. The payroll tax disappears. A gigantic expense for businesses in employing people disappears.
4. The national sales tax means that a decent chunk of the tax bill moves away from incomes and move to consumption, which means that to a large extent, people are responsible for choosing how much tax to pay by virtue of how much they spend. It also means that more money is available in the form of incomes due to the lower tax burden on incomes, meaning that people will have more money available to spend, again spurring economic growth.
5. The whole plan, with all of that economic growth, is designed to provide the federal government with roughly the same amount of tax revenue as it currently receives. In the short term, this makes it much easier for the federal government to reduce its debt without needing to cut spending as quickly as it needs to do under the current tax code, and in the longer term makes it more likely that tax rates will be able to go down (not up as certain sections of the media want to claim) as combined economic growth and lower government spending (both of which are in Cain’s plans) would mean that the federal government would need less revenue as a percentage of national incomes…which in turn leads to more economic growth.
I like the plan and think it would do wonders for the economy and the people, and given that I also like most of Herman Cain’s views and ideas, it’s fairly obvious why he is at the top of my list of preferred candidates at this time, however something happened overnight  which made me stop and ask a few new questions.
Herman Cain’s 9-9-9 tax plan will be 9-0-9 for the poorest Americans, the candidate said Friday, in remarks that appeared designed to blunt recent criticisms that he would raise taxes on those of modest means.
For people living under the poverty line, “your plan isn’t 9-9-9, it’s 9-0-9,” Mr. Cain said in a policy speech in Detroit. “Say amen, y’all. If you are at or below the poverty line…then you don’t pay that middle 9” – i.e. the individual flat tax.
(h/t John D. McKinnon, Wall Street Journal )
First of all, I ask how “poverty line” is defined. One of the big issues with the current tax code is that 47% of people pay no income tax, meaning that middle and high income earners are left to foot the bill. Given that virtually all jobs are created by high income earners, this is an impediment to the economy. How much of the population would be considered to be “at or below the poverty line”?
Secondly, 9-9-9 was designed to provide the federal government with approximately the same amount of revenue as the current tax code, albeit with a simpler and more economically-friendly (now there’s a term we should hear more) way. Giving some people 9-0-9 will obviously produce less revenue for the federal government. How much less? And where is this shortfall made up? If the answer to the second question is “spending cuts” then I’m happy with that.
Thirdly, taxing income once it gets over a set threshold produces a disincentive to ever earn an income which is over that threshold. What is the plan to overcome this? For example, if the cutoff rate at which taxes go from 0% to 9% is $20,000 and the tax remains is a flat tax and not a progressive tax, then people earning $20,000 are worse off than people earning $19,999 as people earning $19,999 would pay no tax and would keep their entire income, but people earning $20,000 would pay $1,800 in tax and would therefore only keep $18,200. In fact, people would have to earn $21,979 in order to take home more than people earning $19,999 ($20,000.89 would be the net income of someone earning $21,979).
At low levels, this might not be a huge disincentive to earn more, but it’s still a disincentive. If the proposal is to make the first X amount of income a “tax free” amount and just tax the rest, this solves the problem entirely, unless of course the plan involves a tax free threshold until people reach certain income levels, in which case the disincentive would be shifted to a higher (and arguably more economically dangerous) level of income and we would be seeing the start of a whole new progressive tax, which I would be unable to support.
At this time, Herman Cain’s website does not explain the details of this, which I find a tad odd given that he noted on Twitter  that this announcement is the “last part of my 999 plan for Revitalizing America”. That said, his website does tend to be a little bit behind the eight-ball on his announcements, so I’ll give him a little time to publish the details. I do eagerly await those details though as my ongoing support may hinge on some of them.