Mr. Cain’s “Let Them Eat Used Cake” Plan
I am told that in my “Cain’s ‘Simple’ 9-0-9 Plan Variation and ‘Opportunity Zones‘” I was a little tough on Mr. Cain.
So to balance things out, let me review an article that comes — somewhat — to the defense of Mr. Cain and his x-x-x Plan. It is from an unlikely source, TIME’s Fareed Zakaria.
Starting with the premise that “Herman Cain’s “9-9-9” plan isn’t perfect, but it’s less crazy than you might think,” Zakaria laments the “universal scorn from pundits” Cain’s plan has invited and gives a few examples.
While Zakaria claims that Cain’s plan is “sloppy and, in parts, bizarre,” he believes that “the impetus behind it–tax simplification and reform–is not.”
He then discusses each of the three 9s, albeit not in the order of the 9s in Cain’s 9-9-9 formula, which is somewhat confusing.
Zakaria especially likes Cain’s “final 9,” a 9% consumption task, which he calls “a policy wonk’s dream.” One of the reasons Zakaria likes this “consumption tax” is that:
Americans consume too much, often using credit and leverage to do so. A consumption tax would moderate this behavior. Government will always get less of behaviors it taxes and more of what it subsidizes.
Zakaria does not mention Cain’s magnanimous gesture to those poor Americans who under his plan will have to pay a flat 9 percent federal sales tax on top of any existing state sales taxes. Cain suggests that those people will just have to buy used things: used cars, used clothing, used toys for their children etc. In other words, Cain says to the poor, “Let them eat cake–used cake that is.”
Zakaria concludes with his own “flatter,” a bit more complex version of Cain’s 9-9-9 (or 9-0-9) plan and calls it the “the 9-18-27-18-9-50 plan” :
Nine% for the first 90% of Americans, 18% for the next 9% (incomes starting at $150,000) and 27% for the top 1% (incomes starting at about $500,000). I would keep a few straightforward deductions–state and local income taxes and charitable contributions. I would lower the corporate rate to 18% and impose a VAT of 9%. Finally, I would enact a 50% inheritance tax, because nothing is more un-American than an inherited elite that perpetuates itself.
No, Mr. Zakaria, we don’t expect your plan “to catch fire on the campaign trail anytime soon,” just as we don’t expect Mr. Cain’s “simple” plan to catch fire in low-income America anytime soon –or ever.
Graphic, courtesy Dr. Estés
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Told ya 9-9-9 would be an adjustable concept. Odds are we will have to endure every possible variation imaginable until Herman Cain gets the nomination.
We need Herman Cain on every talk show possible to get answers to questions about his economic proposals. Otherwise all of these wondrous indictments of conservative fiscal Voodoo will be lost into some vague historical context.
The reality is that a consumption tax is the only truly fair tax — if you have money and spend it you pay tax — if you don’t have money to buy, you don’t. Under a consumption tax, the rich will continue to pay the lion’s share of tax and ALL American’s will have control on how much tax they pay.
My only variation would be to exclude fresh food, basic clothing, and entry level housing/rent.
Consumption tax is not fair clarkk. If I make $20k/year, chances are I have to spend every penny on stuff I need. Which means the full $20 gets taxed at, for the sake of easy math 10%, so I pay $2k of my 20K in consumption tax.
Meanwhile, another person makes 100k. This person is able to spend 60k/year on stuff, and save the remaining 40k. Which means he pays $6k/year in consumption tax. Makes 5x, but pays 3x. I would also add that $2k out of 20k means a lot more to someone than 6k out of 100k in terms of quality of life and opportunities. So no, I really do not see how consumption tax is not a bigger burden on poor people than it is on rich, which means its unfair.
The very core of the Republican’s platform is tax relief for the rich, to shift the tax burden from the rich to everyone else. They don’t believe in tax reform to simplify taxes, for the most part they are the ones who made the tax code so complicated. They constantly wrote deductions into the tax code because deductions flatten the progressive tax, lowering what the rich pay.
They are only interested in tax reform that shifts the burden of taxes from the rich.
The Federal income tax is less 20% of the total taxes collected in this country. The inheritance, capital gains taxes are barely a blip and corporate taxes are less than 10% of the total Federal taxes collected, down from 40% in the 1950′s. As a percentage of total taxes collected it is barely 5%.
