Why Herman Cain’s 9-9-9 Plan is Actually 9-9-9-9-9

Ask Herman Cain a question about economics and you’re bound to get an answer containing the phrase “9-9-9”.

Or various forms of “I don’t know” but I think that’s mainly for foreign policy and sexual harassment allegations.

Unfortunately for Herman Cain, 9-9-9 is actually a complete lie. Nevermind the fact Cain likes to deny that relatively poor people will have to pay much more in taxes than before if his tax code is actually revenue neutral, but there are actually two more 9’s in his plan that he conveniently forgets to mention. The first is unique to Herman Cain, and the second is a tax all politicians like to overlook.

Peter Schiff exposes the 4th 9 by pointing out Cain’s “plan eliminates the deductibility of wages and salaries from corporate income.” The effect this produces is a brand new 9% payroll tax. To explain this more clearly, Cain’s plan eliminates the entire tax code and replaces it with a 9% personal income tax, 9% sales tax, and 9% corporate tax. However, by eliminating the deductability of wages and salaries from corporate income, an additional 9% payroll tax is created, because corporations will essentially pass on this tax to the wages of wage earners.

For example, take our current payroll taxes for Social Security and Medicare. A common belief is that the employee pays half of these payroll taxes and the employer pays the other half. But the actual truth is that 100% comes out of the employee’s income. The half that the employer pays also simply comes out of the employee’s wage because the employer will now pay the employee a lower wage to make up for the fact that he/she now needs to pay a payroll tax. The same effect is produced by eliminating the deductability of wages/salaries from the corporate income tax (corporations will lower wages by whatever amount they have to pay in additional taxes because of the elimination of wage deductability).

As for the 5th 9:

Notice Ron Paul and Rick Santorum (probably because of Paul’s reaction) snickering when Cain gives his answer. I think it would be safe to say we would have an additional 9% inflation tax if Cain was in office. Greenspan blew up two of the biggest bubbles in our history, the dotcom bubble and the housing bubble. Actually, 9% is probably an understatement, I think it’d be more responsible to call it something like 9-9-9-9-20 (perhaps still understating).

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Posted on November 19, 2011, in Economics, Politics and tagged , , , , , . Bookmark the permalink. 6 Comments.

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