Thursday, October 20, 2011

The 9-9-9 tax and the flat tax

Herman Cain has gotten a lot of attention for his 9-9-9 tax plan. I've looked into one part of the plan and decided I can't support it. Your responses are appreciated.

The plan is close to the Fair Tax that was discussed a few years ago. I confess, I didn't study the Fair Tax as I felt it had near-zero chance of being passed. I was forced to go look at it some. From what I've read the 9-9-9 plan has not laid out all the details and someone pointed me to the "prebate" part of the Fair Tax for more information.

The problem is that low income people today pay no income tax and will be forced to pay sales tax under 9-9-9. This additional burden on low income people would be offset (under the Fair Tax) by a "prebate", money given to them at the beginning of each month.

However, there is no mention of what happens to the current EITC and it appears to be eliminated. For those unfamiliar, the EITC is a refundable tax credit given to low income workers. The amount of the credit is based on the family size and the amount a person works. As the person's income increases, the EITC increases until it reaches a mid-point. Then it decreases, slower than the increase, until it gets to zero. Think of a standard curve, slightly skewed to the right.

EITC has been touted as "workfare, not welfare" because it encourages people to work. If the person has no earned income, they have no EITC. None other than conservative President Ronald Reagan pushed this program. You may not think the EITC is fair or that some people pay no income tax is not fair, but that's not part of my discussion today. Today, the EITC is the law and it gives low income workers additional cash. Taking that away may be revenue neutral to the government, but not to individuals.

Any tax plan that involves eliminating the EITC should include a plan (tax or otherwise) to address program. If a candidate decides not to replace it, he/she should clearly state that.


David said...

Herman Cain seems to be the candidate equivalent of the stereotypical used car salesman. He's big on trying to use gimmicks to gloss over very complex issues, highlighting the good while refusing to acknowledge that the bad could even theoretically exist.

I've seen many different takes on the 9-9-9 plan (I guess it's modified to 9-0-9 now) from vary diverse people. The one constant seems to be that everyone taking a closer look at the plan comes away with serious, yet different, concerns. It creates new taxes, it opens the door to future tax increases, it doesn't bring in enough money, it raises taxes on the poor, it cuts taxes for the rich. Those criticisms alone reach a broad spectrum of voters, and those are just the ones I've heard repeatedly.

I think it's a remote possibility that Herman Cain wins the Republican primary, with his chances in the general election at next to nothing. More likely, I expect him to burnout and fade away long before the first votes are cast.

"The Edge" said...

From what I understand, the 9% sales tax is only on NEW goods (i.e., a new car, but not a used car). In this way, it prevents double and triple taxation. In theory, the 9% business tax also collects more because instead of bigwigs paying lawyers to get rid of their own tax burden at 35+%, they gladly pay the very low 9% (instead of tax loopholes and write-offs allowing them to pay below that - it would be cheaper to pay the 9% than to pay the lawyers). The 9% federal tax is independent from any state sales tax you already pay or don't pay. And one of the key components is supposed to be that it takes a 2/3 super-majority to raise any part of any of the 9's, or so I am told.

Overall, I love the plan, think it is far simpler than the 1000+ page tax code we have now, and in the long run would be much better for the country. While I am a Reagan conservative, I don't see where/how the EITC ever helped me, but then, I am a hard-working, tax-paying citizen....

Just my 2 cents.....rack up 1 vote in favor of 9-9-9.

Randy said...

David, I think the 9-9-9 plan definitely has problems. But I hope this isn't Cain's only claim to fame. I haven't studied his ideas in other areas, so I don't know if I could vote for him or not.

Edge, the EITC never helped me directly, but that's no reason for me to dislike it. My problem is that most recipients don't understand that it's intended to help them move up in the world. That plus the elimination of the advanced EITC means that the program is totally misunderstood.

However, any candidate who wants to eliminate it needs to explain his/her reason or provide an alternative. If they don't, it shows they either don't understand it or are hoping we don't notice.