We’ve Heard This One Before

Herman Cain, the new GOP front-runner following recent polls has a tax reform plan that has a catchy name – “9-9-9” – but the simplistic moniker is merely another flawed ruse by the corporate-friendly candidate that incorporates the equally flawed practice of  trickle down economics.

The plan would replace the existing complex tax code where it would appear that all people are treated equally

– A flat 9 percent income tax for everyone – no more, no less

– A 9 percent tax on corporations

– A 9 percent national sales tax

But the catch lies in how the rich will actually be impacted by this plan.  Analysts say the wealthy would gain while low and middle income families will lose out on Cain’s Plan.  Why?  As Think Progress illustrates, people who make under $100,000 will be impacted by all three “9’s” in Cain’s plan where the wealthy will be able to avoid a lot of it, keeping more of their income.

[M]ost Americans will end up paying all three of those taxes, for a combined tax rate of 27 percent of their income.

That’s because middle and low-income Americans get all, or nearly all, of their income from ordinary wages — all of which would be subject to Cain’s 9 percent wage tax — and then they spend all of their income, which means it would be taxed again by the 9 percent sales tax. Finally, the burden of the 9 percent business income tax would be passed on to them as well, either in the form of lower wages — since wages are not deductible — or in the form of higher prices for goods and services.

The bottom line is that most Americans will pay all three of Cain’s taxes, making their real federal tax rate 27 percent. Compare that to the current tax code, under which someone in the bottom quintile pays two percent of their income in federal taxes and someone in the middle quintile pays 15 percent.

[W]ealthy people get a lot of their income from capital gains — which are exempt from the wage tax — and they don’t spend all of their income, so anything they save won’t be subject to taxes either.

Today, someone in the richest 1 percent typically pays about 30 percent of his or her income in federal taxes. Since people at the top of the income ladder make about half of their income from capital gains, and only spend about half of their income in a given year, their tax rate would drop all the way down to 13.5 percent. That’s even lower than what middle-income people pay today.     SOURCE  

What’s missing here too, that may be more important to the generation known as the baby boomers, is that this plan eliminates the pay roll taxes for social security and medicare.  Without going into too much detail Cain is on board with the Paul Ryan Plan that would phase out Medicare/Medicaid as we know it and promises to initiate a voucher system to enable low income families to provide for these services on their own through the private sector; a solution that critics have pointed out will cost more for future generations because it fails to adjust for ever increasing medical costs.  Presumably too, Cain is a supporter of privatizing Social Security, a scheme that could allow investment-challenged people to lose most of their savings in the speculative volatile markets.

Herman Cain boasts how the average family would have an extra $4000 in their pocket to invest in retirement plans and buy health insurance but ignores the fact that his plan would cancel out about the same amount with the elimination of the child tax credit.  Add to this an increase in food taxes that amount to an additional $2000 and that plus of $4000 changes into a negative.  One reports estimates that a family of four with an income of just under $50,000 could end up paying $2,725 more under Cain’s 9-9-9 plan.

But never fear.  Trickle down is here (again)

The Cain campaign says that his plan will not hurt people with lower incomes because under his plan employers would save $4,000 in social security taxes.  That money could then be passed along to the employees creating a system in which everyone benefits. – SOURCE 

In a previous article I presented the argument that supports the belief that the wealthy don’t necessarily allow their gains from tax cuts to trickle down to the rest of us.

The Moody’s research covering couples earning more than $210,000 found that spending by the wealthy is more likely to be influenced by the ups and downs of the stock market than changes in income-tax rates.

Stock-market performance is the “primary factor that is driving the savings of the top 5 percent of households,” said Mustafa Akcay, economist and co-researcher of the savings data.

Some economists voice caution about the promised effects of a change in tax rates. The nonpartisan Congressional Budget Office in January analyzed policy options and possible short- term effects on growth.

“Policies that temporarily increased the after-tax income of people who are relatively well off would probably have little effect on their spending because they generally would be able finance their consumption out of their income or assets without such a change,” CBO director Douglas Elmendorf testified to Congress on Feb. 23.

On the other hand, tax relief for families with “lower income, few assets and poor credit would probably” spur spending, he said. Elmendorf said because of job losses and a drop in assets over the past two years more families “probably fit that description now.”  Source

Only a fool would continue to promote the benefits of supply side economics, better known as trickle down.  It all began under Ronald Reagan during the 80’s and since that time income for the top 1% as multiplied 4 fold while either remaining unchanged or even decreasing for most every other American wage earner.

Supply siders argue that tax increases, especially on the wealthy have a negative impact on efficiency.  They insisted that “lowering taxes would cause output to go up enough to lift all boats substantially.”  But Mark Thoma with the Fiscal Times points out the fallacy with this, using the Bush tax cuts as a model.

The economy did grow after the Bush tax cuts, but the rate of growth was unremarkable, especially for jobs, and there’s little evidence that they caused large increases in output growth, as promised.

In fact, there’s little evidence that the Bush tax cuts had any effect at all. The trade-off simply wasn’t there.

And the tax cuts at the upper end of the income distribution did nothing to correct for the fact that although worker productivity was rising, wages remained flat — a problem that began in the mid-1970s.

This was an indication that something was amiss in the mechanism that distributes income to different members of society. Workers were helping to increase the size of the pie, but income did not trickle down, and their share of the pie was no larger than before.   SOURCE

It is this failure by those in the GOP-Tea Party like Cain to recognize the short comings of trickle down economics, raising the issue of their credibility and their sincerity to enact policies that will have real and lasting change that will restore an economy where the middle class is slowly becoming invisible.


Income Inequality is Hobbling the Middle Class

So you Think You Want to Dump Social Security for a Private Retirement Plan?  Think Again

GOP Presidential Hopefuls Flat Tax Proposals — A Big Handout To Wealthy 

I Support Occupy Wall Street




6 responses to “We’ve Heard This One Before

  1. Great piece! I think if we can more bloggers out there to put this in the forefront it will help not only shift the reporting in media but help the OWS movement bring this kind of belief/legislation into light.

    Also, I am very humbled that you would list my piece on this issue and think what I wrote was worth sharing :-). I thank you!!

  2. And yet, here we are in 2011 still entertaining the idea that candidates who believe in trickle down are worthy of holding office. Don is right, though. There is no way that 999 plan will ever gain traction no matter how many times Cain tweaks it.

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