Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.
Tuesday, October 11, 2011
HERMAN CAIN'S 9-9-9 PLAN
heard about the tax plan proposed by Republican Presidential candidate Herman
Cain (aka “The Black Walnut”)?He calls
it the “9-9-9 Plan”.
to Cain his 9-9-9 system would raise as much revenue as the existing federal
income, corporate, and payroll taxes and could bring in additional revenue by
boosting economic growth.
from Cain’s campaign website, are the basics of the plan -
Flat Tax – 9%
1.Gross income less all investments, all purchases
from other businesses and all dividends paid to shareholders.
2.Empowerment Zones will offer additional deductions
for payroll employed in the zone.
Flat Tax – 9%.
1.Gross income less charitable deductions.
2.Empowerment Zones will offer additional deductions
for those living and/or working in the zone.
Sales Tax – 9%.
9-9-9The “Fair Tax” would ultimately replace the 9% individual and corporate
income taxes.I assume he means the FairTax proposal for a national sales tax that has been around for a while.According to its website -
FairTax plan is a comprehensive proposal that replaces all federal income and
payroll based taxes with an integrated approach including a progressive national
retail sales tax, a prebate to ensure no American pays federal taxes on
spending up to the poverty level, dollar-for-dollar federal revenue neutrality,
and, through companion legislation, the repeal of the 16th Amendment.”
Cain summarizes the results of his plan -
ends the Payroll Tax completely – a permanent holiday!
capital gains tax
the Death Tax.
double taxation of dividends
nearly all deductions and special interest favors
Let me begin by stating that I would not vote for
Herman Cain for President.I will never
vote for anyone who openly supports the “Tea Party” movement.
While the 9-9-9 Plan is obviously a gimmick, it does
deserve careful consideration.
I doubt the flat 9% tax rates for federal income,
corporate, and sales tax would actually work, especially if it must also
replace the current Social Security and Medicare payroll taxes, although I, as
Cain is fond of saying, “don’t have facts to back this up”.But “The 9-9-9 Plan” sounds better than “The 10-15-6
Plan”.At least he didn’t call it “The
I do like the “flat tax” aspect of the plan.And I like the fact that he does away with all
loopholes and “tax expenditures”.However, he does not mention whether some of these expenditures
currently affecting the 1040, such as the tax benefits for college, the energy
credits, and perhaps even a form of the Earned Income Credit, would continue as
direct grant programs.
On the corporate level I also support a “dividends
paid deduction”.However I would apply
any flat corporate tax to net book income (without a deduction for depreciation
of real property).I do not support a “gross
income” tax for corporations.Currently
a NJ corporation, with high gross income but no actual taxable income, can pay
as much as $2,000 in state corporate tax (again on actual income of “0”) – and this
is not fair.
I do not know what he means by “gross proceeds less
all investment”.Does he mean investment
in equipment, such as a 100% Section 179 deduction?I am not sure if I support this aspect.
On the individual level, if you do away with all
tax expenditures why keep the deduction for charity?The charitable deduction is most effective at
higher levels of tax.I do not think that
taking away the deduction for charitable giving under a low flat rate would
substantially reduce contributions.
It is assumed from the plan outline that there
would be a “0” tax rate on capital gains (I assume long term).While I do favor a lower tax on capital gains
(or “more better”, in my opinion, a return to the capital gains deduction, at
one time 50%) I do not support a “0” tax on capital gains.Warren Buffet would pay practically no
federal income tax!
I would want to consider keeping the deduction for
contributions to retirement plans, or some kind of “universal savings plan”
that would cover medical costs, education, and retirement, but would be willing
to do away with all other deductions under a 10% or similarly low flat tax.And I would do away with the deduction for
depreciation of real property on Schedules C, E, and F.
I especially like the fact that under a flat tax we
would no longer have a situation where nearly 50% of Americans pay absolutely
no federal income tax.
A national sales tax, as long as it is low enough,
is not a bad thing.One of its major
benefits is that it would collect tax from the current “underground economy”.A drug dealer who does not pay income tax on
his earnings, or a self-employed businessperson who under reports his income,
would still be required to pay sales tax when he buys an expensive car.And, as most states already collect state
sales tax, it would be easy to administer.A side benefit of a national sales tax could be standardized national rules
for what is subject to state, and federal, sales tax.
If there was something similar to the 9-9-9 plan in
place I definitely would not eventually replace it with the Fair Tax as