But these are the taxes that the Republicans harp on, less than 25% of the total. Why, because these are taxes paid by the rich.
So much more that is wrong here.
Wrong. Income taxes don’t discourage increasing income. Inheritance taxes don’t discourage inheritances. Capital gains taxes don’t discourage capital gains. Corporate profits taxes don’t discourage corporate profits.
But consumption taxes do discourage consumption. And consumption is fully 70% of our economy. How much do you think that a 9% consumption tax will set the economy back? How much of a recession are you willing to endure to cut the taxes of the rich? Cain is willing to cause a large one to lower his taxes.
Since federal taxes are already built into the cost of products and those taxes will change, an added 9% consumption tax would not necessarily mean a 9% increase in the final cost to the end consumer . The cost of products before taxes will change although I don’t have good sense of what that change would be.
As far as lower-income people having to buy used cars, I buy used cars now. When I was just starting out I bought clothes, furniture and toys for my kids at garage sales. Little did I know I was being disrespected.
merkin does make a good point that by taxing consumption you discourage consumption, and now is a dicey time to do that. In the long run though the underpinnings of the recession were due partially to excessive leverage and discouraging that would be a positive. No easy answers here.
Recessions happen when the upper classes have done too good a job of moving money from the middle class to them. When the middle class runs out of money, DEMAND ceases. Company sales slacken. And by this time, since the money is at the top investment markets are overcapitalized, meaning that people with the money have begun to invest heavily in risky stocks or growth vehicles created to give those at the top something to invest in. All the sensible things having long since been invested in.
Once the demand slackens, the “Bubble” bursts depending on whatever form the risky new investment vehicles took. When the money returns to the middle and lower class, the economy will boom again and the cycle will repeat. Next time you are looking for the right time to cash out of the markets, just look for when people seem to be dumping lots of money into a new seemingly unstoppable investment. Wait until the middle class has spend about as much as it can. That’s when you get out because the whole thing is about to fall.
slamfu I would say one way to help that situation would be not to bail out those who engaged in risky investments.
So Cain has you all thinking about a flatter more inclusive type of tax without the myriad of loopholes and deductions/subsidies. Is that a bad thing? Remember Simpson-Bowles and how this Obama initiated committee was completely ignored.
How many campaign plans are drastically altered or forgotten when someone gets elected.
(Hows that Gitmo and visiting Syria and Iran thingey working for you.
Personal attacks on candidates are not cool.
@ DaGoat
I would agree except there is one major problem. After the Graham/Leech/Bliley act commercial banks were once again allowed to play in the stock market. Their accts are FDIC insured, which means we sorta had to bail them out no? Not only could they engage in the types of shenanigans that led to the crash of 1929, this time they were officially being bankrolled by the taxpayers. We had no choice.
And of course we’d all like simplification of the tax code. But lets face it no one is going to try pass that one because the people who do that are paid by the people that asked for all those loopholes and tax shelters in the first place. We can make no meaningful change to the tax code until money is no longer considered free speech, or some other method is devised to make bribery illegal again.
Brokerage accounts are SIPC-insured, not FDIC-insured. SIPC doesn’t protect against devaluation of assets, so the government wouldn’t have been on the hook for those losses. Correct me if I’m wrong but I don’t see the FDIC aspect as a major problem.
“Cain suggests that those people will just have to buy used things: used cars, used clothing, used toys for their children etc.”
Cain probably doesn’t realize that “those people” are already doing just that. The number of such stores are at an alltime high, and even their prices are going up as are prices at the giant discount chains like Walmart, Meijers, Target, etc. We all know about high food and gas prices, but even the general merchandise that used to be cheap, cheap, cheap (almost all made in China of course) is getting out of reach of “those people”. Apparently there are a LOT of people (like Cain and his fellow R’s) who have no grasp of just how many people are trying to survive on 20K a year or less. Or maybe they just don’t care.
DaGoat
If Bank of America, Wells Fargo and the other commercial banks went out of business what would have happened to the personal accounts they held? The FDIC would have had to step in just like they have 84 times this year with smaller banks that have gone belly up because of losses from their bad investments, and the taxpayers would have to cover the losses. The losses from the investment side were so massive they were going to tank the entire organization.