COMMENTARY | Republican presidential candidate, Herman Cain -- growing in popularity in the polls -- is touting his 999 plan to fix the economy. Its basic tenets are that individuals and businesses pay a 9 percent income tax and consumers pay a 9 percent federal sales tax. All payroll, estate and capital gains taxes are eliminated.
Republican voters like the 999 plan because it is simple. It's something everyone can understand without the need to interpret the tax code. What most fail to see is that it represents an insidious shift of the tax burden further away from the rich and puts it squarely on the backs of the middle class and poor. Here's a rundown of the effects of Cain's proposal:
Individuals
Taxable income will be calculated as gross income (excluding capital gains) minus charitable donations. That's it -- no deductions for mortgage interest or medical and employment expenses. The wealthiest Americans have always had a mortgage interest deduction cap, so this is not a huge sacrifice. They are also more likely to have health insurance and, therefore, not need the medical deduction. The rich also don't tend to have out-of-pocket employment expenses. They benefit by a hugely reduced tax rate and a complete exemption on capital gains -- which they are more likely to have than the middle class.
Businesses
While Cain stresses this change will help small businesses, it mostly helps large corporations. The tax is calculated on revenues minus expenses, investments and dividends. The big changes are an immediate write-off of capital purchases and the exemption of dividends from corporate taxation. Most small businesses do not pay substantial dividends but large corporations do. This gets corporate profits into shareholders' pockets free, after which they only have to pay 9 percent in personal income taxes on that money.
Federal sales tax
There do not appear to be any exemptions, meaning an automatic 9 percent increase on basics such as food and diapers. Because the rich are more likely to make purchases through corporations, the new sales tax is deductible, so it impacts them far less.
Cain is unaware that tax policy is often used effectively to move the economy or his plan is a calculated move to win over voters with a shell game. Raising taxes on working families will serve to stall the economy, not restart it. Perhaps Cain should take a basic economics course.
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