Cain: Time for me to be a job creator

Jan Brewer: “Why don’t you illegals all head out to California and Texas? You won’t have Sheriff Joe to harrass you and they have governors who are bleeding hearts – not a mean old witch like me. They will welcome you with open arms and give you lots of goodies.”

InkyBinkyBarleyBoo on October 13, 2011 at 6:56 PM

Jan Brewer to Christine O’Donnell: Sorry, I AM a witch!

Steve Z on October 14, 2011 at 9:42 AM

No endorsement by Laffer. And it appears that Laffer was only commenting on the 9% corporate tax rate, not the 9% income tax and 9% sales tax. Same with Ryan. No endorsement of 999. Misleading headlines out there.

huckleberryfriend on October 13, 2011 at 6:12 PM

I’m not sure what Laffer and Ryan might have said, but the Cain 9-9-9 plan needs some serious adjustment before it will pass Congress.

If any candidate has a plan that robs Peter to pay Paul, it will only pass Congress if there are more Pauls (winners) than Peters (losers).

In deciding whether to support Cain and his 9-9-9 plan, people will compare his plan with the current tax system, and decide whether they’re Peter or Paul.

If Cain imposes a flat 9% income tax and 9% sales tax on EVERYONE, the total tax rate is 18%, but they would save the 7.5% payroll tax that Cain would eliminate. People who pay more than 10.5% of their income in income tax under the current system would benefit from Cain’s plan (Pauls), and those who pay less than 10.5% income tax would be hurt (Peters).

Although millions of taxpayers are in 15% or 25% MARGINAL brackets, how many pay more than 10.5% of their gross income in Federal income tax? Actually, not many, because everyone gets the standard deduction and personal exemptions tax-free, plus $12,000 taxed at only 10% (thank you George W. Bush), and people with children get $1,000 CREDITS.

Let’s assume a “typical family of four” with husband, wife, and two children which does NOT itemize deductions. Standard deduction is $11,400, four personal exemptions x $3,650 are $14,600, meaning that the first $26,000 of income is tax-free. If I represents their total income, their Net taxable income (N) is

N = I – 26,000

Let T represent their Federal income tax from the tax table, but since they get $2,000 in child tax credits, their actual Federal income tax is T – 2,000.

Such a family would prefer Cain’s 9-9-9 plan if they pay more than 10.5% of their Gross income in Federal income taxes, or

T – 2000 > 0.105(N + 26,000), or
T > 0.105 N + 4,730

According to the 2010 Tax Tables in the instructions to Form 1040, the “break-even point” where T = 0.105 N + 4,730 is N = $85,250 (NET taxable income), which would correspond to a gross income of 85,250 + 26,000 = $111,250.

Families making less than $111,250 per year would be net LOSERS (Peters) under Cain’s 9-9-9 plan, and those making over $111,250 would be net winners (Pauls).

Since the median family income is less than $50,000 (by definition of the median, 50% of families make less than the median), and another sizable fraction make between $50,000 and $111,250, it follows that a substantial MAJORITY of families would be HURT by Cain’s tax plan, and would not support it if they did the math.

This doesn’t mean that there is no merit to Cain’s plan, but that it needs fine-tuning. Lowering the corporate tax rate (say to 15%) would make America a competitive place to do business, and would encourage multi-national corporations to stay in America and/or move to America. Changing to a flatTER income tax would help by not discouraging wealthier people from buying expensive goods and services that put other people to work. Doing away with the corporate payroll tax would lower the cost of hiring people, and bring more taxpayers into the system.

But the sudden imposition of a 9% national sales tax would clobber the poor and middle-class, and most people would reject it, unless exemptions were made for necessities such as food and clothing. In addition, a large sales tax would suddenly make goods sold in the USA 9% more expensive, which could cause people living near borders to buy cheaper goods in Canada or Mexico, and this could spur short-term inflation and a devaluation of the dollar, which would make imported goods (including oil!) more expensive. IMHO, any national sales tax would have to be imposed gradually, at no more than 2% per year, to avoid serious short-term shocks that would outweigh long-term benefits.

Cain’s 9-9-9 plan is a good starting point, but Michele Bachmann is right–there ARE some devils in the details. Herman Cain now needs to do some homework and research and revise his plan with extra “details” so that a majority of voters will find it better than the current system.

Steve Z on October 14, 2011 at 10:38 AM